Time Warner Cable Beats Out Comcast to Post the Lowest Programming Cost per Video Sub per Month at $30.51

Wednesday, June 13, 2012 4:51 PM ET 
Q1 MSO programming costs post fastest growth since 2009

By Michelle Ow

The influence of escalating retransmission fees and increasingly costly sports rights pushed programming costs among three of the largest MSOs up 5.1% year-over-year in first quarter 2012, the fastest annual growth since the 8.7% increase in first quarter 2008.

Unless regulatory pressures or other competitive factors emerge, programming costs are unlikely to decrease; full-year programming costs are still projected to grow in the mid-to-higher single digits, and most likely on the higher end of that figure.

The cost of programming each video sub rose more than $2 in first quarter 2012 compared to the same period in 2011, or up 6.9% on average year over year to $31.61 per month. Comparatively, revenues generated per video sub averaged just more than $75 per month in the quarter.

For the first time since we began tracking the quarterly metric in 2007, Time Warner Cable Inc. beat out Comcast Corp. to post the lowest average programming cost per video sub per month at $30.51. Programming costs per sub also grew at the slowest rate since the first quarter of 2008. Time Warner Cable projects that programming costs per sub will grow 8% to 9% overall in 2012, including the impact of its Insight acquisition, which closed in February.

Time Warner Cable performed best among its peers in keeping video revenue growth apace of programming cost growth. The cost of programming a video sub rose by 4.9% year over year, compared to a 3.2% increase in video ARPU in the first quarter. As a result, the cost of programming a video sub grew 1.5x faster than the residential video revenues generated per video sub.

At Charter Communications Inc., programming a video sub grew 6.4x faster than the monthly residential video revenues generated per sub. The gap stems from an absence of video rate increases in the first quarter. The first full-month impact of rate increases is expected to fall in the second quarter of 2012. As a result, monthly programming costs rose 9.4% year over year to $37.82 per sub, while monthly residential video revenues rose just 1.5% to $71.89.

Comcast programming costs grew the fastest compared to Charter and Time Warner Cable, up 5.4% year over year to total $2.08 billion in the quarter, but slower compared to its programming cost increase in first quarter 2011 (up 5.9%). The increase raised the expense of programming a video sub by $2.19 year over year, to an average of $31.01 per month.

The gap between programming cost increases and video revenue increases widened just slightly this year. Programming per sub grew at about 2x the rate of video revenues per sub in the first quarter of 2012, up slightly compared to a 1.8x ratio in the first quarter of 2011.

The increase in first quarter 2012 was driven by de rigueur rate escalators and by Comcast's aggressive plans to extend and expand content onto multiple platforms. A number of scheduled carriage renewals should contribute to faster growth rates in the upcoming quarters.

Multichannel Market Trends is a regular feature from SNL Kagan, offering exclusive research and commentary.