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Consumer demand boosts cable, satellite TV profits
PHILADELPHIA -- Consumers are feeling more confident about spending on small luxuries such as premium cable services and pay-per-view, propelling the earnings of cable and satellite TV providers upward in the second quarter. Advertisers, particularly automakers, also spent more in the quarter.
Time Warner Cable Inc., DirecTV Inc. and Cablevision Systems Corp. all show healthy upticks in demand for their pricier digital cable tiers, high-definition TV packages and rentals of digital video recorders and movies. They also raised rates, boosting profits.
Even as other industries struggled in the sluggish economy, the subscription TV business -- cable and satellite TV providers and phone companies that offer video -- has not seen much of a downturn.
People have been reluctant to give up their entertainment altogether, and staying home to watch TV is still cheaper than going to the movies.
Of the three, which serve about a third of the nation's TV viewing households, DirecTV gained the most video subscribers, 100,000 in the quarter. Cablevision added 2,900, which is a small number but at least it's not losing video customers as other major cable companies are.
By contrast, Time Warner Cable lost 111,000 video customers in the quarter, as people continued to ditch cable subscriptions for satellite deals. Comcast Corp. saw the same trend last week when it reported earnings.
But of the ones Time Warner Cable kept, more signed up for pricier digital cable packages. Time Warner Cable customers paid an average of $72.56 per month for video in the quarter, up 5.2 percent from the previous year.
DirecTV and Cablevision also said customers paid more per month on average, thanks to price increases and stepped-up orders for pay-per-view, digital TV, HD and digital video recorders.
DirecTV, the largest of the three companies by number of subscribers, says it's bullish about more growth ahead for its U.S. and Latin America businesses.
Consumers weren't the only ones willing to open their wallets a little wider in the quarter. While cable and satellite TV companies make most of their revenue from subscriptions, a small slice still comes from advertising.
Advertising revenue increased 24 percent to $216 million at Time Warner Cable, in part because of more spending by automotive companies and political groups. Cablevision's AMC, IFC and WE TV cable channels saw an 18 percent jump in ad revenue, and DirecTV also said ad revenue rose.
Cablevision's Newsday newspaper was the only drag, down 12.6 percent in ad revenue.
Even as the companies trumpeted strong quarters, they remain concerned about the state of the economy. Time Warner Cable said it saw some weakness in July, the start of the third quarter. And Cablevision noted that the housing market remains soft, which can hurt business. If people move less, they're not disconnecting service in their old home and reconnecting in their new one -- a major opportunity for the TV providers to snag new customers.
In the quarter, Time Warner Cable said earnings rose by 8 percent to $342 million, or 95 cents per share, on revenue of $4.73 billion. Results exceeded Wall Street's expectations.
DirecTV's earnings got a boost from its Latin American operations, which grew faster than the U.S. business in the quarter partly due to World Cup fever. Earnings rose by 33 percent to $543 million, or 42 cents per share. Revenue rose 12 percent to $5.85 billion.
Cablevision's results in the second quarter were similarly healthy. Revenue rose 5.8 percent to $1.8 billion. While net income fell 30 percent to $60.9 million, or 21 cents per share, it was mainly due to a $110 million loss related to paying off its debt and to write off certain financing costs, and other items. Without these items, earnings would have risen.
Shares of Cablevision, based in Bethpage, N.Y., fell by 10 cents to close Thursday at $27.44. Time Warner Cable in New York gave up 64 cents to $58.38 while DirecTV added 90 cents, or 2.4 percent, to $38.80. DirecTV is based in El Segundo, Calif.