Charter Communications CEO Tom Rutledge said entrenched video content providers forays into the Over-the-top space has some risks, including turning their large businesses into much smaller ones.
“I think for any entrenched video provider to begin breaking up their carriage in a big bundle and going over the top puts them at great risk of being a much smaller business,” Rutledge said at the UBS Global Media & Communications conference in New York. “The model today if your carried by cable and satellite is you get 100 million homes of distribution and you get to sell advertising against that entire universe. It’s hard to imagine selling that to niche markets or in an ala carte market where you would end up with similar penetration. If the whole market were sold a la carte today I think you’d take a $70 billion ecosystem and turn it into a $7 billion ecosystem. You see some people playing around the edges thinking there are incremental dollars. To some extent they are playing with fire.”
While there are over-the –top successes – mainly Netflix – Rutledge said that as more and more content companies are lured into distributing programs direct to consumers, the less valuable it becomes to pay TV operators like Rutledge. But that could also present an opportunity for distributors.
“I’m encouraged by over-the-top providers and what they do to our business,” Rutledge said. “At the same time, to the extent I can save money by not paying somebody to be carried because their content is generally available elsewhere, I think that is an opportunity. I look at this as a mixed bag of opportunity - to save money, to grow the broadband business and if the content providers wisen up, to have a rich video business. I don’t think the whole world’s going to fall apart in a short period of time. Because if you think about how valuable the model is, it makes no sense for people to destroy it.”
Rutledge said there is opportunity for so-called “skinny” video packages, offerings that don’t include channels – particularly sports channels – that are generally required to be part of the most popular cable packages currently.
“My biggest problem with customers and growth is it costs too much,” Rutledge said. “It’s not that people want to be cord cutters – they don’t want to pay for what they don’t want to get.”
Being able to offer a suite of channels without sports would make customers happy, cable operators happy, but not content providers.
“If I could sell it that way I would,” Rutledge said. “If I could sell over the top I would. If I could mix and match over the top with bundles in different ways I would and will.”
While content companies wrestle with their OTT strategies, Rutledge said Charter is getting ready for the integration process concerning the subscribers it will acquire through the series of swaps, sales and spins in the wake of the Comcast-Time Warner Cable merger. After that deal is completed, Charter will acquire about 3 million customers from TWC-Comcast and become one-third owner of a separate publicly traded spin-off – GreatLand Connections – with about 2.5 million subscribers. Rutledge said Charter is getting itself ready for the integration process, adding that while most of the Comcast systems and about 600,000 subscribers in the former TWC systems are all-digital, about 2.4 million customers are in systems that “look like Charter did a couple of years ago."
Charter’s all-digital conversion should be completed soon – Rutledge said the company is shtting down its last analog system this week. A cloud-based guide, similar to Comcast Xfinity platform, will begin rolling out in the spring and should be available to more than half of its footprint by the end of 2015.