Charter Explores OTT Options
Seeking fresh ways to attract new video subscribers, Charter Communications is studying how to craft skinnier, cheaper TV bundles that feature popular Internet video services.
Speaking on the company's first-quarter earnings Friday, Charter Communications Inc. President and CEO Tom Rutledge said Charter executives are looking at how to create smaller, cheaper video packages that might appeal to consumers turned off by the industry's typically expensive, full-service bundles. Those new, cheaper packages could include such major direct-to-consumer video services as Netflix, Hulu and the brand-new HBO Now.
"Our view is that we can mix those [OTT video] products into products that we already sell to satisfy the consumer's entire video needs," he said. "I am assuming that products can be built that would be sold by us within our footprint, but would also include products sold outside our footprint delivered by the Internet."
The idea, Rutledge said, would be to use these new skinnier bundles to lure consumers to Charter's pay-TV offerings. He would then hope to upsell as many of them as possible to the MSO's full-fledged video packages over time.
But, Rutledge added, all that seems to be much easier said than done. He observed that other conventional pay-TV providers have tried to devise smaller, less expensive video packages for consumers but haven't made much headway with them so far.
"Obviously, we'll do it if we can," he said. But, he noted, "We haven't found that product mix yet and we don't think anyone else has either."
If Charter executives can find the right product mix, it sounds as if they would use their new cloud-based video platform to deliver the OTT service to subscribers. On the earnings call, Rutledge stressed that this new platform, developed by ActiveVideo , can deliver steaming video to virtually every MPEG-based and IP video set-top, as well as other connected IP devices. "We can stream any other services on that platform," he said.
Pleased with the launch of its cloud-based user interface, known as Spectrum Guide, in San Antonio, Charter officials plan to extend the service to St. Louis and at least one other market this year and then expand its reach from there. In an even bigger show of faith, Charter has just teamed with Arris Group Inc. (Nasdaq: ARRS) to buy out ActiveVideo and its technology, with Arris taking a 65% stake in the new joint venture and Charter taking the remaining 35% share. (See Arris, Charter Nab ActiveVideo for $135M and Arris, Charter Complete Acquisition of ActiveVideo.)
Focusing on its earnings, Charter reported healthy subscriber gains in most categories for the first quarter, as well as decent revenue and cash flow increases and lower capital expenditures. However, most of its key numbers came in somewhat lower than Wall Street's consensus forecasts, prompting some concern from analysts.
Perhaps most notably, Charter reported losing 7,000 video subscribers in the winter quarter, reversing its gain of 18,000 video subs a year ago. It also added 125,000 broadband customers, down from 136,000 in the prior year, and 42,000 voice subs, down from 52,000 a year earlier.
Sounding a bit subdued after the unexpected collapse of Charter's planned system trades and deals with Comcast Corp. (Nasdaq: CMCSA, CMCSK), which were conditioned on Comcast's now-tanked takeover of Time Warner Cable Inc. (NYSE: TWC), Rutledge said Charter deliberately slowed down the pace of video subscriber additions in the first quarter as it prepared to divest 40% of its households in the transactions. He also noted that Charter's massive push to upgrade nearly all its systems to all-digital was "very disruptive" as the company swapped out 6 million cable set-tops in a single year.
Nevertheless, Rutledge said he still expects the fourth-largest US MSO to generate video growth for the full year. While the pay-TV market may be mature and saturated in the US now, he argued, there's still "a tremendous chance to shift subscribers" from rival service providers to Charter's clutches.
"Obviously, we're disappointed our transactions did not close," he said. But, he contended, "Charter remains in an excellent position to grow its business organically, with or without M&A."
— Alan Breznick, Cable/Video Practice Leader, Light Reading