The most surprising news from Charter Communications’ call with analysts this morning didn’t involve any plans to buy Time Warner Cable — although CEO Tom Rutledge says he’s still talking with Bright House Networks to possibly revive his company’s $10.4 billion acquisition. (More on that in a moment.) It’s what he’s doing with his current cable systems which serve about 4.2 million subscribers: He’s open to offering Netflix and other streaming services directly to his TV customers. In addition, he’s looking at crafting so-called skinny bundles of lower cost TV packages with fewer channels.
Most cable companies consider Internet video services to be competitors. As a result, they require subscribers who want to watch Netflix, Amazon Prime, or Hulu to switch away from TV input where the cable box feeds programming.
Rutledge says he now believes “we can mix those products into products that we sell to satisfy the customer’s entire video needs.” That would effectively treat the subscription streaming services as premium cable channels, like HBO, Showtime or Starz.
His comment follows an announcement this week from his former employer, Cablevision, that strongly suggests it will offer Hulu Plus to its TV subscribers.
In addition, the Charter chief would like to craft lower-cost alternatives to the traditional basic cable bundle. “The price of the full package is expensive” and has led to cord cutting, he says. As a result, “we are looking at all the alternatives.”
But it’s hard to craft one that works. Although others including Dish Network’s Sling TV have lower priced offerings, they don’t offer consumers enough bang for the buck. “We haven’t found that product mix yet, and we don’t think anyone else has either,” he says.
Rutledge includes Verizon FiOS’ new Custom TV offering, which offers a basic package that doesn’t include high-priced channels including ESPN. (Disney’s sports service is suing Verizon, charging it with a breach of contract — which the telco denies.) Although he says he doesn’t know the specifics of the companies’ contracts, most include tiering and service requirements.
More generally, though, he says that “those kinds of products have been tried in the past” but “ended up migrating back” to the full bundle. “It’s hard to build products that actually satisfy people.” But he adds: “Would I rather be able to sell lots of smaller tiers? Yes.”
As for mergers: Rutledge didn’t directly address the main question on everyone’s mind — whether Charter will go after Time Warner Cable now that Comcast has scrapped its $45 billion acquisition plan. He says the company will consider acquisitions generally “in a disciplined manner.” He and Charter’s his leading shareholder, Liberty Media’s John Malone, have left little doubt that it will return with an offer.
Still, Rutledge says he’s “disappointed.” The Comcast-TWC agreement included side deals with Charter that would have made it the nation’s No. 2 cable company, dominant in middle America.
Altthough Charter’s agreement to buy Bright House Networks was contingent on Comcast’s takeover of TWC, the deal has a 30-day window that “requires us to negotiate in good faith, and we’re doing that.” It’s a bit more complicated now: TWC has right of first refusal, but TWC chief Rob Marcus declined to talk to analysts yesterday about his merger plans.
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