TWC CEO Britt Talks Up Benefits of Cable IPTV Plans but Hedges Cost-Saving Expectations

In the long run, it will mean eliminating set-top boxes, Britt said. “This is the way TV is going to be distributed in the future,” he said. But TWC will not use, and isn’t using, the public Internet to deliver its IP video service, he said. Instead it’s simulcasting IP video on its cable system the same way it simulcasts standard definition and HD digital cable programming, he said. The lack of leased boxes could translate into lower revenue for TWC, he said. “If we move to a world without set-tops, we will probably have lower revenue, because we do charge for them,” he said. But TWC will also have lower capital costs, and probably handle fewer customer service calls since about 40 percent of today’s calls are related to boxes, he said. “If we magically snapped our fingers and had no set-top boxes, we would have a somewhat smaller balance sheet, somewhat smaller revenue and probably a more profitable company and much happier customers,” he said.

But Britt threw some water on investor hopes that the IP transition could soon result in lower capital intensity for TWC. “It’s too early to start talking about changing our predictions for capital intensity,” he said. The first smart-TVs capable of handling IP video are just now entering the market, and TWC is working with all the “top manufacturers” to make sure its service is compatible with those devices, he said. “It’s unknown how fast those are going to sell into the market and replace existing TVs,” he said. “My guess is we'll continue to have set-tops for a while, but you can see where it’s going for the long run."

Meanwhile, it’s unclear how consumers will want to watch cable programming outside the home, Britt said. He was asked whether TWC was concerned if consumers watch online video using a TWC-branded portal or using a programmers’ own website or app. “We do plan to have our own portal as we get more TV Everywhere rights,” he said, drawing a sharp distinction between TWC’s in-home iPad app IP video service and the out-of-home TV Everywhere product. “I think it remains to be seen whether consumers will want to go to an aggregated portal, with a retailer’s brand like ours,” or directly to a programmer’s site, he said. Because networks don’t always have the online video rights to their programming, current TV Everywhere offerings are often limited to VOD, he said. “It’s really a different experience at this point,” he said.

Britt wouldn’t discuss rumors that Charter’s Los Angeles systems are for sale other than saying, “We're going to evaluate it like we look at all acquisitions.” That means weighing the cost of capital and potential synergies against all TWC’s other investment alternatives, he said: “We'll come out wherever we come out.” There has been a wave of cable systems for sale, he said. “That in itself should raise a question about what’s going on if you're a buyer,” he said. “Why is everybody selling all of a sudden,” he said.

AT&T’s bid for T-Mobile indicates that scale “may matter in the long run,” Britt said. For now “I don’t think we need to get much bigger.” In any case, most of the systems on the market are not large enough to change TWC’s scale that much, he said.