The No. 2 cable operator took it on the chin this morning after telling analysts in a conference call that rising programming costs and the lack of political ads will ding profits more than many expected. The stock is down 10% at mid-day. The disclosures inevitably led some to wonder whether Time Warner Cable contributed to its problems, at least in Southern California, by agreeing to pay hefty amounts to help create a regional sport channels that carries the Los Angeles Lakers and become a charter distributor for one for the Dodgers. CEO Glenn Britt says he had little choice. “We do not pretend that these deals are inexpensive or cheap,” he said. But sports is must-have programming, and the agreements “minimize and stabilize the cost over a long time period….In both cases these rights were up for auction and were going to be expensive no matter what happened.”
Execs say it’s too early to calculate the hit it will take in 2014 when the Dodgers’ SportsNet LA launches. The upshot, though, is that the vow Britt made last month to draw the line on rising programming costs will mostly affect small channels that few people watch — including Ovation, which the cable company ditched at year end. Britt renewed his commitment to “drop or re-position channels that don’t add to price-value.” Time Warner’s programming costs jumped 32% over the last four years, he says, while the Consumer Price Index rose 9%.
Speaking of dealing with adversity, Time Warner Cable scoffed at the competition it faces in Kansas City from Google Fiber. The search giant provides consumers a cable-like service that includes Internet upload and download speeds of about 1 gigabit per second. Time Warner Cable raised download speed of its broadband service there to 100 megabits per second, which still pales in comparison. “Today there are not applications that require 1 gbps,” Britt says. He acknowledges that “over time speeds will get faster and faster.” But “other than PR and hype, this is not a need for anybody right now.” Execs say that Time Warner Cable hasn’t lost many customers yet, although it expects Google to make a bigger marketing push in the second half of this year.