Charter Communications is considering taking TV over-the-top, a la Netflix, to a national audience.
The operator announced the launch of an Internet TV app to let customers stream more than 100 live channels inside their homes, and at some point it may market broadband video services across the U.S., CEO Tom Rutledge said.
Eventually, Rutledge said, as Charter’s content distribution rights evolve, “We may sell subscriptions everywhere” — that is, offer TV or video-on-demand video services outside its footprint. But he added that today the company is focused on serving customers within its existing service areas.
“As our content rights evolve through time, we may find different ways of pricing and packaging content,” he said.
To deliver the new Charter TV app service, the operator built an IP-based video delivery system that can technically deliver TV to any endpoint. “Essentially it’s the creation of a singular, unicast network that allows you to stream to any kind of devices, anyplace, any time,” Rutledge said on the operator’s third quarter earnings call Tuesday.
Charter also is testing a “cloud” user interface for new and existing set-tops, to provide a consistent user experience for customers, Rutledge said. ”Our video product has been challenged,” he said. “Part of our strategy over the last year and a half has been to improve our video product and make it better… and it is.”
The Charter TV app is available initially for Apple iOS devices, with an Android version on deck. In addition to live TV, the app lets subscribers browse on-demand titles and TV listings, schedule their DVRs or use a mobile device as a remote control for their set-top.
For the quarter ended Sept. 30, Charter dropped a net 27,000 video subscribers, a major improvement over the net loss of 71,000 in the year-earlier period. The MSO, the fourth-largest U.S. cable operator, also added 86,000 broadband and 41,000 phone customers.
To gain scale, Charter has been interested in acquiring or merging with other operators, and is weighing a new bid for Time Warner Cable, Reuters reported last week. Such a deal would be in conjunction with John Malone’s Liberty Media, which holds a 27% stake in Charter.
Charter execs declined to discuss the company’s M&A plans on the call with analysts, although they acknowledged that the MSO’s net operating loss carry-forwards would provide tax benefits in a merger or acquisition. Charter exited bankruptcy reorganization in late 2009.
But while Charter’s operating metrics have improved, and TW Cable turned in “atrocious results” for Q3 following its CBS blackout, the potential synergies may not be enough to sway shareholders of the larger operator a deal makes sense, MoffettNathanson analyst Craig Moffett wrote in a note.
“[T]he odds of a deal coming together have unquestionably grown,” Moffett wrote. But a deal would leave the combined entity heavily in debt, which “gives the [Time Warner Cable] board its most credible air cover in fending off Charter’s overtures.”
Meanwhile, Rutledge was asked on the call whether Charter is pondering a package similar to Comcast’s Internet Plus — which offers HBO, broadcast TV and high-speed Internet for a lower price than typical bundles — or partner with an over-the-top streaming player like Netflix. He responded, “We have no plans to change our go-to-market strategy.”
A major initiative at Charter is converting to all-digital video across its entire footprint, a project expected to be completed by the end of 2014. That will let Charter boost broadband speeds as well as deliver more reliable, higher-quality video, Rutledge said.
Rutledge said Charter’s broadband-only growth has been greater than he thought it would be, partly because of the operator’s weak video offering. But, he added, “I see our 1.3 million broadband-only customers as a selling opportunity for us” to take video as well.
Overall, Charter posted revenue of $2.1 billion, up 5.4% on a pro-forma basis (incorporating results from Bresnan Communications acquired from Cablevision). Pro-forma earnings before income tax, depreciation and amortization were $732 million, up 5.3% (versus 1% in the year-ago period).
Charter narrowed its net loss for the quarter, to $70 million (68 cents per share) versus $103 million ($1.03 per share) a year earlier on a pro-forma basis.