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The majority of Time Warner Cable’s (s TWC) subscribers and the bulk of its revenue still come from its traditional pay TV service, but that is changing — and fast. As a result, the company is betting on broadband to lead it into the future, due to wider adoption of high-speed data services at the same time TV subscribers are declining.
In an interview with the Wall Street Journal Monday, CEO Glenn Britt talked up the company’s broadband business as the company’s “anchor service” of the future.
“Clearly the relative importance of the video business has declined over time,” Mr. Britt said in an interview. “I think broadband clearly is becoming the anchor service.”
Pay TV services still account for more than half of Time Warner Cable’s top-line revenue, according to the WSJ. But the gap between TV revenues and broadband revenues continues to narrow, as pay TV subscribers depart and new broadband users join. Time Warner Cable lost 130,000 pay TV subscribers in the second quarter, bringing its total down to 12.1 million by the end of June. That compares to 12.7 million pay TV subscribers that it had by the end of last year’s second quarter. Meanwhile, its broadband subscriber count increased to 9.7 million from 9.3 million a year before.
Time Warner Cable isn’t alone — the broader pay TV industry lost a record number of subscribers in the second quarter, due in part to the down economy and weak housing formation. But there’s also the specter of cord cutting hovering over the industry, as a growing number of viewers turn to online video services for entertainment. For a provider like Time Warner Cable, that’s not necessarily a bad thing: After all, those viewers of online video still need a broadband connection to view that content.
It’s not just that broadband continues to make up a bigger portion of Time Warner Cable’s revenue and users, but the margins on broadband are much better than those for TV services. That’s because cable companies share their TV revenues with programming partners, and those costs continue to go up as networks raise rates year after year. According to Time Warner Cable, video programming expenses grew 4.1 percent in the second quarter, to $1.1 billion, due to rate increases and higher retransmission expenses.
While the same is true for most cable companies, Britt’s comments run contrary to most of his peers, who shun the idea of just becoming a dumb pipe. Then again, this won’t be the first time that Time Warner Cable has acted differently than other competitors in the cable TV market.
While other cable companies seek to drive up the price of their subscription bundles, Time Warner Cable last year introduced a new, low-price cable bundle in an effort to court low-income subscribers. And on the company’s most recent earnings call, Britt said there was an opportunity to better segment and market its products, rather than heavily pushing a triple-play bundle to all subscribers.
Courting broadband users as its key demographic instead of pay TV users might not be sexy, but it is an acknowledgement of where the market seems to be headed anyway.