Charter Doesn't Need to Buy a Content Company to Be Competitive, CEO Says
Tom Rutledge also tells the UBS Global Media and Communications Conference in New York that the Trump administration should bring regulatory "relief."
Cable operator Charter Communications, in which John Malone's Liberty Broadband owns a big stake, doesn't feel the need to own a content company right now and expects to reach a deal to integrate Netflix into its set-top boxes down the line, chairman and CEO Tom Rutledge told the annual UBS media and communications investor conference Tuesday.
"I don't think so right now," he said when asked whether Charter needs to own a content company to not be at a disadvantage compared with the likes of AT&T, which is planning to acquire Time Warner for $85.4 billion, and Comcast, which owns NBCUniversal. "We are a connection company at the moment, and I like that place." Rutledge said there was "a great runway for years to come" and "a lot of opportunity" with the current business model of providing connectivity and pay TV services, without needing to owning a content company.
"You have to stay true to the content business" when operating in both content and distribution, as the distribution footprint is always smaller than the programming footprint, Rutledge also explained. Otherwise, "you can destroy a lot of value," he said, suggesting that the AT&T-Time Warner deal won't change that.
Asked about President-elect Donald Trump and his impact on telecom and media regulation, Rutledge said he had been all caught up in the existing regulatory set-up in Washington, D.C., in recent years. "It's pretty cool," he said, adding that the new regulatory environment means "relief." He suggested that past FCC regulation, such as on net neutrality, hasn't hurt cable operators, but "has the potential of hurting us." That echoed recent comments from Liberty Media CEO Greg Maffei.
Discussing a possible integration deal with Netflix, he said: "I expect that to happen." Citing conversations with Netflix CEO Reed Hastings, he said they have moved far along. Netflix already has an integration deal with Comcast and Malone's European and Latin American pay TV giant Liberty Global.
Much talk on Tuesday focused on Charter's close earlier this year of two mega-deals, namely the $55 billion acquisition of Time Warner Cable and the $10.4 billion purchase of Bright House. The deals made Charter the second-biggest U.S. cable company behind Comcast.
Rutledge said that the integration and key operating initiatives were on track, reiterating that financial synergies continue to run ahead of original expectations.
Charter management previously said it expects higher than originally outlined cost savings from its two big recent acquisitions, including $800 million in TWC annualized programming and overhead savings by the end of year three after the deal's close. Management previously also said that by the end of the first year, annual deal savings would hit more than $600 million, compared with an original estimate of $400 million to $500 million. Management later cited a new target of $700 million.
Rutledge said Tuesday that response rates in acquired cable markets are up, but it would take time to work through all past operational issues and ensure all bought cable systems hit their stride.
Charter has said it would look for possible accretive acquisitions over time, but management has signaled nothing was imminent.
When an analyst recently asked for further insight, adding that her firm assumed nothing was imminent and that Charter would not acquire a content company following AT&T's $85.4 billion deal for Time Warner, its CFO only said that if anything was "material and probable," Charter would have to disclose that.
Asked about streaming services, particularly AT&T's recently launched DirecTV Now, Rutledge said such services could be sold to the company's more than 20 million broadband customers and that with its range of services the company would "stay very competitive" with other companies.
Discussing programming costs for pay TV distributors, Rutledge said that if everyone started selling skinny bundles, prices would go lower, and he'd be glad about that. But he said the current model of "big, fat packages" was a good one for programmers, signaling he expected continued programming cost increases.
How key is it for for cable operators to operate wireless businesses, which various companies are looking at? Rutledge said the importance was "significant." Charter has activated a wireless venture with Verizon that allows the former to offer a service by leasing airwaves from the telecom company on a wholesale basis. "There is no need to do anything right away," he said, adding a wireless service could become available via Charter in late 2017 or later.