Charter Loses 57,000 Pay TV Subscribers in Second Quarter

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Charter Communications chairman and CEO Tom Rutledge

The cable giant reports higher earnings and improved video trends, with CEO Tom Rutledge reiterating it is not pursuing any acquisitions of content companies despite "a lot of" approaches.

Cable operator Charter Communications, in which John Malone's Liberty Broadband owns a big stake, on Tuesday reported better-than-expected second-quarter financials and improved pay TV subscriber trends.

Management on a conference call also reiterated it was not pursuing acquisitions of content companies. 

"Our views on content haven’t changed," Charter chairman, president and CEO Tom Rutledge said on Tuesday. "A lot of content companies have come to us and asked us to buy them." But he said so far deals have never made sense due to price and strategic considerations. While he didn’t rule out a future deal completely, he said  "there is no direct synergy for us" in most cases. He did express an interest in local news assets though.
 
Rutledge had on the first-quarter earnings call also highlighted his preference for not acquiring a content company to own video assets by following the AT&T deal for Time Warner and Comcast's takeover of NBCUniversal. "We're strategically complete," he said back then. "We think we can execute our business plan with the assets we have. I don't think we need to own content to do better." Added Rutledge back then: "We will have access to video. We launched Netflix on our network. We will integrate all the video products. But that doesn't require us to own video assets, per se."

Rutledge also got a question on the recent news that Liberty Media boss John Malone was leaving Charter's board. "John is going to stay on as a director emeritus,” he said. “He has been in the business 50 years. I love having him on the board. I’m happy that he is staying as director emeritus.” He added: "He remains the control shareholder of Liberty Broadband, which owns about 20 percent of Charter. ... We think John will continue to be engaged with the company, that he likes the business. ... But he wants to reduce his work load and his over-boarding so to speak. And he has just reached a point in his life where he feels he has to."

Charter on Tuesday posted a loss of 73,000 residential pay TV subs for the period, compared with a loss of 91,000 in the year-ago period. Overall, Charter lost 57,000 net pay TV subscribers in the second quarter, compared with a loss of around 76,000 in the year-ago period. The loss of residential pay TV subs was partially offset by a 16,000 gain in small and medium business subscribers, compared with a 15,000 gain in the second quarter of 2017.

Cord cutting due to cheaper streaming video services from the likes of Netflix and Amazon has led to lower video subscriber counts for many U.S. pay TV companies. Charter said its total customer relationships increased 196,000, compared to a 213,000 gain during the second quarter of 2017.

Charter's second-quarter earnings of $273 million compared with a year-ago profit of $139 million. Revenue rose 4.8 percent to $10.9 billion.

"Over the last two years, we have invested significantly to quickly integrate and unify the operating strategies of three large cable operators," said Rutledge. "While that process is disruptive, it has allowed us to position our residential and commercial businesses for long-term growth and success, which is beginning to show in our operating results." He added: "By the end of this year our integration will be nearly complete, and we will be operating as one company, with a unified product, marketing, and service infrastructure, which will allow us to accelerate growth and innovate faster."

"We maintain our 'buy' [rating] on Charter Communications and $397 price target following good results just released," Buckingham Research Group analyst Matthew Harrigan said in a first reaction.

The $55 billion acquisition of Time Warner Cable and the $10.4 billion purchase of Bright House in May 2016 made Charter the second-biggest U.S. cable company, behind Comcast.

Rutledge on Tuesday reiterated that the company is at its core a connectivity, meaning broadband, provider as pay TV is "not really a stand-alone product" amid competition, cord cutting and continued programming cost increases. But he added that video services remain a key way of attracting and retaining subscribers.

Tuesday's earnings call brought more comments on the Friday news that Charter is facing being kicked out of New York state as a cable provider after a public commission voted to revoke its approval of the firm's Time Warner Cable takeover. "In the weeks leading up to an election, rhetoric often becomes politically charged," the cable operator said in a statement after New York's Public Service Commission ruled that Charter had failed to meet commitments to bolster its local broadband service to secure earlier approval of its $56.7 billion deal to acquire TWC and rebranding as Spectrum.

"But the fact is that Spectrum has extended the reach of our advanced broadband network to more than 86,000 New York homes and businesses since our merger agreement with the PSC. Our 11,000 diverse and locally based workers, who serve millions of customers in the state every day, remain focused on delivering faster and better broadband to more New Yorkers, as we promised," Charter added.

"We believe we are in compliance," Rutledge said on Tuesday, adding that the company feels it has a strong legal case. "We live up to our commitments." He said in certain regards, the company is ahead of schedule in New York, but he also acknowledged some labor issues. Concluded Rutledge: "If necessary we will litigate."

The state commission has given Charter 60 days to "effect an orderly transition" to becoming a successful cable provider or face losing its authorization to operate in the state, arguing that Charter has failed to meet merger commitments to bring about full broadband coverage in New York state by providing service to a specified number of homes. "After more than a year of administrative enforcement efforts to bring Charter into compliance with the commission's merger order, the time has come for stronger actions to protect New Yorkers and the public interest," commission chairman John Rhodes said.