Blog Post

And Time Warner wanted to sell its cable business

Sometime last month, WSJ ran an article about Time Warner wanting to spin off their cable business (Time Warner Cable) as a separate company, and instead focus on the content part of the business. Terrible idea, and hopefully the management realized that after its own first quarterly earnings report.

Quick rundown.

Filmed entertainment, that falls under the purview of Jeff Bewkes, the heir apparent to Time Warner, saw revenues decline one percent to $2.743 billion, and saw earnings decline 27% to $332 million. With DVD sales going to hell, that division is going to get hurt even more.

Cable business (that includes broadband and digital voice) saw revenues increase 61% to $3.851 billion (vs 1Q 2006) and profits zoom 54% to $1.307 billion. Of the $3.851 billion in sales, $971 million came from (Adelphia) acquired systems, and another $212 million from consolidation of Kansas City Pool.

Another bastard child of the dysfunctional content conglomerate, AOL saw earnings go up 27% to $542 million, even if revenues declined 25% to $1.458 billion. (This can’t last – can it?)

Hey Carl, stop heckling Ed Zander. Try your luck again with Time Warner.

Key broadband stats:

  • Residential high-speed data subscriber net additions reached 356,000 in the first quarter taking the total to 7.0 million.
  • Digital Phone subscriber net additions were 234,000 in the first quarter taking the total to 2.1 million.

Disclosure: I write a column for Business 2.0, a magazine owned by Time Warner.

5 Responses to “And Time Warner wanted to sell its cable business”

  1. Om – you should edit the article and mention the major impact that the acquisition of Adelphia assets has had on TW Cable’s financials. Otherwise, you’re not providing an apples-to-apples comparison.

    That being said, you’re spot on that TW has been lucky not to dispose of it’s cable business. The cable business provides distribution that their filmed entertainment and publishing divisions are losing rapidly. Focusing on content is great, but at the end of the day with noise increasing by the day, distribution is the name of the game.

  2. There are a few reasons why selling TWC might be a good idea. Cable will soon be facing a bandwidth problem that may require more network investments. Wall Street won’t look fondly on that, this issue is probably why the Dolans are taking Cablevision private.

    Don’t count out the telco’s video offering. Verizon is installing customers as fast as crews can service customers. Service can’t keep up with demand. Once things become tight with cable, they will begin stepping outside their footprint to offer VoIP services nationwide and that will continue the voice trend to zero.

    That being said, I wouldn’t mind owning a cable company.

  3. I agree that selling the cable division is a bad idea. While the telcos are faltering on their TV offerings, cable is successfully rolling out its VOIP services. Cable definitely has the upper hand in the war (at least currently). As evidence, today AT&T said they had a whopping 18,000 U-Verse customers. By contrast, Comcast signed up 570,000 VOIP customers in the last quarter alone.

    That said, there is a reason why certain elements at TW want to sell the cable division. If they sell the cable division, they could then try to charge the cable division more for TW’s content. Right now, it doesn’t make sense to charge your own division a lot of money for your own content. If they sell the cable division, that would change. And perhaps they feel like they will be able to squeeze more money out of the other cable companies after they get more money from their own (former) business.

    And while the TW numbers are impressive for the quarter, I’m pretty sure they reflect the acquisition of the Adelphia systems. So its not like that big revenue spike was all organically created.