Xumo launch takes a bite out of Charter's wallet

Charter Communications is using Xumo as its "go-to" platform for new video subs in the wake of the operator's widespread launch of the platform earlier this month.

The ramp up for Charter's Xumo launch showed up in the operator's Q3 2023 capital expenses for customer premises equipment (CPE). Charter reported a year-over-year increase in CPE and install expenses of $82 million primarily due to the purchase of Xumo devices for the early-October launch. Charter's total CPE capex costs in Q3 reached $659 million, up from $576 million in the prior quarter.

Charter CPE spending is usually lower because it would pair any new device purchases with recycled legacy set-tops, such as Charter's WorldBox. But to prep for this month's launch, Charter had to stock up on Xumo devices, which cost less than traditional cable set-tops.

"There's a step up there, but long term I don't expect it to be that material," Charter CEO Chris Winfrey said on today's Q3 2023 earnings call.

Early on, new Charter video subs are in line to get one Xumo Stream Box at no cost for the first year and the option to buy additional devices outright for $60. Charter has also introduced a new service bundle that features the Xumo Stream Box, a 4K-capable device that supports Charter's pay-TV app, third-party streaming apps such as Netflix and Disney+, a voice remote and unified search.

Related:Xumo starts to roll new 'Stream Box' to Charter subs

Charter said it's been pleased with the Xumo launch but didn't say how many new customers are on the platform.

Xumo is the brand name of the Comcast-Charter national streaming venture announced last spring.

Ahead of the Xumo launch, Charter lost 327,000 video subs (including 320,000 residential subs) in Q3, widened from a year-ago loss of -204,000. Charter CFO Jessica Fischer estimated that about 100,000 video disconnects in the quarter stemmed from the temporary Disney programming dispute.

She said the overall impact on Charter's video sub count was less than expected, aided by the wide availability of alternative streaming services that carried Disney's stable of channels, which include ABC and ESPN.  

Winfrey's hopeful that Charter's transition to the Xumo platform alongside "renovated agreements" with programmers that create a hybrid of pay-TV and direct-to-consumer streaming services will add value to the operator's video product and improve the overall economics of the video business.

"Nobody's sitting here forecasting that traditional linear video is going to grow," Winfrey said. "But I do think it still remains very important to our connectivity relationships."

Related:Xumo to become Charter's 'go-to' platform for new video sales

Broadband and wireless

Charter added 63,000 broadband subs (57,000 residential and 6,000 business) in Q3, extending its total to 30.64 million. Analysts were expecting Charter to add 75,000 broadband subs. Notably, Charter estimated that the Disney dispute cost it about 15,000 broadband subs.

The broadband market "has been temporarily stunted from growth but we are growing in both our existing footprint as well as in the rural subsidized footprint," Winfrey said.

New Street Research analyst Jonathan Chaplin noted that net adds of 31,000 broadband subs in new markets were on track, but a gain of 47,000 (after adding back 15,000 for the Disney blackout) were below his estimate of +79,000.

Charter's residential broadband average revenue per user (ARPU) of $67.37 was in line with expectations, but remains lower than Comcast's $71.24.  Charter's residential broadband ARPU growth rate of 2.6% would have been 3.7% in the absence of the operator's Spectrum One promotion that bundles home broadband and mobile, MoffettNathanson analyst Craig Moffett explained in a research note.

Charter also tacked on 594,000 mobile lines (577,000 residential and 17,000 business), raising its total to 7.22 million lines. That Q3 result was better than the 396,000 lines added in the year-ago quarter but off from a record +686,000 lines posted in Q1 2023.

Related:Mediacom signs with Xumo

Charter generated Q3 mobile revenues of $581 million, up from $435 billion in the year-ago quarter. Wireless services now account for 4.3% of Charter's total revenue, according to Moffett.

About 12% of Charter's broadband base now take mobile service from Charter, Winfrey said.

Analysts are keeping a close eye on churn at Charter's mobile business as customers who were getting a free mobile line via the company's Spectrum One promotion start to convert to paying customers at a greater rate in the fourth quarter of 2023.

Early on, the churn rate on Spectrum One customers who reach their 12-month anniversary is "small and less than expected," Fischer said.