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Time Warner Cable Earnings Prove Cable TV Is Dying

Time Warner Cable (TWC) may have seen its Q2 profit rise to beat estimates today, but bigger picture the headwinds show continued declines for the cable TV business.

While TWC earnings were up 6.4% and revenue was up 2.7%, the company lost 191,000 video subscribers on the quarter — up from 169,000 last year in the same period. While the high-speed internet business has been powering the company through some of these losses, the details show that Time Warner Cable is seeing slower growth in data subscriptions a with a measly 8,000 new customers vs. 59,000 new additions a year ago.

Shares are rallying over 5% in early trading for some reason despite these details, but any investor paying attention knows that cable TV is dying a slow death — and that Time Warner and competitors like Comcast (CMCSA) will only survive if they can keep charging more for data and growing fast enough to offset video losses.

That’s not a sure thing, either, especially as telecoms like AT&T (T) and Verizon (VZ) are competing both with landline data and wireless connectivity.

Shares of Time Warner Cable are trading at a premium right now on hopes of a merger deal. There has been speculation about a marriage with Liberty Media (LMCA), Charter Communications (CHTR) or Cablevision (CVC) just to name a few, so most of Wall Street isn’t apparently all that concerned with the stand-alone details.

There’s also a big buyback plan in the works, with TWC on pace to repurchase about $2.6 billion in stock across 2013. That will help prop up Time Warner Cable earnings going forward even if growth is hard to come by, and last week’s announcement of a new $4 billion share buyback plan will keep the pressure on.

But at the end of the day, you have to acknowledge that cable TV is dying thanks to streaming via Netflix (NFLX) and Amazon (AMZN) Prime, among others.

So don’t be fooled by the earnings pop. Even if there are short-term reasons to stick with TWC stock on a buyout hope, there are long-term risks for any investors looking beyond the next several months.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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