Charter Q2 Results Fall Short As CEO Tom Rutledge Forecasts “Continuous Fighting” Over Pay-TV

Charter Cable
Jeff Roberson/AP/Shutterstock

Charter Communications reported earnings of $1.39 a share, well short of Wall Street analysts’ forecast for $1.81.

Shares in the No. 2 U.S. cable operator, which have run up 42% in 2019, dropped 4% Friday on the quarterly miss. At $11.3 billion, total revenue gained 4.5% over the prior-year period but also fell short of forecasts, but only by a small fraction.

Video subscriber erosion continues to be a factor for the pay-TV business. Charter, which operates Spectrum systems, had 141,000 video net losses.

Tom Rutledge Rob Latour/REX/Shutterstock

During a conference call with analysts to discuss the results, CEO Tom Rutledge defended the traditional TV bundle and also warned of “continuous” carriage fights to come.

“There’s still a lot of value in the bundle today,” he said. The issue, as he sees it, is that the price-to-value ratio has been “destroyed by programmers.” As they look to widen their distribution options in a stream-happy marketplace, they are offering “excessive streams” and not helping the cause by allowing password sharing. Therefore, he said, “We look at video as an attribute of our overall customer relationship.”

Given that programmers, who are in an arms race with Netflix and Amazon and others, have continued to ask for rate increases, Rutledge was asked why he doesn’t simply accept higher terms and pass the costs on to customers. (Such a scenario, which would be possible because of hefty profits on broadband service, was also posed to Comcast executives during their earnings call Thursday.)

“I don’t like raising prices to our customers,” Rutledge responded. “Customers don’t know the value, or where the price increase is coming from. They attribute it to us.” The idea of raising rates “and asking people to disconnect is not a very attractive way to manage a video business,” he continued. “On the other hand, if you don’t fight with programmers to maintain some sort of price integrity for your customer, you’ll pass through a lot of product. So it’s a balancing act.”

Carriage battles such as AT&T’s current standoffs with CBS and Nexstar are becoming increasingly common. Charter faces its own looming carriage deadline at the end of July with Disney and another with Fox by the end of 2019.

“If you do a 10% programming price increase and lose 10% of your customers, you don’t really get anywhere and yet you’ve alienated a lot of people. In fact, that’s actually happening and has been happening,” Rutledge said. “I expect continuous fighting for the foreseeable future.”

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