“Some of the content companies would suffer dramatically” if they’re left out, Charter Communications CEO Tom Rutledge told analysts this morning. But his company and other pay TV providers must figure out how to reduce the number of channels customers have to take, and the price they pay, because “on the edges people are not buying that full [pay TV] package because they can’t afford it.”
That’s what Charter is doing as it prepares to become the No. 2 cable operator with its pending acquisitions of Time Warner Cable and Bright House Networks. It wants to create “a new video product” with “high quality video offerings but at a lower retail price,” he says.
No announcements yet: Charter is still “working through programming rights….We haven’t found that right mix yet, and don’t think anyone else has either,” Rutledge says.
“If we had our druthers, we’d buy our product a la carte” and create bundles tailored to subscribers’ needs, he adds. “That’s not the way the world works” as programmers including Disney, Fox, Time Warner, Viacom, and Discovery negotiate contracts that require distributors to offer their most popular ad supported channels — as well as several unpopular ones — to all expanded basic service customers.
ESPN is suing Verizon FiOS for breach of contract after it created a so-called skinny bundle that requires users to pay extra for the sports channel.
Rutledge says that programmers perversely make the effort to create skinny bundles easier when they offer their content online — either directly to consumers, or by syndicating to services such as Netflix, Amazon and Hulu. “They lower their value to us, which is good for our cost structure,” he says. “They’ve devalued their core product and may or may not be carried because of that. No trend goes unchecked.”
The CEO acknowledges, though, that there are still strong incentives for programmers and distributors to keep the status quo of large, high priced bundles intact. Although Charter and others experiment with new options, “we’ll be having this conversation three years from now because there’s nothing to incent anyone to pull [the big bundles] apart.”
Charter reported this morning that its Q2 programming expenses increased by $64 million, or 10.3%, vs the period last year.
Wall Street was satisfied with the tally showing a net loss of $122 million, increasing 171%, on revenues of $2.43 billion, up 7.6%.The number of video customers declined by 33,000 in the quarter to 4.12 million, but broadband subs increased 70,000 to 4.96 million. Charter shares are up 2.1% in early trading.
Rutledge says that things appear to be on track with his company’s acquisitions. He expects federal approval for the deals to close by year end.