Cable operator Charter Communications has taken a retooled approach to video and in Q1 saw pay TV customer losses decline significantly versus a year ago.
Charter lost a total of 181,000 net pay TV customers including 167,000 net residential – a substantial improvement compared to Q1 2024 when it lost 405,00 pay TV subs in total, including 392,000 residential. It marks only the second time in the past two years that Charter reported less than 200,000 net pay TV losses in a given period – the other being Q4 2024.
Although Charter notably stemmed bleeding compared to the first three months of 2024, its residential pay TV base still shrunk 7.3% since a year ago, now standing at about 12.16 million as of the end of March.
That said, Charter appears to be benefiting from its vision and efforts to reimagine pricing and packing options and putting video back in bundles alongside other connectivity services. In addition to providing smaller, more flexible options, another key part of the strategy has been to bring streaming into the mix by striking multiple carriage deals with major programmers over the past year and a half to include ad-supported SVOD apps within Spectrum TV Select pay TV packages at no extra cost to consumers.
Charter implemented a new simplified pricing and packaging strategy under the “Life Unlimited” brand refresh in September 2024 that also bundled video with internet offerings, as well as mobile, for the first time in several years. Through this approach Charter aims to offer lower promotional and persistent bundled pricing to grow customer ARPU with more products across broadband, mobile, and video.
On Friday’s earnings call, Charter CFO Jessica Fischer attributed the notable improvement in pay TV subscriber defections in Q1 primarily to the rebundling approach that launched in September alongside the brand refresh – similar to comments around improved pay TV losses seen in Q4.
As mentioned, Charter has been steadily adding streaming options to its lineups over the past year and a half, aiming to provide more value and not require consumers to double pay for content. According to Charter, as of March, Spectrum TV Select customers now get up to approximately $70 per month worth of streaming services – soon to be $80 per month – including ad-supported versions of Max, Disney+, ESPN+, Paramount+, Peacock, AMC+, ViX, Tennis Channel Plus, Discovery+, and BET+
“This programmer streaming application inclusion is part of Charter's broader video evolution strategy to provide flexible packages with enhanced value, whether through full packages with seamless entertainment, smaller video packages or a suite of a-la-carte programmer application options for broadband customers,” wrote Charter in its earnings release.
Streaming apps not the main driver of video improvement yet
However, executives suggested it isn’t the inclusion of streaming apps that drove decelerated pay TV losses as of yet.
“I don't think that the improvement in video that you've seen so far is uniquely driven by these apps and inclusions as of yet,” Charter CEO Chris Winfrey told equity analysts on Friday’s earnings call. “The reason our video performance is better is because… the new pricing and packaging that bundles it allows us to present a lower internet price, both at promotion and retail when you bundle video.”
This is possible, he continued, because Charter has more confidence in the value of the video product that it’s offering consumers.
It also has plans to make it easier and more seamless for customers to access those entertainment options through Charter.
“Video performance doesn’t yet reflect the benefit of incorporating seamless entertainment apps into our products,” Fischer added, with Winfrey noting its launch of so-called “seamless entertainment” is still to come.
Update on ‘seamless entertainment’
Disney+ was the first ad-supported app Charter started to offer within pay TV packages, but there were some hiccups that potentially hindered uptake in terms of inability for consumers to easily activate their included subscription through Charter, as well as the lack of option to upgrade to an ad-free version or take advantage of discounts offered by Disney when bundled with Hulu if desired.
The company previously looked to address those points of friction and has been at work to take steps on its vision to create a digital storefront encompassing the suite of direct-to-consumer SVOD apps available. Chater expects to launch the entertainment digital storefront later this year (and picked up some talent from MyBundle to help).
In terms of progress, Winfrey said work to ensure customers can activate DTC subscriptions through the Spectrum website or MySpectrum app has been completed for nearly all apps, with only Discovery+ and BET+ remaining. But subscriptions to other apps can now be activated or accessed through TV Everywhere or through DTC authentication via the Charter website or Spectrum app.
The second part is enabling customers to easily upgrade those ad-supported apps for the ad-free versions (with customers paying the difference in retail value between the two options), which the CEO said is taking place and has mostly been implemented for the streaming apps that have launched.
It’s easier today but Winfrey still acknowledged the process isn’t always consistent due to differing credential and authentication requirements of programmers, “but at least it’s much more user friendly today than it was just a couple of months ago.”
In the update Friday, he also described the digital storefront or “seamless entertainment”, product as a way to incrementally sell DTC apps to Charter broadband customers, as well as a place for consumers to access and manage all aspects of their subscriptions. That includes DTC ad-supported apps, upgrades to ad-free, and upsells into additional or other packages.
“It’s all making progress,” Winfrey said. “We are at a stage where we are feeling more comfortable of driving that into the marketplace,” Winfrey said, adding to keep an eye out for advertising that highlights the benefits of its video products and inclusion of streaming services.
Also part of the entertainment picture is the Xumo Stream Box device from the Comcast-Charter joint venture, which offers an integrated user experience to access pay TV and streaming options.
Analysts at MoffettNathanson had previously suggested Charter’s bundling and pay TV strategy could help stem bleeding and be a hedge against growth at Google’s virtual MVPD YouTube TV.
“It’s too early to judge whether Charter’s strategy will succeed; the full implementation of the idea won’t be available to customers for another few months. But there’s good reason to believe it just might work. Charter’s video offering may now be the cheapest alternative out there,” wrote analyst Craig Moffett in a January report.
And while Charter doesn’t think it’s reaping all the benefits just yet from the new video model that it initially heralded amid an eventually resolved carriage dispute with Disney in September 2023, others have seen some impact. Yesterday, cable operator Comcast reported adding 5 million subscribers for NBCU’s Peacock SVOD in Q1, attributing the gains primarily to incremental additions from its deal with Charter that included Peacock in the operator’s pay TV lineups.
Q1 results
Although still declining, video continues to be a significant contributor to revenue for Charter, generating $3.58 billion in Q1, down 8.4% year-over-year.
That said, the strategy to include streaming options from programmers doesn’t come without costs. In addition to fewer pay TV customers, Charter attributed the revenue decline to more customers taking lower-priced video packages as well as $47 million in costs allocated to programmer streaming applications and netted within video revenue.
Winfrey noted internet and mobile are the biggest drivers for the business but thinks video results can improve – calling it “option value.”
“I think we are offering a compelling product and at a minimum, [video] is something that we're proud to put on the bill now and use together with broadband,” he commented.
In its other business segments Charter lost 60,000 net internet customers but added a whopping 514,000 net mobile lines.
Residential internet and mobile revenue growth helped drive a slight 0.4% yoy uptick in total first quarter revenue of $13.7 billion. Charter reported Q1 Adjusted EBITDA of $5.8 billion, up 4.8% yoy.