Can Charter Rein in Its Programming Costs?
Rising programming costs
Programming costs are significant cost considerations for media companies. For Charter Communications (CHTR), programming costs have been trending upward for the past few quarters, rising ~9.6% YoY (year-over-year) in 2Q17.
CHTR’s programming costs rose $2.6 billion in 2Q17 from $2.4 billion in 2Q16. This increase was mainly due to contractual increases and expanded basic video sell-ins from the Time Warner Cable merger, which were partially offset by transaction synergies. Charter’s management doesn’t think that these price increases will decrease anytime soon.
According to a FierceCable report on July 27, 2017, “Programmers are going to drive revenue primarily from rate increases,” and Charter’s “objective is to manage that [because] it’s a high-cost business.”
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Comcast also expects higher programming costs
Peer Comcast (CMCSA) also expects higher programming costs for the rest of 2017, but Comcast anticipates that programming costs will normalize after 2017, expecting costs to decline to high single digits. For Comcast, a major component fueling the rise in programming expenses has been rising sports programming expenses and higher retransmission consent fees.
Time Warner (TWX) also anticipates higher programming costs this year—specifically for HBO—as the company is increasingly focusing on premium programming. Time Warner is also concentrating on producing content that’s mobile-friendly with broad viewer appeal.