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Charter Cable TV Sub Losses Accelerate in Q3, CEO Blames Password-Sharing for Pressuring Bundles

Charter Communications, the No. 2 U.S. cable operator, missed Wall Street earnings expectations and felt the cord-cutting heat in the third quarter. CEO Tom Rutledge lashed out at programmers for putting “pressure” on the traditional cable TV bundle by allowing rampant password sharing.

The company, which last year assimilated the operations of former Time Warner Cable and Bright House Networks, reported a decline of residential video customers of 104,000 for Q3. That was more than double the 47,000 lost in the year-earlier period. As of the end of September, Charter had 16.5 million residential video customers.

Charter said the video customers it lost were primarily those with legacy Time Warner Cable limited-basic cable.

Charter’s Q3 revenue of $10.5 billion grew 4.2%. Net income fell 75% to $48 million, which the company attributed to an increase in depreciation and amortization costs in the quarter. The operator posted earnings per share of 19 cents, far short of Wall Street analyst forecasts of EPS of 66 cents, and Charter shares fell as much as 9% Thursday on the earnings miss and the video-subscriber declines.

Rutledge, on a call with investors, complained that TV programmers are hurting the price/value equation of traditional pay-TV because of password sharing and multiple-stream products for their authenticated TV Everywhere apps. That allows single-person households “to purchase one product and share it among multiple users,” he said. “That affects the price/value relationship of video in general, and that affects what people are subscribing to.”

Rutledge continued, “There’s an enormous ability for people to receive free content because of the way content distributors are securing their product so ineffectively.”

It’s not a new burr under Rutledge’s saddle: The Charter boss two years ago raised similar gripes about the deleterious effect of password sharing for programmers’ authenticated TV apps.

Even with the decline of TV subs in the quarter, Rutledge said he expects Charter will be able to see growth for a “rich video package inside our product bundles, and we think we’ll do that at the expense of our competitors.”

“We are actually growing customer relationships with high-quality, rich-featured, fully serviced and fully featured video products,” the CEO told investors.

In its residential broadband segment, Charter posted a net gain of 249,000 subscribers, versus 350,000 net adds in Q3 2016. “Single-play” customers — those with just one service — increased 9.8% year over year, to 10.4 million, while triple-play subscribers grew 1.5%, to 8.7 million.

“Charter has not yet pivoted its model in a way that recoups lost video margins through higher broadband rates,” MoffettNathanson principal analyst Craig Moffett wrote in a research note, “and they continue to argue they don’t need to. The market apparently disagrees, and frankly so do we.”

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