Time Warner Cable lost 306,000 video subscribers, mostly in CBS fight

The fight with CBS left Time Warner Cable with a black eye.

The cable giant said Thursday that it lost 306,000 video subscribers in the third quarter, which includes the roughly 30 days CBS-owned TV stations and the pay-TV channel Showtime were off its systems in Los Angeles and the rest of the country while the two companies struggled to reach a new distribution contract.

Time Warner Cable said it shelled out about $15 million in credits to customers unhappy with the CBS outage. The company was also hurt by subscribers wanting to flee to rival distributors.

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For the quarter that ended Sept. 30, profit at Time Warner Cable was $532 million, a drop of 34% from the same period last year. Revenue increased 2.9% to $5.5 billion, but that was below analysts’ expectations. The revenue gains were from improved results in its business services division.

“The CBS dispute apparently took a much larger toll than anyone would have imagined,” Craig Moffett, a media analyst at research firm MoffettNathanson, wrote in a report on Time Warner Cable’s results.

Many of the big cable operators have been losing video subscribers as consumers jump to rival services offered by satellite and phone companies. Others are choosing to cut the cord entirely and switch to streaming services such as Netflix and Hulu for their entertainment programming.

But the size of the losses suffered by Time Warner Cable indicates the leverage programmers have in distribution fights. Some programmers, encouraged by CBS’ experience, may feel empowered to pull their signals in future fights with distributors if they don’t get the terms they want.

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“Every cable operator now goes to the table knowing that CBS not only won the war but left Time Warner Cable badly damaged even for having fought the fight,” Moffett said. “If you thought the scales were tipped in programmers’ favor before, now you know that it is worse than you imagined.”

CBS launched a massive advertising campaign portraying Time Warner Cable as the bad guy and urging people to call the cable firm and demand that CBS be returned to the system.

The skirmishes overwhelmed Time Warner Cable’s phone centers, which made it difficult for the company to respond promptly to routine sales and technical service calls from its customers.

“The machine was clearly impacted by the disputes,” said Rob Marcus, Time Warner Cable’s chief operating officer.

Still, Time Warner Cable said it believes that the battle with CBS was worth it.

“We do think we are better off with CBS than we would have been if we had not had this fight,” Chairman and Chief Executive Glenn Britt said.

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Although many cable operators are losing video subscribers, most have made up for it by adding broadband and phone customers.

But the ill will toward Time Warner Cable over the CBS situation seems to have bled into those businesses as well. Time Warner Cable said it lost 24,000 high-speed data subscribers and 128,000 voice customers.

The disappointing results come at a time when there is a school of thought within the media industry that further consolidation among cable operators is needed. Time Warner Cable has rebuffed overtures from Charter Communications about a possible merger.

Britt, who will step down at the end of the year, expressed his reluctance to rush into any deals and indicated, without mentioning Charter by name, that he wants to ensure that Time Warner Cable stockholders get top value for their shares.

“We are focused on making money for you rather than just some fuzzy notion of industry consolidation,” he said during a call with analysts.

Britt added that his perspective was shaped by previous mega-mergers, such as those between Time Inc. and Warner Communications and, later, between Time Warner and AOL.

“Despite widely touted strategic and industry merits, both deals were very lopsided in favor of one set of shareholders,” he said.

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