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Days of Getting a Cheaper Cable Bill by Threatening to Leave May Be Over

Days of Getting a Cheaper Cable Bill by Threatening to Leave May Be Over
(Dollar Photo Club)

Wednesday, 05 June 2019 08:28 AM

When Joshua May learned recently that his TV bill would increase by about $40 a month, he called Charter Communications Inc., expecting his cable company to negotiate a better price.

His previous provider, Time Warner Cable, had extended a cheap promotional rate several times so May wouldn’t cancel. But that was before Charter took over the company. When he called this time, the rep wouldn’t budge on the 29% jump for his bundled TV, internet and phone service. So May cut the cord.

“I expected they’d at least offer free HBO or Showtime,” said May, 34, who lives in Springfield, Ohio, and processes loans for a financial institution. “They did nothing.”

May’s experience reflects a growing trend, as pay-TV companies pull back discounts they’ve used for years to retain video subscribers. With internet service growing faster and more profitable, subscribers like May are becoming expendable.

“I’m sort of indifferent,” Charter Chief Executive Officer Tom Rutledge said at an investor conference last month. Two years ago, he said the second-largest U.S. cable company planned to add video customers. Now, they’re not even “a material driver” of Charter’s business, he said.

Over the past few years, pay-TV stocks have suffered wicked swings as investors reacted to growing subscriber losses. But they’ve recovered as the companies shift their focus to lucrative broadband services. Comcast Corp., the largest U.S. cable provider, is up 22% this year and Charter is up 36% to a 21-month high, outpacing the 12% gain for the S&P 500. That’s despite accelerating pay-TV subscriber losses at both companies last quarter.

‘It’s Been Fun’

“It used to be when customers would call and said, ‘I’m thinking of cutting the cord,’ they’d throw all sort of promotions to keep them from leaving,” said Craig Moffett, an industry analyst at MoffettNathanson LLC. “Now they’re saying, ‘Goodbye, it’s been fun, enjoy the broadband subscription.’”

Cable One Inc., a smaller cable company with about 305,000 residential video customers, even helps cord cutters choose between online alternatives like YouTube TV or Hulu’s live TV service, according to Moffett.

Executives at big cable companies say they have no plans to stop selling TV altogether, because offering more services along with internet access gives customers more reasons to stay. At the conference, Rutledge said Charter wants to create “relationships” with customers and “to the extent that video helps drive that or helps us market that, it’s a valuable asset.”

But cable executives are now focused on what they call “profitable” or “high-quality” video subscribers and less interested in cutting deals. At another investor conference in May, Comcast Chief Financial Officer Mike Cavanagh said he wants a subscriber who “really values video and our bundle despite the increases in prices,” and has “the wallet for a fuller video experience.”

Culling Customers

At the same conference, AT&T Inc. CEO Randall Stephenson said his company, which owns the satellite provider DirecTV, is “cleaning up the customer base” by letting go of subscribers who insist on keeping promotional prices when their contracts expire.

Pay-TV providers are making up for the lost revenue by charging everyone more. When subscribers cancel cable TV, they no longer get a discount for bundling TV with internet. When Optimum customers around the New York area cancel TV service, they also typically upgrade to faster -- more expensive -- internet, Altice USA CEO Dexter Goei said last month.

As customers drop pay TV, cable companies will actually see their profit margins widen, Moffett said. That’s because much of their pay-TV revenue goes right to channel owners, like Walt Disney Co. and its ESPN network, in the form of subscriber fees. Fueled by expensive sports rights, those fees are even rising faster than cable TV bills, hurting profits for companies like DirecTV and Comcast. Selling high-speed internet is far more profitable.

Profits Grow

Last quarter, Charter lost 26% more residential TV subscribers than a year ago. But it also added 19% more internet subscribers, fueling a 4.2% gain in adjusted earnings.

Charter appears to be courting internet-only subscribers through recent price changes, according to BTIG LLC analyst Rich Greenfield. Last year, the company raised the price of broadband bundled with other services by $5 a month, he said, while increasing internet-only service by $1. Internet without TV still costs a few dollars more, but Charter is closing the gap, he said.

“It appears as if you are purposefully pushing subscribers toward abandoning your video service,” Greenfield said in a note last fall addressing Charter executives.

‘Turkish Bazaar’

Since taking over Time Warner Cable in 2016, Rutledge has tried to end its promotional culture. He described Time Warner Cable as a “Turkish bazaar,” where customers called in and bargained with customer service reps. At one point, the company offered 90,000 different prices designed to keep cable-TV subscribers from cutting the cord.

When May called about his bill, Charter did offer him one alternative: a $15-a-month online-TV service called Spectrum TV Essentials. The new streaming service, which debuted in February, has more than 60 channels from programmers like Viacom Inc., Discovery Inc. and AMC Networks Inc.

May canceled after a few months because he missed the sports channels. Now, his Spectrum internet service costs $70 a month, and he gets Sling TV from Dish Network Corp. for another $40.

Since Charter acquired Time Warner Cable, efforts by customers to negotiate lower rates have gotten “much tougher,” according to Phillip Dampier, founder of the blog “Stop The Cap.”

“Do not be surprised if they shrug their shoulders and agree to your request to cancel your account on the spot,” Dampier said on his blog last month. “Spectrum, like many cable companies, has gotten pickier about who they offer promotions to, and are willing to say goodbye to barely profitable customers, especially those only subscribed to cable TV.”

© Copyright 2021 Bloomberg News. All rights reserved.

Over the past few years, pay-TV stocks have suffered wicked swings as investors reacted to growing subscriber losses. But they’ve recovered as the companies shift their focus to lucrative broadband services.
cheaper, cable, bill, leave, threaten
Wednesday, 05 June 2019 08:28 AM
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