Charter CEO: Content Companies Hurt Pay TV Bundle With Free Programming "Everywhere"

Tom Rutledge - Annual Allen & Company Sun Valley Conference, July 14, 2017- Getty-H 2018
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The cable giant, led by chairman and CEO Tom Rutledge, lost 141,000 pay TV subscribers in the second quarter, nearly double the figure it lost in the year-ago period.

Cable operator Charter Communications, in which John Malone's Liberty Broadband owns a big stake, on Friday reported a second-quarter pay TV subscriber decline that doubled in comparison with the year-ago period. Charter chairman and CEO Tom Rutledge said content companies were in part to blame for the challenges of the pay TV bundle in the streaming video age, because they make too much of their programming available for free.

On the company's earnings call, the exec reiterated that Charter is focused on its broadband business and does not "look at video as a stand-alone business." While many consumers still see "a lot of value" in the pay TV bundle, the "problem with the bundle of video today is that the content companies that supply it essentially [make] their service available for free through TV Everywhere, excessive streams, password sharing and the free over-the-air television," said Rutledge. "It's hard to compete with free."

The Charter CEO also said the higher carriage fees that content companies continue to demand in negotiations with pay TV firms is causing a dilemma for him and his management team. "I don't like raising the prices to our customers. Customers don't know where the price increase is coming from, and they attribute it to us," Rutledge explained. "What I really wish is that the price-value of programming wasn't being destroyed by the programmers. ... The difference between where prices have gone and where revenues have gone to content companies, they are not able to realize their price increases in their revenue line, and the reason is the product is available for free everywhere."

He concluded: "My wish would be that the content industry would manage their content and their copyright to their own benefit instead of pushing through price [increases]. We still have a lot of video customers, and they don't want to have price increases, so I expect us to continue fighting for the foreseeable future."

Charter reported Friday that it lost 150,000 residential pay TV subscribers in the latest quarter, compared with the loss of 73,000 in the year-ago period. The company added 9,000 small and medium business video customers, compared with 16,000 in the year-ago period.

Overall, Charter lost 141,000 video subscribers, compared with a loss of 57,000 in the year-ago period. As of June 30, Charter had 16.3 million residential and small and medium business video customers.

The broadband business again led the way in the second quarter as Charter recorded 258,000 internet subscriber net additions across the firm's residential and business customers. The company also added 208,000 mobile lines in the quarter.

Charter's second-quarter earnings came in at $314 million, up from $273 million in the year-ago period. The earnings came in below Wall Street expectations. Adjusted earnings before interest, taxes, depreciation and amortization, another profitability metric, rose 3.3 percent to $4.2 billion. Second-quarter revenue increased 4.5 percent to $11.3 billion.

Charter in 2016 acquired Time Warner Cable and Bright House Networks. "We are realizing the benefits of consolidating three large cable operators under one centralized operating strategy, with lower customer churn, fewer service transactions per customer and improving customer satisfaction resulting in growth of over 1 million customer relationships year-over-year," said Rutledge.