Charter Working on Getting 'Skinny'

Rutledge Talking to Content Providers About Skinny Bundles; No Deals Yet

Charter Communications CEO Tom Rutledge threw his hat into the skinny bundle ring, telling analysts Tuesday that the MSO is working toward creating a high-quality, low-cost video package, but adding that he doesn’t expect to come up with a compelling offering anytime soon.

“We’re working through programming rights and access platforms …” Rutledge said on a conference call to discuss second quarter results. “We haven’t found the right mix yet, and we don’t think anyone else has either.”

Other operators have been experimenting with so-called skinny bundles – smaller packages of programming offered at a lower price point. Comcast, Time Warner Cable and Verizon FiOS all have introduced lower cost video packages to varying degrees of success. In April, ESPN sued FiOS over its “Custom TV” skinny bundle, claiming it was a breach of their existing programming contract.

Later, Rutledge said that the biggest roadblock to skinny bundles is content rights. And he added that customers interested in skinny packages aren’t critical of the larger bundles offered by pay TV companies, they just can’t afford them.

“It’s a cost issue,” Rutledge said. “When you look at the demographic changes in behavior, some of that is situational. People don’t have houses, don’t have big-screen TVs, don’t have money. You put that all together and the only way to get access to video is through over-the-top or on the small screen kinds of services. It doesn’t mean the bigger product is not desirable. It’s just that it’s expensive and people’s lifestyles are putting them in a situation where they don’t have access to them. A lot of that is a function of the economic situation.”

Asked if skinny bundles would ultimately lead to ala carte, Rutledge said ideally, Charter and other pay TV companies would buy content on a wholesale ala carte basis and make their own packages for customers. But he said given that the current distribution model is so lucrative for programmers, he doesn’t see a shift toward full ala carte in the near future.

“My sense is that this isn’t all about to fall apart,” Rutledge said. “We will be having this same conversation three years from now. I think there is nothing to incent anyone to pull it all apart.”

But with several content companies already testing the direct-consumer waters – HBO Now, Showtime and CBS All Access  – and others mulling the possibility, Rutledge warned that programmers could be devaluing their product.

“To the extent that people go ala carte direct, I think they lower their value to us,” Rutledge said. “I think you have a little of that already occurring in the ecosystem to the extent that people have leaked out content out of what they sell us into other spaces and in trying to go after ancillary revenues, they have devalued the core product. They may or may not be carried in the future as a result of that. Like all things, no trend goes unchecked forever.”