Charter Communications has managed to curb traditional video subscriber losses better than other cable operators, and CEO Tom Rutledge on Wednesday said a good video offer remains important but warned challenges will continue over the next few years.
Speaking at the MoffettNathanson Media & Communications Summit this week, Rutledge commented on the stickier nature of the cable company’s video base, highlighting that it’s tried to introduce less expensive skinnier packages where possible.
In the first quarter of 2022 Charter lost 112,000 video subscribers, fewer than analysts expected and less than the 138,000 in Q1 of 2021. It also wasn’t as bad as cable peer Comcast, which saw net video subscriber losses increase to 512,000.
“We think having a good video business is important,” Rutledge said, adding that in the long run he sees some upside. “But I think it’s still full of challenges over the next few years, because the fundamental drivers that make it difficult haven’t changed.”
One main element is rising content costs, which the chief executive likened to “stepping in a marshmallow.”
If cable operators raise prices, they lose subscribers and there’s no revenue gain for anyone, he noted. But the amount Charter is charged on a wholesale basis continues to rise, and now content owners have their own difficulties as they look to incorporate assets into direct-to-consumer businesses.
“Where the content is, how you move that content into consumer businesses, is going to be a challenge because you could destroy your underlying opportunity if you do that, which is where all the money still is.”
MoffettNathanson analysts in an April report called out a similar concern, saying the exit of original content on linear TV as owners like Disney, Comcast, Paramount and now Warner Bros. Discovery move more over to streaming services “is a potential tragedy of the commons situation” where they end up collectively damaging the common good of the linear TV bundle.
“Linear network owners are individually moving more and more original content to streaming, which collectively weakens the viability of the bundle for all,” wrote analyst Michael Nathanson in the report. “It is akin to the mistake made when linear network owners individually agreed to sell content to Netflix, which ultimately weakened the linear system that paid their bills.”
To some extent Charter tells its customers base “this is really expensive television, it has to be sold this way” in fairly big pricey packages because of how the content owners want to sell it, Rutledge said. He indicated it simply “is what it is” and many consumers understand that. But doesn’t see the way negotiations happen changing much in the next two years.
Video adding value
Rutledge also pointed out that now the cable operator faces competition from virtual MVPDs, which sell live TV streaming bundles.
“Those virtual MVPDs have very high prices as well, and some tried to price low but had to raise the prices,” he continued. “It sort of is what it is, and consumers understand what it is, so it’s a less significant as part of the business.”
That said, there are aspects that are good, with Rutledge calling out advertising in particular. He also said TV and sports rights to be broadly distributed to realize the underlying value of those assets.
“I think we can help make television work better and broadly distributed,” Rutledge said. Advertising is a way to drive value into the business, while using transaction revenues to drive value into Charter doing that, he said.
Ultimately, it wants to have a good video business to bolster its overall service offerings, which also include broadband and mobile service through an MNVO offering.
“I think over the long term we can use video as a way of making the total value of all the services we provide better than the alternatives.”
Comcast JV helps differentiate on streaming platform
And as Charter looks at new avenues for video, a new part of that is a streaming platform through a joint venture with Comcast, announced last month. It’s a different approach than Charter had considered before, as the company previously talked about creating its own streaming platform.
Instead, it will be relying on Comcast technology, including its Flex platform and integration into streaming devices and smart TVs. Charter is targeting 2023 to introduce the first streaming devices for the joint video platform, which will be distributed at retailers and potentially by Comcast and Charter.
As to why Charter opted to partner instead of going it alone, Rutledge suggested it’s about the quality of Comcast’s platform and the ability to differentiate. He said Comcast built “a very good platform” and noted it’s not an Android-based or a version of an already existing platform.
“It is separate and distinct, so gives you strategic opportunity to differentiate on a platform basis that you might not get going on your own,” he said. “Simply I thought it was a better opportunity for us to do that with them and to use our joint creative capabilities on that platform to build a business opportunity.”
This week Comcast Cable CEO Dave Watson said bringing Charter on as a partner helps deliver scale that’s needed to compete in the platform business.