Nov. 14 (Bloomberg) -- Charter Communications Inc., looking to shrug off an industrywide decline in cable-TV subscribers, is introducing a digital version of its service under a new brand.
The company will start selling the digital-TV and broadband service in the first quarter of 2014, calling it Charter Spectrum, with the idea that it could increase video customers -- or at least keep the ones it already has. The cable industry suffered a 3.3 percent drop in video customers last quarter, hurt by competition from phone companies and satellite providers such as DirecTV, according to data compiled by Bloomberg.
In rolling out a digital service under a new name, Charter is following in the footsteps of Comcast Corp.’s Xfinity and Cablevision System Corp.’s Optimum. Until now, Charter’s customers have mostly received analog-based channels -- an outdated technology that competitors have abandoned in favor of digital interfaces and more high-definition channels.
“It’s hard to overstate just how weak Charter’s video product had gotten,” said Craig Moffett, founder of research firm MoffettNathanson LLC. “Now, for the first time, they will be broadly marketing a video product that can stand toe-to-toe with DirecTV’s.”
Charter’s new digital service will give customers twice as many high-definition options -- more than 200 channels, up from from an average of 100 channels. It also includes faster broadband speeds of more than 45 megabits per second, the Stamford, Connecticut-based company said.
“This isn’t really just a new product set we’re selling -- it’s a new brand,” Chief Marketing Officer Jon Hargis said in an interview. “It’s a big operational task to go all digital.”
The move also will help Chief Executive Officer Tom Rutledge tout Charter as a more attractive merger partner, Moffett said. Billionaire John Malone, who acquired a 27 percent stake in Charter in May, has been has been exploring ways of combining the company with Time Warner Cable Inc., people familiar with the matter have said.
Time Warner Cable lost more than 300,000 video customers last quarter from the previous three months, the worst performance among U.S. pay-TV companies. That may increase pressure to do a deal, Moffett said. Charter, meanwhile, shed about 27,000 video subscribers in the period.
Malone’s overtures to Time Warner Cable are part of a broader push for consolidation in cable. Pay-TV companies are shelling out more to carry programming from the major cable and broadcast networks, and Malone has said that bulking up would help them extract better terms.
Ironically, Charter’s weaker starting position gives it an advantage over other cable companies, Moffett said. A much-improved product makes it more likely to start adding video subscribers again, even if its technology is playing catch-up, he said. Charter also has less competition in its regional markets than other cable companies.
Charter is the fourth-largest cable provider in the U.S., with 4.3 million video customers. The company currently only sells to 34 percent of the 12.8 million households wired for its service. In addition, the move to digital channels lets the company operate more cheaply since it can manage transactions remotely, without the need to send technicians to individual homes, according to Moffett.
About 60 percent of the company’s customers shifted over to a revised pricing plan adopted in July, and they will get the upgraded service at no additional cost, Hargis said.
Last week, Charter unveiled live viewing applications for Apple Inc.’s iPad and iPhone, letting customers watch 100 channels on the devices. It’s also a feature most other major cable providers already have. About 37 of the 100 channels on Charter are viewable outside the home, including ESPN, HBO, Showtime and NBC. A version for Google Inc.’s Android operating system will be available before the end of the year.
By the first quarter of 2014, digital service will be available to about a third of the households wired by Charter. The remaining two-thirds will get digital capability through the following nine months, according to Hargis.
Despite all the advantages of the newer technology, the company will probably have to educate its customers on why they should upgrade, he said.
“Customers are looking for a clear winner in this debate over who can deliver the best value,” Hargis said. “My job as a marketer is to just make sure the customers understand that.”
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