Tens of thousands of ex-Time Warner Cable (TWC) video subscribers have canceled their service since the company was bought by Charter, and pricing changes appear to be the driving factor.
In the third quarter ending September 30, the first full quarter since the merger, Charter lost 47,000 video customers, with all of the losses happening in former TWC territory. Charter gained TV subscribers in its pre-merger territory and in the territory of Bright House, a smaller cable company that it also purchased.
“Quarterly video customer performance improved year-over-year at pre-deal Charter and at Bright House, while TWC video net loss was 54,000 worse than last year, primarily driven by an increase in video downgrade activity, given legacy pricing and packaging issues,” Charter CFO Christopher Winfrey said in an earnings call last week, according to a Seeking Alpha transcript. “So in total, we lost 47,000 residential video customers in the quarter, primarily driven by the losses at TWC.”
That’s a significantly worse performance for TWC than the third quarter of 2015, when the company reported “residential video net declines of 7,000—[the] best third quarter since 2006.” Still, it’s a lot better than the third quarter of 2014, when TWC lost 184,000 video subscribers.
TWC had about 10.8 million video subscribers before merging with Charter.
The TWC video customer base was “mispriced” and needs to be moved “in the right direction,” Charter CEO Thomas Rutledge said. As a story yesterday in Stop the Cap notes, customers are seeing their prices rise when discounts expire and they’re switched to non-promotional pricing. Charter expects to roll out new prices and packages to all markets by spring 2017, Rutledge said.
“The question, then, is how fast does that [new pricing] flow through the business in a corrective way,” Rutledge said. “But if you look at what we did at Charter, a substantial amount of the customer base turns over every year into new pricing and packaging through both churn activity and through upgrade activity.”
Los Angeles Times reporter David Lazarus examined pricing changes for ex-TWC subscribers last month. His own TWC Internet and phone package was set to rise from $65 to $120 a month once his promotion expired; switching to a similar Internet and phone package would change his price to $85, still an increase of about 30 percent.
Basic cable TV prices have been rising faster than inflation for 20 years, according to Federal Communications Commission data. The cost of programming has been a major factor in price increases, and a shortage of cable competition helps operators keep prices high. Still, some customers are choosing to replace traditional cable or satellite TV packages with online video services or to pare down their cable TV packages and supplement them with online streaming.
For Charter and other cable companies, video subscriber losses have been offset by gains in broadband subscribers. That continued in the third quarter as Charter gained 350,000 Internet subscribers, though this was down from the gains seen by Charter and TWC in last year’s third quarter before the merger. In Q3 2015, Charter added 369,000 Internet subscribers and TWC gained 232,000 Internet subscribers.
Charter has 24.6 million residential customers who subscribe to one or more services. About 21 million are Internet subscribers, 16.9 million are video subscribers, and 10.3 million are voice subscribers. In Q3 Charter increased revenue per customer by 1.8 percent to $109.69 per month and reported $10 billion in revenue and $189 million in net income.
Disclosure: The Advance/Newhouse Partnership, which owns about 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.