Charter Communications Inc. CEO Tom Rutledge believes programmers are playing a larger role in enabling the cord-cutting trend than most people realize.
Speaking at the Cable-Tec Expo 2017 on Oct. 18, Rutledge said that although the cable industry has long been associated with delivering video, the industry's core competencies have always been capacity, connectivity and security.
"Content is really not something we owned directly and sold directly and created directly; we sold the capacity for content … to be distributed on our networks," Rutledge said.
And the Charter Chairman and CEO believes it is the last of cable's competencies — security — that programmers did not fully consider when they moved into the distribution business themselves with over-the-top offerings.
"Everybody with an app, including the programmers that we pay, is in the distribution business now whether they know it or not, and they have an obligation to protect their product, but they don't do a very good job. And that's affecting the business," Rutledge said.
Before content could be delivered online, Rutledge said cable operators protected the security of content delivery by managing connects and disconnects among subscribers, ensuring that video customers only received the content and channels they were paying for.
Referring to the era of black boxes that would illegally unscramble analog signals for channels or pay-per-view signals that customers had not paid for, he said, "people would break into your products and you would have [fewer] customers and the value perception of your product would go down."
Rutledge said cable operators learned to better fortify their operations to prevent theft.
"If you protected your business, your business grew and your customer base increased," he said.
But programmers, he said, do not have this same history of having to protect their product.
"What's going on in the world today is the programming business with over the top … has put itself in a position where it is now the distributor … and they are not managing the security," Rutledge said. He specifically pointed to the number of over-the-top services that allow multiple simultaneous streams, despite the 35 million households in the U.S. that are single- or one-person households.
"Think about a three-stream service in a 35 million single-person home environment," he said, noting that only 12 million subscriptions are needed to serve 36 million streams. "That's what's going on with password sharing. And that's why on the margins, a lot of the video … is still being watched but is not being paid for and therefore not being sold. And that's affected the value of the whole product all the way through the value chain."
Rutledge added, "Security is impacting video in a dramatic way."
According to estimates from Kagan analysts Ian Olgeirson and Tony Lenoir, the traditional pay TV industry lost 966,000 residential and commercial video subscriptions in the seasonally weak second quarter. Further declines are expected in the third quarter, driven by competition and storms.