Editor’s Corner—What Comcast, Charter and others did to keep their customers in Q2

Cord cutting
Comcast, Charter, DirecTV and Dish Network all worked to improve churn during the second quarter. (Wikimedia Commons)
Editors_Corner-MUNSON

Cord cutting continues to be the buzziest of buzzwords ascribed to the national exodus of pay TV subscribers, and operators are fighting to curb the rise of video customer churn.

The trend could be improving, but it’s still a big topic of discussion.

During the second-quarter earnings season, Comcast, Charter and a host of other providers and programmers each addressed churn during their analyst and investor calls.

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Comcast

Comcast’s strategy for addressing video subscriber churn continues to be somewhat antivideo, as the company ramps up its reputation as a connectivity company, not a cable company.

During Comcast’s second-quarter earnings call, CFO Michael Cavanagh said the company won’t chase low-profitability video and instead work to build customer-level results in different ways.

“… It shapes the effort to add other products like Xfinity Mobile where we're seeing good results at the beginning and that's our hopes anyway, something that can add some incremental profitability at the per customer level and hopefully over the long term keep churn low in the existing business. So, all those factors together make us feel very confident about the long-term trajectory and the return dynamics of [Comcast Cable CEO] Dave's business,” Cavanagh said, according to a Seeking Alpha transcript.

Comcast also continues to enhance its X1 cable platform, including a recent integration of Amazon Prime Video. These could be reasons why even though Comcast is still losing video subscribers, it’s doing so at a slower rate than the rest of the industry. MoffettNathanson analyst Michael Nathanson noted that Comcast’s rate of video declines this quarter was 1.7%, less than the average 3.7% rate at which the pay TV industry is shrinking.

“Going forward, Comcast’s video base will inevitably continue to shrink, but it will just as inevitably continue to take share from satellite on the way down,” Nathanson wrote in a research note.

Charter

Charter CEO Tom Rutledge freely admitted during his company’s most recent earnings call that video by itself just doesn’t cut it anymore.

“We’re going to use video aggressively. But what we’re saying is, it really isn’t a standalone product in its current situation,” Rutledge said.

Regardless, Charter managed to slow its video subscriber losses down to 73,000 for the quarter, and that could be a result of Rutledge embracing changes in the video landscape and video’s role at Charter.

“As part of a service package, video drives connects, reduces churn and drives higher satisfaction and remains an integral part of our business strategy, even though it drives less standalone profit over time. That video relationship helps us market our connectivity services and advanced advertising to both new and existing customers. What a video subscriber or viewer is and how the video market is defined is changing, while total video consumption is going up,” Rutledge said, according to a Seeking Alpha transcript.

Charter said all of its video subscriber losses are currently coming from the very lowest service tier; as Jefferies analyst John Janedis points out, Charter’s streaming video products are having a positive impact.

Nathanson noted that by losing limited basic video subscribers, Charter may be able to sell them broadband at nonbundled pricing and reduce nonprogramming cost to serve.

“… It is almost certainly the case that the economic impact of losing these subscribers is negligible … or even positive,” Nathanson wrote.

DirecTV

As AT&T’s DirecTV (along with Uverse) continue to lose subscribers, the company continues to emphasize its virtual MVPD DirecTV Now.

DirecTV Now added another 342,000 subscribers this quarter, bringing the total for the service to 1.8 million. But AT&T only recorded 80,000 total video net adds during the quarter, suggesting that the company’s traditional video platforms lost more than 250,000 subscribers.

AT&T made a move to extend its streaming reach this quarter with the launch of WatchTV, a $15-per-month streaming bundle that excludes live sports. AT&T Communications CEO John Donovan said that launch is a concerted effort to win back consumers who bailed on the big TV bundle.

“Customers we lost in cord nevers and cord cutters, we replaced with products that fit their affordability range. We watched cannibalization closely. Roughly 15% to 17% on every given—in any given month is the cannibalization rate, but one-third of those are listed in our linear TV product. It's very likely to churn because of their engagement and where the costs don't fit,” Donovan said, according to a Seeking Alpha transcript.

Morgan Stanley analyst Simon Flannery said that although traditional TV is still trending downward for AT&T, there’s some reason for optimism.

“Linear TV losses continue at a significant pace, driving a 6.4% underlying reduction in Entertainment group revenues and a near 17% decline in EBITDA. Having said that, EBITDA did improve on a sequential basis in Entertainment group, and linear TV losses of 262k in the quarter were 89k fewer than the year-ago quarter,” Flannery wrote in a research note.

Dish Network

Much like DirecTV, Dish Network continues to prop up its virtual MVPD to help stop the flood of subscribers exiting its satellite TV service.

During the second quarter, Dish said it lost a net 151,000 pay TV subscribers, an improvement over the 196,000 subscribers it lost in the year-ago quarter. Dish’s satellite service lost 192,000 subscribers, and Sling TV subscribers rose by only approximately 41,000.

Dish Network CEO Erik Carlson said that Sling TV is doing a good job of attracting customers in urban areas, while the core Dish product is still doing well.

“And I think of the DISH side, obviously, you can see from the churn numbers, we’re doing a better job of attracting profitable customers who want to be with us long-term. And we’re not seeing a lot of increased pressure on the DISH base from cord cutting,” Carlson said, according to a Seeking Alpha transcript.

The company said its churn rate was 1.46%, down from 1.83% for the second quarter of 2017. Dish partly credited its improved churn rates to the investments it’s been making in customer service, including the recent addition of Apple Business Chat.

Nathanson said there’s still some potential upside for Dish’s satellite business, particularly if cable and telecom companies can’t follow through on taking video share away from satellite and if programming costs go down. — Ben | @fierce__video

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