The cable industry has been on the defensive for much of the year, with large operators facing questions over video competition and slowing growth in broadband. Cable executives tend to have a stock answer when asked about these issues: Wall Street has always worried about competition and new investment, but the industry remains robust. At the UBS Global Media & Communications Conference, Time Warner (NYSE: TWX) Cable CEO Glenn Britt laid out the case for cable and TWC in particular. The key theme: today’s existing triple play is not the end of innovation. The company can continue to innovate and avoid the mire of commoditization. Britt also dismissed the importance of the so-called quad play — for now.
— The case for cable: “I think we have a very good business, and am very confident in the business going forward.” EBITDA was up 12 percent in 2007, and that included the weak Dallas and LA markets, where the company faced extra competition, while investing in infrastructure. These markets are expected to do look better next year. There was record voice business in the latest quarter, and there’s still a long way to go in broadband. “The next big thing we’re going into is the commercial market…. if you look at the market for telecom services, the business market is bigger than residential — we’re just going into it.”
— Advertising market: “Set top boxes are really small computers.” As the industry bring more internet-like services to television, it can capture some of the shift of ad dollars online.
— Video competition: “Each of the competitors are starting to create a different brand identity from each other.” For example, satellite has tried to brand itself around HD. The upshot is that the industry won’t descend into commodity pricing. “We are putting in video switches, which will allow us to have HD… we offer HD for free.” Video switches are in this year’s capital, so no big capex spike coming. Increasing number of customers buying a service from cable, but not buying video. On Verizon (NYSE: VZ) and AT&T, (NYSE: T) Britt acknowledged that the company is feeling competition in select markets, though he offered little on whether FIOS will prove to be a good investment — “a question for shareholders to ask.” While AT&T is doing a bit worse than Verizon, the company will likely get its U-Verse house in order; no idea whether AT&T will buy Echostar.
— Wireless: TWC will not be in the auction. So far, there’s no great demand for a quadruple play coming from cable: “We have a relationship with Sprint, (NYSE: S) in case I’m wrong.” TWC is more interested in the post-voice space — machine-to-machine communications, 4G, etc. Company is currently studying all of this stuff, but won’t make any sudden moves: possibilities include positioning cable as a place for wireless operators to dump data — a mode for wireless data to enter the home. If there’s a good investment down the road, “we might as an offensive move invest in that.” Such a buy could conceivably come as part of a consortium, but not necessarily. Britt also acknowledged Verizon’s move to open up its network, which he said could be “quite significant.” This makes sense, since Verizon’s announcement was geared non-phone devices, the area that’s most captured TWC’s interest.
— New services: Startover: allowing consumers to start at the beginning of a show if they come home late. Catch Up: programmers can offer a whole season online to help viewers came — company can insert fresh ads into old programs automatically.
— Capital structure: “We do have less leverage than our target — first thing is to reinvest in the business.” Company would look at acquisitions at the right price. Because TWX owns an 84 percent in TWC, there are no plans for share buybacks. Also, TWC will not be buying TWX’s preferred stake in Time Warner New York subsidiary.