Charter CEO Says He Thinks of Netflix as "an Ancillary Service"

Tom Rutledge-Getty-H 2016
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Tom Rutledge says he wants to integrate services like Netflix and Hulu, rather than get replaced by them.

Fresh off a triple merger with former rivals Time Warner Cable and Bright House Networks, Charter Communications CEO Tom Rutledge extended an olive branch, or at least an olive twig, to the streaming and OTT video services his merger was designed to compete against.

"I don't think of Netflix as a substitute for what we sell," Rutledge told investors at a conference in New York Wednesday afternoon. "I see it as more of an ancillary service. We're trying to put things like Netflix and Hulu into our services. We want to integrate it all."

Integration between cable and on-demand television appears to be the management strategy du jour, or the buzzword, anyway, for cable executives who've been put on guard by the ascent of internet television and subscription-based VOD. The philosophy behind services like HBO Now and Dish's OTT skinny bundle Sling is, "If you can't beat 'em, join 'em."

Rutledge said a major problem with OTT is password sharing, which cuts into company revenues.

"The security on OTT is poor," he said, "and it's changing the valuation of the core product."

The biggest issue for the exec, however, is still the cost of a cable box, which he sees as the main reason the cable industry is losing subscriptions.

"When we do direct response marketing, the internet-only customers have the highest response rate, which shows they want the product," he said. "The price is the main pressure point."

Since the merger with Time Warner and Bright House, which was announced last year and completed on May 18, Charter stock has been climbing steadily.

Shares are up more than 20 percent since the transaction completed, from $227 to $274. The company is now valued at more than $74 billion, trading at a price-to-earnings ratio of around 12.