While Charter Communications in the fourth quarter reported strong additions for its MVNO wireless service, and also grew internet subscribers, the cable operator continued to see its pay TV video base shrink.
Charter came in better than expected on the pay TV front but still lost 145,000 residential cable video subscribers in Q4. At year-end 2022 Charter had a residential video base of around 14.49 million, reflecting a 4.7% decrease from the end of 2021. While it continued to count video losses Charter is shedding fewer subscribers than other cable companies, namely Comcast, which on Thursday reported losing 419,000 in Q4.
During Friday’s earnings call executives attributed the slower decline at Charter in part to its ability to offer lower priced and skinnier pay TV packages.
“Our philosophy has always been to give the customers what they want and typically they want more programming and we try to do that at the best price we can. It’s also based on the capacity of their wallet, so having some of these packages actually allows us to sell more video products which is to the benefit of the programmers,” said Charter CEO Chris Winfrey said, pointing to results that include lower losses than others in the market.
“That’s a result of our ability to drive video based on what the consumer wants and what they can pay, and sometimes those are in conflict,” he commented.
Winfrey said if Charter had more flexibility to change around its packages than it does today it could solve some of the problem that exists in the video space “and grow for the benefit of the programmers” while adding that its’ something that’s “difficult for them [programmers] to get their head around.”
Charter Executive Chairman Tom Rutledge noted the company still has limitations on what it can do contractually for video packages, but has been moving some of those restrictions as it negotiates contract renewals.
However, he said the video industry is still structurally flawed, where there are high-priced fat TV packages “with everything in it” and then content companies that can offer much lower pricing with content separated out of the TV package, which Rutledge noted can create value for consumers but is a different model and requires different selling.
“It’s not a solved situation in terms of the way the marketplace is structured, it’s still structured in a way that continues to make video an expensive product for most consumers,” Rutledge said.
In Q4 Charter’s programming costs were down 3.3% year over year, driven by fewer video customers and a higher mix of skinny video packages, partially offset by higher programming rates. Looking ahead at 2023 the company expects programming costs per subscriber to be relatively flat.
Charter CFO Jessica Fischer emphasized expectations for flat programming per sub costs aren’t a reflection of the price of programming coming down.
“It’s a mix issue,” she said during the call, noting the base will be smaller in 2023. “Certainly not an issue that programmers are no longer raising rates.”
And Charter doesn’t appear to be inclined to pay high prices for content that’s widely available, both due to the proliferation of services and piracy issues. But according to Winfrey, it’s not so much that the company is taking a hard line when it renews deals with content owners.
“It’s just more indifferent about the carriage of certain content at a higher or increasing price when it’s available all across the market or even for free, so that’s not a harder line, that’s just the reality of where we’re at,” Winfrey said. The two biggest issues inside the content category, in terms of driving cost increases to consumers and a lower margin business, continue to be retrans fees for free over the air content that Charter has to pass on to customers and the development of sports, according to Winfrey.
Challenges that make video an expensive product for consumers is something he said Xumo, Charter’s joint venture with Comcast, can help a lot with.
“You take the very best from the Comcast platform, including the voice remote and pair that up in our footprint with Spectrum TV app and live video with all the different packages that we have that can be tailored to a consumer’s appetite and as well as their budget,” along with streaming services they pay for into a single platform where users can consume video with unified search and discovery, he noted. “I think that’s pretty powerful.”
And to the extent that Charter can change the requirements in its programming agreements mentioned earlier, Winfrey believes the company could sell more video packages.
On the JV front, Xumo smart TVs are set to debut later this year, built with partner Element Electronics. On Comcast’s fourth quarter earnings call executives also highlighted plans for a single global user interface across Sky Glass, Xfinity, X1, Flex, and Xumo.
As for Charter’s Q4 results, residential revenue, which doesn’t include mobile, increased 0.4% to $10.26 billion. Total revenue of $13.7 billion grew 3.5% year over year, driven by mobile revenue, advertising sales and commercial revenue. Net income of $1.19 billion was $414 million lower than the fourth quarter of 2021. Adjusted EBITDA was $5.48 billion, up $103 million year over year.