July 31 (Bloomberg) -- Time Warner Cable Inc., the cable company that’s merging with Comcast Corp., reported earnings that trailed analysts’ estimates as Internet customer gains weren’t enough to make up for video subscriber losses.
Second-quarter earnings, excluding some items, rose to $1.89 a share, the New York-based company said in a statement today. Analysts estimated $1.90 on average. Costs for sports programming also cut into profit, and a dispute with competitors over rights to Los Angeles Dodgers games led the cable provider to reduce its forecast for the year.
Time Warner Cable lost 152,000 TV customers in a seasonally weak period when college students typically disconnect their service for summer vacation. Five analysts surveyed by Bloomberg News predicted a loss of 128,000 TV subscribers on average. The company added 67,000 Internet subscribers, better than the 62,000 average estimate.
The results were “a little bit lackluster,” according to Tom Eagan, an analyst with Telsey Advisory Group. “Most customer metrics and financial metrics were below our estimates, especially given the strong numbers we’ve seen over the past couple of quarters,” he said over the phone.
Cable and satellite operators are seeing fewer new video customers as more consumers turn to online streaming or TV packages from phone carriers. In turn, the pay-TV industry is looking to acquisitions to get bigger and keep pace with surging broadband growth.
Time Warner Cable, second only to Comcast in U.S. cable subscribers, is awaiting regulatory approval for the merger, a deal the companies have pledged will boost returns for investors. Competitors have taken notice. After the $45.2 billion transaction was announced in February, AT&T Inc. said it would buy satellite-TV service DirecTV for $48.5 billion.
Time Warner shares fell 4.2 percent to $145.10 at the close in New York. The stock has gained 7.1 percent this year.
Net income climbed to $499 million, or $1.76 a share, from $481 million, or $1.64, a year earlier. Sales climbed 3.2 percent to $5.73 billion.
In the segment of Time Warner Cable that includes sports programming, operating costs rose 56 percent from a year earlier mostly due to costs for SportsNet LA, a channel controlled by the Dodgers. That, plus higher costs for advertising inventory, reduced profit for that segment by 26 percent to $173 million.
Time Warner Cable agreed last year to pay $8.35 billion for 25 years of Dodger baseball games, becoming the charter distributor of SportsNet LA, with responsibility for advertising and sales to other distributors. Competitors like DirecTV have balked at paying the $4 a month Time Warner Cable has sought for the channel, leading Federal Communications Commission Chairman Tom Wheeler to look into the standoff.
“We are willing to enter into binding arbitration to expeditiously bring Dodgers games to fans,” Time Warner Cable Chief Executive Officer Rob Marcus said on a conference call with analysts following the earnings report.
The company cut its forecast for profit growth this year, adjusting its outlook to assume no SportsNet LA deal with other carriers. Adjusted profit will climb as much as 4.75 percent this year, down from an earlier forecast of as much as 6 percent, the cable carrier said today.
“I’m willing to consider some kind of mediation but I don’t yet know what Time Warner Cable has in mind,” DirecTV CEO Mike White said today on a conference call. “Frankly, without the constructive participation of the ownership of the Dodgers it’s hard to see how you’d get any resolution to this dispute.”
Time Warner Cable increased its forecast for capital expenses this year to $4 billion from $3.7 billion after deciding to include Austin, Texas, in network upgrade plans to boost Internet speeds.
Faster download rates and price increases are helping Time Warner Cable charge its customers more. Monthly bills for home users rose 1.7 percent to $106.98 on average, with data charges climbing 9.7 percent to $46.92.
Merger plans among pay-TV companies prompted Rupert Murdoch’s 21st Century Fox Inc. to make a $75 billion bid to buy Time Warner Inc. to maintain bargaining power against TV distributors. While the offer was rejected, major TV programmers are still evaluating how to respond to mergers on the TV distribution side that could affect negotiations of sales of licensing rights to the cable and satellite operators.
Time Warner is the former parent company of Time Warner Cable. The companies are no longer connected.
Should Fox and Time Warner merge, the combined company could reap an additional $1 billion in licensing fees from the pay-TV companies that carry its shows, according to Marci Ryvicker, an analyst with Wells Fargo & Co. Even so, that wouldn’t be a major increase for the cable and satellite companies, which already pay about $38 billion in total programming costs, she wrote in a note last week.
The urge to merge among both pay-TV companies and programmers is becoming more apparent as the number of Americans paying for television fell for the first time last year. The industry altogether lost about 251,000 TV subscribers in 2013, according to research firm SNL Kagan.
“The market’s decline can be traced in part to the growing number of so-called ‘cord-nevers’ -- those who object to ever having a pay-TV subscription,” researcher IHS said in August. “Equally as important, the price of a typical pay-TV subscription remains high, staying well out of reach for a number of consumers.”
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