Rutledge Reverses Charter’s Sub Loss in First Quarter


Charter Communications CEO Tom Rutledge
added considerably to his legend last week, powering the
St. Louis-based MSO to its first positive basic-video subscriber
quarter in five years.

Rutledge joined Charter in December after a storied eight
years at Cablevision Systems: on his watch, the MSO led the
industry in practically every
subscriber-growth metric.
So he was expected to bring
strong operational acumen
to Charter. But even
the most optimistic analysts
weren’t expecting this:
At 20,000 basic video additions,
Charter turned consensus
estimates of a loss of
22,000 basic-video customers
in the period on its ear.

The video growth effectively
reverses a 24,000-subscriber
loss in the prior year.
Charter also grew highspeed
data customers by
141,000 and phone subscribers
by 31,000 in the period.

On a conference call with
analysts, Rutledge attributed the video growth to more effective
packaging and a focus on driving digital penetration
through additional HD channels. St. Louis-based
Charter had originally expected to grow its HD offerings
from 75 to 100 channels by year-end. Now, the MSO believes
it will hit that milestone by the middle of 2012.

That emphasis on digital — about 83.1% of Charter customers
are digital video customers, compared to 78.3%
last year — going forward
will help drive superior
picture quality
and the ability to bundle

Charter also grew residential
non-video subscribers,
ending the
quarter with 849,000, up
8% from the 784,800 in
the prior quarter. Rutledge
said on the earnings
call that while video
growth is important, the
company also believes
there is a place for customers
who get their TV
from other sources.

Video is an essential
part of the product mix,
Rutledge said, “but that doesn’t mean that in places where
video doesn’t work as a driver that we shouldn’t use other aspects
of our network, like high-speed data and voice and Wi-
Fi, to create additional opportunity.”

Charter has been an aggressive discounter in the past
several quarters. As oneexample, it offers a 30 Megabit-persecond
high-speed data service at the promotional price of
$30 per month, about half of what its competitors charge.

It appears the discounts are continuing — video revenue
was down 2.4% in the period, to $895 million from
$917 million, despite the gain in customers. Total revenue
rose 2.8% to $1.8 billion while earnings before interest,
taxes, depreciation and amortization declined 2%,
to $652 million.

“We suspect that heavier marketing and more aggressive
promotions of triple play packages helped drive the
[subscriber] beat,” Credit Suisse media analyst Stefan Anninger
wrote in a research note.

In a research note, ISI Group media analysts Vijay Jayant
and Judah Rifkin noted that Charter’s results indicate
the company has decided to sacrifi ce short-term profits
for long-term gains in market share.

“Charter is a historically underpenetrated, underinvested,
underperforming cable provider,” the analysts
wrote. “Today’s results — driven by the best unit growth
we’ve seen in years — give us optimism that the company
now has a plan (grow units and eventually up sell to
improve margins and profitability).”