Charter Communications (Nasdaq: CHTR) is hungry for video customers. The cable company has made TV service clients out of just 34% of the homes passed by its coax cables, which lags far behind most of its rivals. CEO Tom Rutledge likes to spin this situation as an opportunity, given that there's plenty of potential low-hanging fruit to be snagged without installing any extra infrastructure.
To convert that opportunity into sales and profits, Charter wants to offer its subscribers a better service than AT&T (NYSE: T) U-verse or Comcast (Nasdaq: CMCSA) could. "We accelerated the expansion of our HD offering with over 100 HD channels available in substantially all of our footprint," Rutledge said. The idea is to drive higher revenue per customer as subscribers get attached to better and more expensive offerings.
The kicker to that strategy is the longstanding partnership with DVR expert TiVo (Nasdaq: TIVO). During Tuesday's conference call, Charter underscored its commitment to TiVo services, and you can see the exact moment the topic came up by looking at TiVo's stock chart. By the time the news had sunk in all around Wall Street, TiVo had gained 5.9% in a matter of minutes.
Analyst David Joyce of the ISI Group asked whether Charter was still committed to TiVo's set-top boxes, and this is what Rutledge said:
Our commitment to TiVo is a commitment to their software, actually. We have a license agreement with TiVo to use their user interface and we are using it currently on boxes they provide. But as we go forward, our strategy is to use their user interface both in the cloud and on existing CPE (or customer premises equipment) and on our new CPE.
This is manna to TiVo and its investors. The company is getting away from low-margin hardware sales with an eye to much more profitable software license deals, and Charter is doing exactly what TiVo wants here. The two companies have been working together for a long time, but this is where the rubber really hits the road.
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