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June 4th, 2013

cable a la carteIn a dramatic departure for an American cable company, Time Warner Cable Inc. (TWC) will fundamentally alter its customer relationships. After bundling services for years into 24-month contracts with an initial six- to 12-month discount period, TWC has decided to count on customers’ willingness to pay “full boat retail” for what they really want. Now that landline phone service is going the way of the dinosaur, it’s out, along with one-size-fits-all bundles and confusing price structures. What’s in? This new paradigm of à la carte ordering, of course, along with a hand-picked team to implement it.

You’re the “U” in ARPU

It all comes down to the bottom line, of course, in this case what TWC calls its “average revenue per user,” or ARPU. As long as that acronym trends up, and operations remain profitable, TWC could not care less about losing some subscribers (not too many, of course). While accumulating accounts for the sake of trumpeting “subscriber gains” was once a major goal, Time Warner’s COO Rob Marcus said in a late-April conference call with analysts that now it is “not the right thing to focus on.”  He goes on to add that such monomania is bad for “the long-term health of the business.”

Satisfying customers, with pricing secondary to top-quality product and service, means some former freebies—perhaps TWC’s app for streaming live TV to your CRE iPad rental—may have a price tag now. But customers will be in charge, says Marcus, because they can finally get what they want (mostly), and add different options to a basic TV offering. The service may cost more without the former discounts, but it will likely lack two-year commitments and eventually become the vaunted “Chinese restaurant menu” from which individual channels can be ordered. Of course, this ignores the fact that cable’s not just losing customers, it’s not getting new ones either. If the Internet gets you most everything you want, why pay for TV?

The numbers, crunched

TWC lost almost 120,000 customers last quarter, exceeding the 92,000 predicted by industry analysts, and is in a serious battle for TV turf with Verizon’s FIOS and AT&T’s U-Verse. Despite the three-course menu the cable firms offer—TV, phone, Internet—the bosses want to see ever more home theaters, plasma display rentals, hotel/motel flat-panels, and other televisions streaming their content for that ego-boosting “screen count.” TWC could use some good news, as it also lost 35,000 phone customers (residential) in the first quarterly decrease in two years. But even with a net gain of over 130,000 residential Internet accounts, the last quarter is still an “analytical loser” because TWC was expected to see 160,000 or so.

As the company sputtered through the opening stages of its transition, some nimble moves by its financial brain trust kept the financials surprisingly solid. Forget the disappointing account figures: TWC enjoyed  a good profit last quarter. At $1.41 a share, earnings bested Bloomberg’s $1.37 analyst average guesstimate. Sales were up 6.6% to $5.48 billion, also beating the projections. TWC shares have been relatively stable since the “new thinking” has taken hold at the firm. To CEO Marcus, this signals a generally receptive attitude from investors for the new approach. “A muted reaction” in the press and financial markets is actually “a positive for us,” he said—but “the proof has to be in the pudding.” As always, CRE will keep you posted.

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