Charter Communications is the latest operator to report video subscriber losses in the second quarter, with one analyst saying industry signs point to a significant speed up in cord-cutting during the period.
Charter’s Q2 net residential video losses reached 240,000 in the quarter (it added 14,000 SMB video subs) – that’s 177,000 more than it lost in Q2 of 2021 and compares to residential losses of 123,000 in Q1. Charter said the losses were partly driven by downgrades after the cable operator implemented price increases in April, to pass through higher programming expenses.
As of the end of June, Charter had 14.9 million residential video customers.
In a Friday tweet, LightShed Partners analyst Rich Greenfield highlighted the losses, saying “All signs point to major acceleration in #cordcutting in Q2 2022,” adding that linear TV’s collapse is accelerating.
In a LightShed chart in the tweet, the firm showed Charter’s pay TV subscriber base declined at 3.7% year over year in Q2, while Comcast was down 9.4%, and Verizon declined at 8%. Rate of declines for each company increased by nearly or more than 1 percentage point in the second quarter. Combined, the three companies’ subscribers declined 6.9% year over year in Q2, an acceleration from the 5.9% yoy decline in Q1, the chart shows.
Still, while the rate of decline has accelerated, analysts at MoffettNathanson noted Charter is better off than others in the industry.
“Charter’s video subscriber base continues to decline much more slowly than at peers, and much more slowly than the video industry as a whole,” wrote MoffettNathanson’s Craig Moffett in a Friday note to investors.
Operators shedding subscribers in the pay TV business come as consumers are feeling inflation and there are macro worries over a recession. On the second quarter earnings call, executives said that Charter can operate in a difficult economic environment.
“As consumers are [financially] stressed, the value of our products become more clear in the consumer's mind,” said Charter CEO Tom Rutledge on Friday’s earnings call.
However, “I do think video would be more challenged in a downturn, or in an inflationary environment, than other products” Rutledge said, adding the margins have relatively become smaller in that part of its business. "So the net of it all is I think it’s somewhat of a market opportunity, but there will be stress on video.”
While the cable operator’s video subscribers declined in Q2, video revenue was up 2.4% year over year to $4.5 billion, driven by promotional rate set-ups, and rate increases.
A drop in video customers and a higher mix of those taking skinnier video packages pushed down programming costs by 0.2% in the period, but that was mostly offset by higher programming rates.
“Looking at the full year 2022 we continue to expect programming costs per video customer to grow in the low- to mid- single digit percentage range,” said Charter CFO Jessica Fischer during the earnings call.
A 10.3% decrease in regulatory, connectivity and produced content expenses were mainly a result of less video CPE sold to customers and lower sports rights costs as more Lakers NBA games were played in Q2 of 2021 after games were delayed in 2020, making the 2022 quarter’s comparison easier.
Overall charter reported $13.6 billion in Q2 revenue, up 6.2%. Net income was up $500 million year over year to $1.5 billion in Q2. Adjusted EBITDA of $5.5 billion grew by 9.7%.
As the company continues to lose video subscribers and notably reported broadband losses in the quarter, Charter did count a strong quarter for its MVNO Spectrum Mobile wireless service – adding 344,000 mobile lines.
“Our growth has always been driven by offering value-rich packages at prices customers can afford," said Rutledge in a statement. "Looking forward, we remain well-positioned to grow our business using that same strategy. Our fixed and mobile broadband services continue to converge, and we offer a unique connectivity package while meaningfully reducing customer bills. So there is a large opportunity for us to save customers money, which in turn raises connects, reduces churn and drives overall customer relationship growth."