Time Warner Cable Now Earns 43% of Revenue From "New" Sources

In its second quarter 2012 earnings report, Time Warner Cable earned about 57 percent of its revenue from legacy sources (video entertainment subscriptions and advertising). The problem, one might argue, is that the 42 percent of revenue earned from "new" sources includes two sources, namely high-speed access and consumer voice, that have, in turn, become "legacy" revenue sources.

The latest "new" source of revenue is voice and data services for business customers. At some point, that source also will become a "legacy" source.

That points up a larger strategic challenge, namely how Time Warner Cable can continue to grow, as all its "new" revenue sources become "legacy" sources that cannot drive significant growth.

Excluding the impact from acquisitions, residential services revenue growth was primarily driven by an increase in high-speed data revenues, partially offset by a decline in video revenues, Time Warner Cable says.

Time Warner Cable lost 169,000 video subscribers during the quarter.

The growth in residential high-speed data revenues was the result of growth in high-speed data subscribers and an increase in average revenues per subscriber (due to both price increases and a greater percentage of subscribers purchasing higher-priced tiers of service), Time Warner Cable says.

Residential video revenues decreased driven by declines in video subscribers and revenues from premium channels and transactional video-on-demand, partially offset by price increases, a greater percentage of subscribers purchasing higher-priced tiers of service and increased revenues from equipment rental charges, Time Warner Cable also reported.

Residential voice revenues remained essentially flat as growth in voice subscribers was offset by a decrease in average revenues per subscriber.

Consider Comcast, the largest U.S. cable TV company. Comcast now relies on its core legacy service, video entertainment revenues, for about 33 percent of total revenue. How Time Warner Cable could get to similar levels now becomes the issue.