Time Warner Cable 2014 Annual Report Download - page 44

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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)
Residential Services programming costs represent a significant portion of the Company’s operating costs and
expenses and are expected to continue to increase, reflecting rate increases on existing programming services and the
carriage of new networks. TWC expects that its programming costs as a percentage of video revenue will continue to
increase, in part due to an increasingly competitive environment.
Business Services Segment
TWC offers a wide range of business high-speed data, networking, voice, video, hosting and cloud computing
services. As of December 31, 2014, TWC served 687,000 business customers, including small and medium businesses;
large enterprises; government, education and non-profit institutions; and telecommunications carriers. TWC offers
business services at retail and wholesale using its own network infrastructure and third-party infrastructure as required to
meet customer needs.
During 2014, revenue from the provision of business services increased 22.8% to $2.8 billion, which represented
12.4% of TWC’s total revenue. The Company expects continued strong growth in Business Services revenue driven by an
increase in the number of customers (the result of continued penetration of buildings currently on its network and
investment to connect new buildings to its network) and revenue per customer (due to growing product penetration,
demand for higher-priced tiers of service and price increases). Given the large opportunity and TWC’s still modest share
in business services, the Company has established a target of growing Business Services to exceed $5 billion in annual
revenue by 2018.
On December 31, 2013, TWC completed its acquisition of DukeNet Communications, LLC (“DukeNet”), a regional
fiber optic network company that provides data and high-capacity bandwidth services to wireless carrier, data center,
government and enterprise customers in North Carolina and South Carolina, as well as five other states in the Southeast.
Beginning in 2014, the results of DukeNet, which generated revenue of $116 million during 2014, are included in the
Business Services segment.
Other Operations Segment
TWC’s Other Operations segment principally consists of (i) Time Warner Cable Media (“TWC Media”), the
advertising sales arm of TWC; (ii) beginning in the fourth quarter of 2012, the Company’s regional sports networks that
carry Los Angeles Lakers’ basketball games and other sports programming (Time Warner Cable SportsNet and Time
Warner Cable Deportes and, collectively, the “Lakers’ RSNs”); (iii) the Company’s local sports, news and lifestyle
channels (e.g., Time Warner Cable News NY1); (iv) other operating revenue and costs, including those derived from the
Advance/Newhouse Partnership and home shopping network-related services; and (v) beginning in 2014, operating
revenue and costs associated with SportsNet LA, discussed below. During 2014, TWC generated revenue from Other
Operations of $1.8 billion.
As discussed further below in “—Financial Statement Presentation,” TWC Media sells its video and online
advertising inventory to local, regional and national advertising customers and also sells third-party advertising inventory
on behalf of other video distributors, including, among others, Verizon Communications Inc.’s (“Verizon”) FiOS, AT&T
Inc.’s (“AT&T”) U-verse and Charter. Advertising revenue generated by TWC Media is cyclical, benefiting in years that
include political elections as a result of political candidate and issue-related advertising.
On February 25, 2014, American Media Productions, LLC (“American Media Productions”), an unaffiliated third
party, launched SportsNet LA, a regional sports network carrying the Los Angeles Dodgers’ baseball games and other
sports programming. In accordance with long-term agreements with American Media Productions, TWC acts as the
network’s exclusive advertising and affiliate sales agent and has certain branding and programming rights with respect to
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