Rutledge: Fox, Univision Suits Part of Negotiating Process

Charter chief says programming deals naturally ‘contentious’

Charter chairman and CEO Tom Rutledge said recent litigation from Fox and Univision regarding its policy of adopting the lower Time Warner Cable rate card for all of its programming deals, a move that the content providers believe violates their contracts, was expected and is part of the overall negotiating process.

Univision and Fox sued Charter in July, claiming that the operator contends that it was purchased by Time Warner Cable instead of the other way around. The programmers have disputed that claim.

On a conference call with analysts to discuss its second quarter results, Rutledge said that the litigation was not a surprise.     

“The nature of programming relationships hasn’t fundamentally changed,” Rutledge said. “It’s still a contentious, contractual environment. Generally we have good relationships with our programmers. I think the litigation is part of the negotiating process in general. It’s going about where we thought it would go.”

Rutledge added that since the Time Warner Cable merger was completed on May 18, he hasn’t seen any big surprises, mainly because he has managed many of those properties before. Rutledge spent 24 years at Time Warner Cable, most recently as president of its cable operations, before leaving in 2001 for Cablevision Systems. He left Cablevision in 2011 to head up Charter.

“We have pretty good visibility into these businesses,” Rutledge said of TWC and Bright House Networks on the conference call. “I knew about seasonality in Florida, having managed those assets in the past. The pricing and packaging and the variability of offers is the most interesting opportunity to fix quickly. It creates a lot of activity and confusion in the marketplace both for consumer and employees of the company. Having a more logical, efficient selling machine will cause a lot of activity to go away quickly. There’s a lot more complexity there than even I thought was there, all of which means there is more upside.”

RELATED: Charter's New Road Map (subscription required).

Overall, the new Charter had a strong quarter but legacy Charter systems performed better than their acquired counterparts. For example, legacy Charter systems lost about 7,000 video customers in the period (an improvement over losses of 29,000 in the prior year) while video losses mounted at Time Warner Cable (73,000 vs. 43,000 last year). Bright House Networks showed improvement in video losses (72,000 vs. 96,000 in the prior year), but they were still heavy given Bright House’s small size (2 million total subscribers). Bright House is particularly impacted by seasonality because the bulk of its footprint is in Florida, where a large percentage of customers disconnect service as they leave their summer homes.

Broadband customer growth was strong at both legacy Charter and TWC systems (up by 90,000 and 183,000, respectively), while Bright House improved its losses to 37,000 in the period vs. 87,000 last year.

Investors appeared pleased too, driving Charter shares up 10% ($23.57 each) to $260.39 in early trading Tuesday. The stock was priced at $259.04, up 9.3% ($2.22 each) by the afternoon of Aug. 9.   

Rutledge said that a lot of the disparity on the video side has to do with the different pricing and packaging at the three units. At legacy Charter, which is priced and packaged more efficiently, customer churn is lower.

“Until we get the business priced and packaged properly, we’ll have churn rates in the legacy properties probably higher than legacy Charter,” Rutledge said. “Our strategy is to change the way those business market their services.”