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Time Warner: Adds from Ads

5/03/2008 2:00 AM Eastern

Time Warner Cable put up its best quarterly growth in video subscribers in two years, announcing a net addition of 55,000 basic subscribers, which the company attributed to a stepped-up marketing push starting in mid-January.

Analysts had expected TWC to lose as many as 32,000 basic video subscribers. “Our more aggressive marketing was largely intended to get the word out about our products,” Time Warner Cable president and CEO Glenn Britt said on a conference call with analysts. “The observation was … we weren't being aggressive enough about telling our story, so people didn't know about all the good things we had.”

With the 55,000 new video customers, Time Warner Cable ended the quarter with 13.3 million basic TV subscribers.

All told, Time Warner Cable now has 14.7 million phone, Internet and TV customers; 50% have at least two of those services. That's up from 48% in the prior three months. Nearly 18% of its customers — 2.6 million — have all three.

The cable company boosted marketing spending in the quarter 28%, or $35 million, to $158 million, compared with the first quarter of 2007.

Britt noted that TWC bought more broadcast advertising spots, to reach non-cable subscribers, and introduced a new advertising campaign last week “to debunk competitors' claims with humor and a little bit of an edge” specifically targeting Verizon Communications.

Verizon, however, has taken exception to the cabler's aggressive marketing push. The telco filed a false-advertising suit last month against Time Warner Cable, alleging the cable operator's TV ads make “blatantly false” statements about its FiOS services.

In the first quarter, the company said it saw solid growth in residential high-speed customers, up by 304,000 subscribers to 7.9 million. The operator added 289,000 phone customers to hit 3.2 million.

Time Warner Cable total revenue was up 8%, to $4.2 billion. Net income declined 12% year over year, to $242 million, while operating income rose 10% to $636 million.

And Time Warner Cable delivered on a key metric for cable investors: It generated $339 million om free cash flow, 51% better than the year-ago period. For the full-year 2008, TWC raised free-cash-flow expectations, projecting growth of at least 40% year-over-year compared with previous expectations of 32% growth.

“The bottom line is that Time Warner Cable still strikes us as an attractive investment with a 5.5% free cash yield,” Citigroup analyst Jason Bazinet wrote in a note. He rates the stock “buy/medium risk.”

The strong results came as parent Time Warner Inc. officially announced intentions to spin off the cable company (see Scoreboard, page 20).

September