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Cable Technology Feature Article

August 02, 2012

Comcast, Time Warner Cable Revenue Show Strategy Differences

By Gary Kim, Contributing Editor

How important is it for telcos and cable companies to find new sources of revenue outside their historic “access” sources? Crucial, one might argue, after looking at second quarter financial results from Comcast and Time Warner (News - Alert) Cable, the two largest U.S. cable operators.

In its second quarter 2012 earnings report, Time Warner Cable earned about 57 percent of its revenue from legacy sources (video entertainment subscriptions and advertising).

Comcast (News - Alert), on the other hand, earned its money in a significantly different way. True, Comcast video revenue has shrunk to about 52 percent of total Comcast revenue, while other access network services now contribute 48 percent, and are growing.

But that is not the important financial fact. Including the NBC Universal (News - Alert) revenue contributions, Comcast earns far less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.

Though there are some important tactical differences between Comcast and Time Warner Cable, including the fact that Time Warner Cable arguably competes head to head with Verizon’s FiOS (News - Alert) services to a greater extent than does Comcast.

Still, the decisive difference is that Comcast has reduced its reliance on its legacy video entertainment revenue to just 33 percent, while Time Warner Cable continues to earn about 57 percent from its legacy video and advertising businesses.

What that might suggest is that tier-one service providers of all sorts, telco, cable, satellite or mobile, might have to move outside the historic set of “access services” each traditionally has built its business upon, to find growth.

Up to a point, each contestant can add important new access services it has not traditionally sold. So satellite providers might move into new services based on mobility. Mobile providers are shifting to a “mobile broadband” growth strategy. Cable now relies on high-speed access. Telcos have added video entertainment.

But that can go only so far. The Comcast example suggests that significant diversification will require moves beyond any “access” service. Ironically, Time Warner Cable once was part of Time Warner, and already had reached the state Comcast has achieved with the NBC Universal acquisition, namely a media company that had significant cable TV distribution operations.

Excluding the impact from acquisitions, residential services revenue growth was primarily driven by an increase in high-speed data revenue, partially offset by a decline in video revenue, Time Warner Cable says.

Time Warner Cable lost 169,000 video subscribers during the quarter. The problem Time Warner Cable faces is that it can augment revenue by buying other cable assets, up to a point. But, at some point, it has to do something quite different.

 Comcast’s second quarter 2012 financial results showed the same fundamental trend seen at Time Warner Cable, namely video revenue growth despite continuing loss of 176,000 video accounts.

Overall revenue of $9.9 billion included growth of total revenue per video customer of eight percent, to $149 a month. But most of that increase was from services provided by voice, broadband access and business services, Comcast reported.

The big challenge for Time Warner Cable, though, is diversification beyond “access services."

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Edited by Brooke Neuman

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