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2 May 2019

Charter weighing up X1 so why not embrace Android TV?

Charter Communications has long been lingering on the periphery of licensing Comcast’s X1 video platform and the can of worms was reopened this week during the company’s earnings call, implying Charter’s own video technology – which it has spent substantial time and cash developing – is not capable of cutting the mustard long-term.

These comments from CEO Tom Rutledge came as Charter posted a poor quarter of TV losses, dropping by 152,000 subscribers in Q1 2019 to under 16 million for the first time since integrating the Bright House Networks and Time Warner Cable businesses (a combined 22 million at the end of 2015). The latest spate of cord cutting makes it 327,000 net video subscriber losses for the year to date period, with the latest fatalities signaling a concerning escalation since the slowdown throughout last year – from 36,000 video sub losses in Q4 2018, 66,000 in Q3, 73,000 in Q2, and 122,000 in Q1. This time, we’re not convinced Charter can claim another case of first quarter syndrome strikes again.

Rutledge said Charter was “down the road” with the development of its own user interface but cited a “good relationship with Comcast” regarding previous discussions about licensing the X1 platform and new IP video platform. “If we can make that the best platform for us, we’d certainly be willing to do that, and we think it’d be a great provider,” commented Rutledge.

So, what’s stopping it? Apparently, Charter’s ability to chop and change its own UI when it chooses “to the extent we’re different than Comcast or anyone else out there” is currently too much of a marketing godsend than the technological superiority of X1 as a video platform. “We want to be able to continue to have that capability. So, if we can check all the boxes in terms of having complete flexibility and low cost, we could become a vendor of Comcast in terms of our platform. To-date, we haven’t been able to do that,” said Rutledge, rather ambiguously.

This has really thrown the cat among the pigeons in terms of the lifespan of the ActiveVideo technology, which Charter and Arris jointly acquired in April 2015 for $135 million. ActiveVideo’s cloud technology supports Charter’s network and device upgrade, powering the Charter Spectrum Guide on Worldbox set tops, as well as on legacy hardware currently deployed within the Charter footprint. The most recent UI has a guide streamed in video using MPEG stitching – whereby ActiveVideo’s technology changes the guide from IP format to streamed MPEG and renders it inside the video.

In this way Charter has removed the need to switch out around 4 million set tops in the US – so ActiveVideo has no doubt proven its worth. But change is coming at Charter and if the operator is willing to enter discussions to license technology from a rival cable operator, then why would Charter not be willing to embrace Android TV operator tier? The US resistance against Android TV is waning and Charter has just inadvertently tipped itself to be the technology’s US breakthrough.

As for new video products launched in the quarter, Charter cited investments in the TV Essentials package, plus Spectrum Stream and Choice products – also rolling out cloud DVR functionality for these streaming products. It says Spectrum Guide is now fully rolled out to all new video connections with a set top in over 90% of its footprint. It is also currently in the early stages of offering in-app, on-box upgrade capabilities.

Elsewhere in Charter’s Q1 report, internet subscribers increased by 398,000 to just over 24 million, while voice declined by 120,000 to 10 million subs. After launching Spectrum Mobile in September 2018 to new and existing Spectrum internet customers, Charter picked up 176,000 mobile lines in Q1 2019 to total 310,000.

Video revenues remained largely unimpacted by subscriber losses, rising by 2.1% to $4.4 billion for the quarter, from total revenue of $11.2 billion, up 5.1%.

Addressing whether Charter is deemphasizing video, Rutledge said, “I think with satellite declining at the rate it is there are opportunities for us to convert those customers into our customers along with making them our broadband customers. And so we still think that video is a driver for us in terms of customer creation.”