After its massive acquisition of both Time Warner Cable and Bright House Networks last year, Charter has settled into a mode of caution as it slowly integrates its new assets and tries to transform three legacy footprints into one cohesive unit. So far, the results are mixed.
Charter Communications Inc. reported revenue of $10.16 billion in the first quarter, or a 4.3% increase compared to total revenue a year ago across all three legacy companies. Unfortunately, that number lagged the Zacks consensus forecast of $10.25 billion for the quarter. Earnings also missed Wall Street estimates, with Charter reporting an earnings-per-share number of $0.57 versus an EPS forecast of $0.99. Its share price dipped around 2% on the news.
Perhaps more worrying is the fact that subscriber results underperformed, most particularly in the video segment. Charter is blaming its loss of 100,000 video subscribers in the quarter on increased churn among legacy Time Warner Cable customers, and indeed those TWC customers made up the bulk of the losses. However, Charter also lost video subs in its own legacy footprint over the last three months, relying on additions in the Bright House service area to keep its numbers from sinking even further. The company ended the quarter with 16.7 million residential video subscribers in total. Video revenue was essentially flat year-over-year at $4.1 billion.
CEO Tom Rutledge acknowledged the overall downward trend on today's earnings presentation, noting that he believes "there is a general decline in the MVPD marketplace that is mostly price-driven." But he is not looking to make drastic changes to the company's video strategy. Instead, Rutledge has outlined a path forward that suggests incremental evolution. Charter plans to return to its rollout of all-digital video in TWC and Bright House markets this quarter, and the company has announced a partnership with AMC that will allow it to provide some temporarily exclusive AMC content to subscribers. (See Charter Does Exclusive Content Deal With AMC.)
"The AMC opportunity is an experiment to see if we can create some high-value product for our customers for a period of time," said Rutledge, "and we think it's an interesting opportunity to put original programming to our customers and still allow the marketplace realities in terms of the cost of amortizing programming to work over a bigger marketplace over time."
On the over-the-top video front, Charter remains wary. The company has confirmed that it's integrating Netflix into its user interface and has had similar discussion with YouTube about integration. (No timing on a launch was given.) But the operator is only following in the footsteps of other cable companies, accepting the inevitability that customers will increasingly demand access to additional video services.
As for Charter creating its own OTT product, executives are making it clear that they have the technical capability, and in some cases the content rights, to do so. However, they don't see any benefit to the move. Rather, Charter executives on the call pointed out that current OTT products seem to be cannibalizing higher-value services at other companies, a fact that was made painfully clear during Dish's earnings report yesterday. (See Dish's Satellite TV Business Is Crumbling.)
Results for Charter's Internet business were far better than the company's video results in Q1. Charter added 428,000 residential Internet subscribers and brought in revenue of $3.4 billion in the quarter, compared with just over $3 billion a year ago. However, the company gained fewer Internet subs than it did a year ago when it brought in 520,000 customers. Voice subscribers were likewise up 37,000 for the quarter, but that compares to an increase of 213,000 subs a year ago. Voice revenues were only $694 million versus $729 million in the year-ago quarter.
Commercial services revenue continued to grow for Charter in Q1. The company brought in $1.44 billion for the quarter, up from $1.3 billion a year ago. Growth was relatively evenly split between the small-to-medium-sized business and enterprise sectors, with the first growing at a rate of 11.4% and the second growing at a rate of 10%.
Charter executives talked briefly on the earnings call about the company's wireless plans going forward, but only to repeat details that have already been revealed. The company still plans to launch a wireless service in 2018 using its MVNO agreement with Verizon Communications Inc. (NYSE: VZ). It's also still experimenting with "5G-like" technology, but the company has said that any possibility of launching commercial 5G services is still years away. (See Charter Launches 5G Field Trials.)
— Mari Silbey, Senior Editor, Cable/Video, Light Reading