Liberty Global Loses Fewer TV Subs, CEO Says AT&T-Time Warner Deal "Validates Our Strategy"

Mike Fries Liberty Global CEO - P 2013
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Mike Fries Liberty Global CEO - P 2013

Mike Fries says that John Malone's international cable giant is on track for a stronger second half and that offering fixed and mobile connectivity and having strong relationships with content partners are key.

John Malone's international cable giant Liberty Global on Thursday swung to a third-quarter loss, but reported improvements in other third-quarter financials and continued overall customer gains.

Video subscriber declines in Europe narrowed compared with the year-ago period, with management highlighting strong performances in the two big markets of the U.K. and Germany.

Liberty Global's third-quarter loss of $249.5 million was driven by more than $436 million in derivatives-related losses. In the year-ago period, it had reported earnings of $133.3 million, including a $742 million gain from derivatives.

The company posted quarterly operating income of $902.7 million, compared with $545.5 million in the year-ago period. Operating cash flow, another profitability metric, rose 3.6 percent when rebasing the company's year-ago results, to $2.41 billion. Third-quarter revenue increased 1.7 percent to $5.21 billion on that basis.

Liberty Global added 284,000 revenue generating units (RGUs) in the quarter, down from nearly 320,000 in the year-ago period. In Europe, its RGU adds reached 256,500, down 13 percent from the year-ago period, while in Latin America adds grew 16 percent to 27,200. The group's U.K. cable giant Virgin Media generated 92,000 RGU adds, its best third-quarter result in seven years.

The company's video subscriber losses in Europe in the quarter amounted to 39,000, an improvement over the year-ago loss of 62,000, while it added 5,000 video subs in Latin America.

Beyond the success of big markets, Fries cited the company's efficiency plan as helping its momentum. "We have been doing a number of things to improve our efficiencies, take advantage of the scale we have," he said. "And the investment in mobility [and OTT services] for us is starting to pay off as well."

Fries told The Hollywood Reporter: "Having scale in fixed and mobile is critical if you're going to be in the mobility business. And then having great relationships with the major content providers in the world is going to be critical if you are in the entertainment business. So, we have to play both those cards, and I think we're doing that."

The Liberty Global CEO also said that his team isn't planning to acquire a major content company despite a much-debated recent mega-deal, saying the company's content investments are done market-by-market, case-by-case. And Fries told THR: "In many ways, the Time Warner-AT&T deal validates our strategy, which is cross-platform, fixed and mobile and smart vertical integration."

As of Sept. 30, Liberty Global provided 54 million subscription services to 26 million unique customers in Europe. These services consisted of 22.5 million video, 17.3 million broadband and 4.4 million telephony subscriptions.

The company provided 5.4 million subscription services to 2.9 million unique customers in Latin America. They consisted of 1.7 million video subscribers and 2.0 million broadband and 1.7 telephony subscriptions.

"As we signaled on our last investor call, our third-quarter results reflect the acceleration in operating performance that we anticipated in Europe," said Fries. "Our year-to-date subscriber additions in Europe were up nearly 50 percent, while customer average revenue per user in the third quarter increased 3 percent year-over-year. This growth was due in part to our success with quad-play offers and our advanced video and OTT services."

In Latin America, recently acquired Cable & Wireless continues to draw focus from management. Its third-quarter results were "below our expectations, but we have already started laying the groundwork for improved future performance," said Fries. Liberty Global said it is now targeting $150 million in additional synergies from the acquisition.

Looking ahead, Fries remains bullish. "We told the market we were going to have a better second half after significant investment in our products and our people," he said. "The second half is going to be, and this quarter will be, probably better than people expected."