The big challenge Charter faces in making a bid for the much larger Time Warner Cable is that it might force Tom Rutledge to take on too much debt. But he seemed undaunted in comments to investors today at the UBS Global Media and Communications Conference. He currently wants to keep Charter’s debt at less than 4.5 times its cash flow, “but if there was an opportunity for us we would go higher.” He adds that today’s low interest rates make this “the best” time to borrow “that I’ve ever seen.” While he didn’t discuss any specifics regarding a possible deal, conceptually he says a company like his could make a transaction pay off by operating the company well “to unleash the full power of these networks” — for example by getting rid of analog transmissions and going all digital. That would help to increase subscriptions and “there is a big difference in value between growing subs and losing them.”(TWC lost 306,000 subs in Q3.) He also says that cable companies like his have to address the fact that they negotiate deals with “several large programming companies that have a de facto monopoly product” while he has to compete with satellite and telco distributors. “The good news is that our competitors have the same problem. The bad news is that people are getting priced out of the video market.” And “the trend lines don’t seem to be changing.” Although the FCC has some authority to regulate retransmission consent negotiations with broadcasters, it “has not done it.”
The comments by Charter CEO Tom Rutledge and Liberty Media CEO Greg Maffei on CNBC this morning may account for the 2% dip today in Time Warner Cable’s stock price. Investors are betting that Charter will make a rich offer for the No. 2 cable company. But Rutledge says …
Charter CEO Tom Rutledge indicated to analysts this morning that he’s intrigued by opportunities to consolidate. But he didn’t provide the details they wanted about what he and his largest shareholder, Liberty Media’s John Malone, are doing to make something happen with potential targets including Time Warner Cable, Cox, or Cablevision. Charter can be successful as it is, but “potentially, with the right deal, [we could] be even more successful,” Rutledge says. Charter will “continue to be disciplined about M&A opportunities when and if they arise.” Rutledge also sidestepped a question about how large Charter would have to become in order to significantly reduce outlays to cable networks, which typically offer their best rates to their biggest customers. “If you have a certain scale you have a certain leverage in programming negotiations,” Rutledge said although “how big you need to be is a difficult question to answer.” Independent analyst Craig Moffett was more definitive in a report this morning, observing that Charter’s programming costs “are unsustainably high, and only a deal with fix them.”
Charter’s Tom Rutledge didn’t make the point as forcefully as Time Warner Cable CEO Glenn Britt did this morning. But asked whether he might follow his colleague who vowed to cut underperforming cable channels Rutledge told the UBS …
“Cablevision is witnessing one of the most dramatic and rapid management turnovers we have ever witnessed in our coverage of the media universe,” says BTIG analyst Rich Greenfield — Wall Street’s fiercest critic of the company and its strong-willed CEO Jim Dolan. Greenfield commented after the Long Island-based cable operator announced that David Klein is leaving as head of Cablevision Media Sales, to be replaced by Gregory McCastle, who was with AT&T. The move follows the exit of COO Tom Rutledge (now CEO of Charter), CFO Mike Huseby (who just became CFO of Barnes & Noble), President of Cable Operations John Bickham, CMO Jon Hargis, Corporate Engineering EVP Jim Blackley, and Consumer Operations EVP Kip Mayo. Greenflield says that Dolan is taking control of operations because he blames the old guard for allowing the company to lose ”both its technology and marketing edge.” The problem? “We simply do not have enough confidence in Jim Dolan to drive free cash flow growth in 2013 and beyond,” Greenfield says. Cablevision has lost 58.1% of its market value over the last 12 months.
Here’s today’s announcement.
UPDATE, 5:15 AM: Cablevision provided this description of Kristin Dolan’s background and her responsibilities as Senior SVP of of Product Management and Marketing following the departure of Marketing EVP John Hargis: “She is currently focused on brand identity and new product initiatives, and has been with the company for more than 20 years. This includes many years working directly in the Cablevision product group, during which she took a leadership role in the development, launch and continued development of our iO TV digital cable service. For the last three years, she has been running our Strategic Product Development Group, focused on long-range development across all of our services. She is well known and highly regarded in the industry.”
PREVIOUS, WEDNESDAY 8 PM: Marketing EVP Jonathan Hargis, who has been with the company since 2000, is the latest high level exec to bolt — and that’s sure to leave investors even more baffled than they were before about CEO Jim Dolan’s plans for Cablevision. The official word is that Hargis will resign this month “to pursue other opportunities.” But the company release didn’t name a replacement, which suggests that Jim’s wife Kristin — who’s senior executive vice president of product management and marketing, and a member of the Cablevision board– will play a bigger role. Analysts who have tried to determine how broad a mandate she has, and how Jim plans to manage things, say that they’ve yet to hear satisfying answers. Prior to Hargis’ departure, BTIG’s Rich Greenfield urged management explain
That was quick. Just days after Tom Rutledge shocked the cable industry by leaving Cablevision, he has emerged as CEO of Charter. The No. 4 cable operator is still struggling to regain its momentum since 2009 when it emerged from bankruptcy protection. That’s been tough because many of Charter’s systems are in rural areas where satellite companies are popular. But Charter’s focused effort to build its broadband business, and make needed upgrades to its systems, has enabled it to outperform many of its cable industry peers. Charter shares are up 3.4% in after hours trading, recovering from the 3.3% drop during the day. Here’s the company’s release:
ST. LOUIS, Dec. 19, 2011 — Charter Communications, Inc. (NASDAQ: CHTR) (“Charter” or the “Company”) today announced that its Board of Directors has concluded its previously announced CEO search process and appointed Thomas M. Rutledge as President and Chief Executive Officer. Mr. Rutledge joins Charter immediately and will become the President and Chief Executive Officer effective February 13, 2012. Mr. Rutledge will also become a member of the Charter Board of Directors at that time.
You can have your pick of rumors this morning about why COO Tom Rutledge suddenly decided to leave — and what it means for Cablevision’s future. Maybe he had a falling out with Charles and Jim Dolan, who control the No. 7 cable operator (including Verizon and AT&T in the pack). Maybe Rutledge got a better offer to run Charter. Maybe the Dolans decided to try again to take Cablevision private — or to sell the company, logically to Time Warner Cable considering how many adjoining systems the companies have in the New York area. But since nobody really knows, investors are left to fear that the departure of one of the industry’s most respected operators means there’s trouble ahead: Cablevision shares opened down 13%. If that holds, then it would shave about $506M from the company’s market value and take the stock to its lowest point in more than two years. Miller Tabak analyst David Joyce lowered his stock recommendation to “hold” from “buy” — and lowered his short-term price target to $15 from $22 –saying that the news “puts a question mark over
UPDATE, 8:05 AM: The stock is down more than 13% in early trading, with the decline accelerating after the company’s conference call with analysts. CEO Jim Dolan acknowledged that “not all of our results in the quarter are where we want” — which he says is due in part to the decline in housing growth. But COO Tom Rutledge also said that programming is “the single biggest cost item that we have,” and the company is grappling with new retransmission consent payments to TV stations. “We’re absorbing the collapse of the broadcast industry business model,” he says. For now, the company is waiting to see whether the FCC will do something to help tame those rising costs. It’s also promoting a higher-priced video-phone-broadband package that features faster-than-average Internet speeds.