Video services

Charter Revenues Up, Video Subs Down

While much of the news in Charter's quarterly earnings report Thursday was positive, the company is still struggling with video subscriber losses, just like many of its cable industry fellows.

Charter Communications Inc. reported this morning that it lost 40,000 video customers between the second quarter of 2013 and the second quarter of 2014, ending up with fewer than 4.2 million video subs in total. On the upside, video revenue increased 5.1% to $1.1 billion in the same time period, thanks to new pricing packages and the introduction of more advanced services.

For residential Internet and voice services, Charter improved its subscriber totals by 364,000 and 184,000 customers respectively, with percentage growth rates for both in the high single digits. Charter's total number of commercial customers also rose 11% to 385,000, although the operator dropped 10,000 commercial video customers year-over-year. Commercial revenues climbed 19% to $244 million, putting the MSO on track to approach $1 billion for the year.

Overall, revenue at Charter increased more than 7% year-over-year in the second quarter to $2.3 billion. Those gains were offset by capital expenditures of $570 million, but Charter expects to reap more benefits from recent spending as it nears the completion of its all-digital video upgrades.

For the quarter, Charter posted a net loss of $45 million. In addition to the costs of its all-digital transition, Charter also saw programming fees increase by $54 million, up 9.8% year-over-year.

In the midst of potentially epic acquisition activity, Charter offered more detail on the transactions it has planned if the merger between Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) goes through. Charter is still hopeful that the Federal Communications Commission (FCC) will give its blessing to the Comcast/TWC deal before the end of the year, enabling it to close on its own transactions with the two MSOs 30 to 45 days later. (See Charter/Comcast Tap Willner for Spinoff.)

Charter will nearly double its subscriber count in the three-part deal with Comcast and Time Warner Cable. However, it will also face a substantial operational challenge in taking over a large subset of TWC's existing customers. While Charter expects to complete its current transition to all-digital by the end of this year, it will have to start the process all over again with the 3 million TWC subs that it will inherit in select regions.

Charter CEO Tom Rutledge was careful to point out that its set-top costs will be significantly lower than they were when Charter started its all-digital migration. But the work required could still be considerable.

For more of Light Reading's coverage of all-digital upgrades and the other latest trends in cable video services, visit our video services content channel.

On the positive side, Rutledge noted that Charter could potentially upgrade new customers to its advanced cloud-based guide even before they make the transition to an all-digital video system. Charter's new guide, which is powered by ActiveVideo , works on both legacy and next-generation set-top boxes. (See ActiveVideo Tightens Its Cable Ties.)

So far, Charter has only tested its new user interface in the Fort Worth, Texas market. But the MSO plans to extend tests to other, undisclosed markets in the coming months. Rutledge said that if everything goes according to plan, Charter will have the cloud-based UI rolled out across its entire existing footprint in 2015.

— Mari Silbey, special to Light Reading

mendyk 7/31/2014 | 3:14:09 PM
Addition by subtraction I know the reflex is to see a problem when a number like video subs declines, but the broadband subs that Charter and other cable operators are gaining are much more important in the long run. The glass is half full, and getting a little fuller every three months.
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