Charter Discusses All-Digital Strategy, Highlights Full-Featured Set-Top Deployments
Like its larger industry peers before it, Charter is taking its cable systems “all digital” so it can reclaim bandwidth currently devoted to analog video and offer customers a more modern product, CEO Tom Rutledge said Friday on an earnings call. Unlike operators that made the transition by providing low-cost digital converters, or DTAs, to analog subscribers, Charter is planning to deploy as many full-featured set-top boxes as possible to analog homes, Rutledge said. The company has sought a waiver from some FCC CableCARD requirements while it develops a downloadable security feature (CD Nov 5 p5).
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Already, the company has stopped marketing analog cable services in all its markets, Rutledge said. Existing customers can keep it, but all new subscribers are being sold digital service, he said. As Charter’s digital penetration increases, it will reduce and eliminate analog service in some systems, he said. “We're going to do that predominantly with full-functioning set-top boxes, rather than with DTAs in order to offer a better user interface,” he said. DTAs allow TV sets to receive encrypted and unencrypted digital programming, but full-featured set-top boxes allow Charter to offer customers DVR service, an interactive programming guide, VOD and pay-per-view video, a spokeswoman said.
Charter is charging subscribers to lease these boxes, Rutledge said. It’s important for Charter to market the benefits of digital service so as many customers as possible sign up for it voluntarily, he said. Then the cable operator can decide to take an entire system all-digital, he said.” Charter can offer promotional rates on such hardware, he said. “Depending on the scenario, there are promotions necessary, sometimes, to make [the transition to digital] go as fast as you want it go,” he said.
Rutledge said Charter can keep its programming expense growth lower than other pay-TV distributors’ rate of increase, in part because Charter is already paying a higher rate on a per-subscriber basis than some larger operators. “If you look at Charter’s programming expenses as a percentage of revenue versus Time Warner [Cable’s] or Comcast’s, it’s higher,” he said. “We can actually have a slower rate of increase than others,” as the differences between small and larger distributor rates compress, he said.
Charter’s strategic changes made since Rutledge and his team took over last year are starting to pay off for the company’s operations, ISI Group analysts Vijay Jayant and David Joyce wrote in a note to investors. In Q4, the company lost fewer video subscribers than a year earlier, they noted. And even though the company added about 30,000 fewer broadband subscribers than expected, it did so despite not offering deep promotional discounts on the product that won it more new subscribers in 2011, they said. That should reduce the rate at which those customers leave in the future, they said.
Charter lost about 36,000 residential video subscribers during the quarter, an 18 percent improvement from a year earlier. It ended the quarter with about 4 million total residential video subscribers. It added 54,000 residential broadband accounts, 21 percent fewer than it added in the year-earlier period. It ended the quarter with about 3.8 million total residential broadband subscribers. And it added 34,000 residential phone customers, 26 percent more than it had in the year-earlier quarter, for about 1.9 million total. Quarterly sales increased 4.3 percent from a year earlier to $1.9 billion. It reported a net loss of $40 million, down 40 percent from a year earlier on lower interest expenses and a one-time gain related to paying back some debt. Charter shares closed up 10 percent at $85.02 Friday.