Charter 2Q Earnings Come Up Short

Cable operator Charter Communications, in which John Malone's Liberty Broadband owns a big stake, on Friday reported a second-quarter pay TV subscriber decline that doubled compared with the year-ago period. And Charter chairman and CEO Tom Rutledge said content companies were in part to blame for the challenges of the pay TV bundle in the streaming video age, because they make too much of their programming available for free.

According to The Holllywood Reporter,  Charter lost 150,000 residential pay TV subscribers in the latest quarter, compared with the loss of 73,000 in the year-ago period. The company added 9,000 small and medium business video customers, compared with 16,000 in the year-ago period.

Overall, Charter lost 141,000 video subscribers, compared with a loss of 57,000 in the year-ago period. As of June 30, Charter had 16.3 million residential and small and medium business video customers.

The broadband business again led the way in the second quarter as Charter recorded 258,000 internet subscriber net additions across the firm's residential and business customers. The company also added 208,000 mobile lines in the quarter.

Charter's second-quarter earnings came in at $314 million, up from $273 million in the year-ago period. The earnings came in below Wall Street expectations. Adjusted earnings before interest, taxes, depreciation and amortization, another profitability metric, rose 3.3 percent to $4.2 billion. Second-quarter revenue increased 4.5 percent to $11.3 billion.

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.”