Rutledge: Despite Losses, Charter Has ‘Good Business’

Despite larger than expected losses on the video side, which helped trigger a minor sell-off in its stock on Thursday morning (Oct. 26), Charter Communications chairman and CEO Tom Rutledge stressed to analysts that the cable operator still has substantial room for growth.

Charter lost 104,000 video customers in the third quarter, more than twice the 47,000 it shed in the same period last year. The decline was in part responsible for a dip in Charter’s stock price early Thursday. The MSO has been one of the best performing stocks in the sector since it began its pursuit of Time Warner Cable in 2015, culminating in a purchase that transformed Charter into the second-largest cable operator in the country behind Comcast with about 16.5 million residential video customers.

Partly because of anticipation that it may buy more companies and partly because of the potential to grow subscribers inside its own footprint, Charter has been considered more of a growth stock than some of its larger peers. But some recent glitches around the integration of its Time Warner Cable and Bright House Networks systems over the past several months have cast some doubt on those growth prospects.

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On a conference call with analysts Thursday to discuss third quarter results, Rutledge tried to ease any investor fears, stressing that Charter has plenty of mojo left.

“We still have a very rapidly growing good business,” Rutledge said on the call. “Yes, the video business has pressure in it and it has had pressure in it. We still think we can grow the video business going forward and expect to grow the video business going forward. And we expect to sell packaged products going forward including data, mobility, voice and video.”

Rutledge added that the pressures on the video business include pricing, and something he has spoken out against in the past – content providers that allow customers to share passwords for streaming services with non-subscribers.

“Many programmers now are distributors whether they know it or not,” Rutledge added, either through authenticated TV Everywhere platforms or streaming shows direct-to-consumer. But he stressed that allowing consumers to share passwords affects the price-value relationship of video.

“There is an enormous ability for people to receive free content because of the way content distributors are securing their product ineffectively,” Rutledge said. “As a result of that, I think you will see continued pressure on video. But we expect that we can still grow a rich video package inside our product bundles. We’ll think we’ll do that at the expense of our competitors and we think that the general category will continue to decline slightly.”

Rutledge continued that Charter is happy with the way it is pricing and packaging its products, adding that he believes the company has “an excellent growth trajectory based on our pricing structure.”

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Charter lost about 90,000 video customers in the second quarter, an improvement over the prior year period and better than the 100,000 video customers it lost in Q1 2017. Rutledge has said in the past that he believed the company had turned the corner on subscriber defections as it has ironed out integration wrinkles in former Time Warner Cable systems. Despite what seems like an acceleration of those losses in Q3, Rutledge said he stands behind his words.

“We have turned the corner in terms of our operating strategy which will produce future revenue growth in excess of current revenue growth,” Rutledge said. “The way we know we turned the corner is we have more sales than we had year over year and we have less disconnects. That translates ultimately into more customers, higher quality customers, too, through time that produce revenue and produce net gains as well. Given the way we budgeted this business and the way we operate this business, it's almost exactly on the screws as to where we thought would be.”