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Why Time Warner Cable Needs to Sell

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Charter Communications wants to buy Time Warner Cable (NYSE: TWC  ) , and the spat over Charter's offered price went public last week. Regardless of whether Charter ultimately becomes the buyer, Time Warner needs to drop its resistance to a buyout. Time Warner recently announced another subscriber slip as the company continues to fall behind Comcast (NASDAQ: CMCSA  ) . How bad has the subscriber loss gotten? 

During a recent investor conference, Time Warner Cable announced that video subscribers dropped about 215,000 in the fourth quarter, while voice and high-speed data added 15,000 and 55,000 subscribers, respectively. The numbers showed improvements over prior quarters but still don't paint an optimistic picture for the future. And Comcast used the same conference to hint at gains across all service segments.

Two charts can show Time Warner's subscriber-retention problems and why it's time for the company to sell.  

Subscriber battle: Time Warner vs. Comcast 
Time Warner Cable was spun off from Time Warner in 2009, so the cable company has a simpler overall business model than Comcast. Subscriber segments include video, voice, and high-speed data. Time Warner breaks these down into residential and business customers, but I've added the two together to make the data more comparable to how Comcast breaks out its numbers.  

Here's a look at how many net subscribers Time Warner Cable has added -- or lost -- over the past three years: 

Source: Company filings 

That's not a pretty picture. Time Warner hasn't added video subscribers in more than a dozen quarters. But even the once-strong high-speed data segment has dropped to new lows recently. What's driving customers away from Time Warner?

The company hasn't invested as much in its infrastructure as other cable or satellite companies and that's the long-term reason for the subscriber dive. But part of the problem also comes from the steep promotions Time Warner Cable uses to lure in new subscribers. 

During the first half of last year, Time Warner suffered an overall subscriber drop thanks to the expiration of a promotional deal that had lured consumers into signing up for its triple-play service. Those customers cancelled voice -- or the entire service -- as soon as the short-term, lower pricing expired. And early 2014 could suffer a similar drop due to a holiday promotion that offered new and upgrading customers a free Samsung tablet. 

But Time Warner has also suffered from a weakening of the cable industry, as more consumers turn to cell phones instead of landlines or opt out of cable packages in favor of streaming Netflix or Amazon Prime

How has Comcast performed in this same environment? 

Source: Company filings

Comcast's video subscriber retention has suffered worse than Time Warner at points, but that's offset with more stability in the voice and high-speed data segments. And Comcast's cable services still exist as a small portion of a large media company. So, the overall business isn't as reliant on these numbers. 

Foolish final thoughts
Now isn't a great time for any cable company, but Time Warner Cable doesn't have any other business segments to help balance the losses. The company hasn't invested properly in its infrastructure and the current business isn't strong enough to fund that future endeavor. It's time for Time Warner Cable to cozy up to a buyer.  

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Read/Post Comments (11) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 20, 2014, at 3:11 PM, ariannasilver wrote:

    Very interesting article. As a Time Warner cable and internet subscriber, I have no complaints about the content they provide. The constant rate increases and substandard cable equipment is another matter. I've had them for 2 years and I am on my second cable box and second remote. The techs will tell you straight out that "there are a lot of refurbished cable boxes out there." No kidding. And the latest update to the DVR interface is horrible - removed a lot of features that people enjoyed. Not surprising that customers are leaving in droves.

  • Report this Comment On January 20, 2014, at 4:52 PM, hmac59 wrote:

    I have been a Time Warner cable customer forever. Used to be Adelphia before they sold out. My issue is not the service, it is the price. Each time I find a way to get my cable bill down, within a month I'm getting a rate increase for something or another. I have gotten to as basic as I can and still pay almost $150 a month. You would think with all the competition out there, they would be more competitive with their pricing. But they don't care. Customer retention is not at all accommodating. Doesn't matter how long you've been with them. It seems to be that way with many service providers. I appreciate and love all the things I have access to, but wonder if life wasn't easier when things were minimal in options.

  • Report this Comment On January 20, 2014, at 6:53 PM, theox wrote:

    i am fortunate that i have a choice between fios and time warner where i live. i was with time warner over 20 years when they were the only game in town. in the last 2-3 years their service dropped significantly. both the equipment and the software would constantly break down. when they would send a tech he would just shrug and say 'that's time warner. they know about the problem but don't do anything about it' when he couldn't fix it. after the last incident when the high-speed was down for 2 days i switched to fios. they started out relatively cheap but as the promotions expired the price went up as expected. BUT, while the hardware is refurbished, in 2 years there has not been a single incident of down time. i'll gladly pay a little more for dependable service.

  • Report this Comment On January 20, 2014, at 7:37 PM, cranky1 wrote:

    In our area, Time Warner and Comcast have a no-compete agreement to keep competition down. I like the service from Time Warner, but the cost keeps climbing and I'm on the look for an alternative source as we speak.

  • Report this Comment On January 20, 2014, at 8:23 PM, piasabird wrote:

    Looks like a lot of business is having a downward trend in the Cable industry. If it wasnt for the Internet they would probably be going out of business. People just cant afford or dont care to deal with the silly way these cable tv companies sell their TV products. They are all living in the past. People want to watch what they want when they want to watch it. If you dont take care of your customers you might not have any.

  • Report this Comment On January 20, 2014, at 8:26 PM, piasabird wrote:

    When your business goes down hill for 3 straight quarters and you dont sell only your stockholders will lose. Might be a good stock to short.

  • Report this Comment On January 21, 2014, at 9:00 AM, JunieBee wrote:

    I look for all cable companies to fall by the way side.They have gotten so greedy that many people have stopped their service and gone with an antenna either inside or outside.They actually try to convince their customers that cable is a necessity and cannot be gone without.They have lost many thousands of customers and they raise their prices for the customers they have left. Not good business practice. Cable deserves what they get. What goes around comes around and it has come back to bite them.

  • Report this Comment On January 21, 2014, at 1:59 PM, Salandar wrote:

    Your final "thought" is pretty bad for an analyst opinion on a company...there is a core segment of TWC that is growing a very high rate called Commercial....

    Foolish final thoughts

    Now isn't a great time for any cable company, but Time Warner Cable doesn't have any other business segments to help balance the losses. The company hasn't invested properly in its infrastructure and the current business isn't strong enough to fund that future endeavor. It's time for Time Warner Cable to cozy up to a buyer.

  • Report this Comment On January 21, 2014, at 2:17 PM, Bigchefmike wrote:

    I JUST want Full HDTV not 720! for the money we pay it is not to much to ask!

  • Report this Comment On January 21, 2014, at 10:41 PM, TERRORISM wrote:


    Time Warner is a complete joke. The company is run by executives who think they know everything, yet they continue to hemorrhage video subscribers month after month after quarter after quarter. Looks like perhaps they don't know as much as they believe they do, after all.

    Another issue is how they completely throw their customers and employees under the bus. About eight months ago they cut another 500+ jobs just to artificially inflate their bottom line. They WORSHIP their shareholders. Nothing else matters to Time Warner! Even their so-called "leaders" are rude, disrespectful, and condescending towards their employees.

    But what would one expect from a company that promotes someone to CMO simply because his daddy is best golfing buddies with Glenn Britt? Good riddance, Time Warner!

  • Report this Comment On January 31, 2014, at 8:14 PM, LynBetz wrote:

    Salandar: If you're referring to the business segment, there is growth there but the numbers are still very small compared to the residential side.

    Third quarter net additions (in thousands) were 2 for video, 15 for high-speed data, and 12 for voice. The segment's growing but the numbers are still too small to offset the losses in residential.

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Brandy Betz

Brandy Betz has written for The Motley Fool since 2011 and primarily covers health care, ETFs, and dividend stocks. You can follow her on Twitter @BrandyBetz.

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