As Charter prepares to tee up a streaming video product with JV partner Comcast, the cable operator reported losing 112,000 traditional video subscribers in the first quarter.
The results weren’t as bad as financial analysts’ expectations projecting losses of 139,000. Charter’s tally includes losing 123,000 residential customers and net additions of 11,000 for small and medium business customers. It compares to the 138,000 video subs Charter lost in Q1 of 2021.
In Q1 total revenues rose 5.4% year over year to $13.2 billion as Charter recorded customer gains for broadband and its MVNO mobile business Spectrum Mobile.
As traditional video continues to decline, Charter on Wednesday announced the formation of a 50/50 joint venture with Comcast, leveraging the latter’s proprietary operating system (currently used with its Flex aggregation platform and X1) and hardware for a next-gen streaming platform that will be integrated on smart TVs and 4K streaming devices sold in retail stores and potentially by the operators.
“Our joint venture will provide video, delivered by apps, a competitive app store, on-TV applications and is capable of aggregation, navigation, search and curation, billing and content security,” said Charter CEO Tom Rutledge on Friday’s earnings call. “It will give consumers new devices and content providers new opportunities to create customer relationships on a platform designed to help them sell video effectively.”
The company has “high expectations” for the venture that it can work with Comcast to continue to develop and distribute the platform.
Rutledge cited a history of success between the partners on their respective mobile businesses, where they already have a joint venture in place. He noted that together the cable operators collectively added more mobile subscribers in the first quarter than the wireless industry combined. Comcast just reported Q1 yesterday, adding 318,000 Xfinity mobile lines, with Charter adding 373,000 Spectrum Mobile lines.
Asked by financial analysts on the call if there’s a vision where Charter takes Comcast’s Flex box and makes it the primary video form, and all video is IP, Rutledge said “the answer is yes.”
“I expect incrementally that most of our customer base will be all IP,” he said. And spectrum that’s currently used can be recaptured overtime, he noted, adding that there are various ways of compressing and that capacity realized will be used to increase broadband speeds or handle capacity needs as the result of overall data usage.
As Charter looks to increase its share in the existing broadband market, one of its strategies is packaging, by offering a value proposition that’s better than individual components consumers are buying from various providers, according to Rutledge, who noted mobile is a key growth factor to that.
Less expensive video options is one way Charter’s been trying to attract more customers in its legacy businesses, offering skinnier bundles for those that want them. And Rutledge reiterated that Charter still thinks there’s opportunity in video, pointing to success the cable operator has had with creating additional options for customers.
“We’re continuously improving the right structures around what we’re able to sell and it’s been difficult because of the way historically video’s been packaged in this very fat expensive bundle that’s driven by sports rights costs,” he commented. “And as we’ve been able to get some of the content out of that ecosystem and put into tiers, and we’re successfully selling those…I think over time we’ll be able to build a very nice video business.”
In Q1 Charter’s video revenue was impacted by $20 million for credits paid to customers because of the lack of sports programming during Covid, offset by the same amount in sports cost savings, according to Everscore ISI.
In terms of monetizing a streaming platform with Comcast, Charter’s chief executive cited opportunities for advertising revenue and transaction revenue on the product as the money drivers.
“That requires having a full set of content opportunities and using your IP and your marketing skills in a digital space to drive consumer activity and viewing,” Rutledge continued.
While Comcast is contributing intellectual property and retail distribution at Walmart, among other aspects, Charter is initially throwing in $900 million for the JV over multiple years. It’s targeting 2023 for to offer 4K streaming devices and voice remotes.
For the capital contribution, executives said in the grand scheme of things from a development perspective “it’s relatively minor” particularly in the context of the CPE business, where Charter usually sits and is required to purchase CPE to provide customers.
“This in many cases will be a retail product,” Rutledge said regarding the streaming platform.