Time Warner Cable's Marcus Sees Programming Costs Rising

Time Warner Cable chief financial officer Robert Marcus said that programming costs will likely climb at a quicker pace in 2009, partly because of expected increases in retransmission consent charges.
Marcus, speaking at the Deutsche Bank Media and Telecom conference in Palm Beach, Fla., Wednesday, said that programming costs rose 6% in 2008.
"Unfortunately, we can't replicate that in 2009," Marcus said at the conference, adding that aside from higher retrans costs, the second largest cable operator in the country also signed on new channels like Big Ten Network and the MLB Network which will also increase costs.
Marcus was bullish on the cable business - Time Warner Cable has said that it expects to grow revenue and cash flow in 2009 at the same pace or better than 2008. Revenue generating units, a combination of voice, video and data customers also will rise in 2009, although probably at a slower pace.
Marcus said for the most part, the economy has had little effect on the basic subscriber base - customers are not switching off their service entirely to save money. But he said that the company has seen some customers shift their existing packages.
For example, Marcus said TWC added 87,000 digital video recorder customers in the fourth quarter, a significant drop from the prior year.
Marcus added that prior to the fourth quarter, the number of customers downgrading their triple and double play packages to lower cost tiers was declining and the number upgrading to higher priced tiers was on the rise.
"Both of those trends reversed in the fourth quarter," Marcus said.
Marcus also said that wireless substitution was having an affect on voice service additions, but added that he still saw plenty of runway for growth in that product. Still, he didn't see voice service penetration - currently at 14.5% -- nearing the same penetration rates as high-speed Internet (31.8%) in the near term.