Time Warner Cable Inc (TWC), DIRECTV (DTV): Cable Subscription Woes and Growth Strategies

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In the first quarter of 2013, cable television subscription services lost a total of 114,000 subscribers. These companies are losing out to Internet television due to its premium content and lower subscription cost. Three of the major television providers are DISH Network Corp. (NASDAQ:DISH), Time Warner Cable Inc (NYSE:TWC), and DIRECTV (NASDAQ:DTV). Each of these companies is taking a different approach to the challenges in the market right now.

Looking for a merger

DISH Network Corp. (NASDAQ:DISH) added 66,000 new subscribers during the first quarter of 2013. This may seem like a strong gain, but the same time last year saw an increase of over 100,000 subscribers. Earnings dipped by 41% per share, from $.80 to $.47. Revenue growth was flat, stalling at $3.6 billion.

The company’s net profit margin dropped from 10% to 5.9%. This is because of rising operating costs. Many of its subscribers are opting to use its DVR system. This service has a much higher operating cost for the company. Revenue isn’t growing as fast as the costs. Plus, the company isn’t gaining as many subscribers. This spells trouble for investors.

On April 15 of this year, the company announced a plan to merge with Sprint Nextel Corporation (NYSE:S). The goal of this merger is to provide customers a “fully-integrated, nationwide bundle of in- and out-of-home video, broadband and voice services.” The offer price is $25.5 billion, which the company has now announced it will fund with a debt offering. If the merger does not go through, the notes will be redeemed.

Sprint Nextel Corporation (NYSE:S) hasn’t been profitable in years. So Dish Network is counting on synergies with cost savings and revenue growth. Sprint lost $4.3 billion last year. Dish Network, on the other hand, made just $637 million. At current levels the company isn’t capable of absorbing Sprint’s income loss. Any investor considering Dish Network must really consider how well it can assimilate and grow Sprint. It will be an uphill battle.

Adding mobile but looking for more

Time Warner Cable Inc (NYSE:TWC) had the same issues in the first quarter that Dish Network had – higher costs and slow growth. For the first quarter of this year, the company’s total revenue grew by 6%. Total net income grew as well, but the total net profit margin slipped from 7.4% to 7.3%. This company lost the most subscribers of the three.

Time Warner Cable Inc (NYSE:TWC)Time Warner Cable Inc (NYSE:TWC) has a mobile application that now has over 4,000 hours of programming. Time Warner subscribers can download the app for Android and Apple Inc. (NASDAQ:AAPL) devices. This is in an attempt to lure more customers to its services by giving subscribers content on the go. This is a great concept but it hasn’t brought a lot of people to the Time Warner service.

There are talks of Time Warner purchasing Hulu, an online content delivery service. At this point it is just a rumor. This could be a good move for the company to add an inexpensive online delivery service.

Time Warner Cable Inc (NYSE:TWC) has had stable profits and growth for the last few years. As far as cable subscription companies go, this is a solid company with a strong history. It just may not be able to continue its strength in to the future without major changes.

A strong international presence

DIRECTV (NASDAQ:DTV) suffers from the same struggles as the rest of the industry. The company saw a year-over-year revenue growth rate of 7.5% in the first quarter of this year. Net income, on the other hand, saw a decline of 5.6%.

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