MediaTalk | Season 3 | Ep. 25 - Charter's Gambit to Revive Linear Pay TV with Seamless Streaming Strategy

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence, Tech Media, and Telecom News team. Welcome to Media Talk, a podcast hosted by S&P Global wherein the News and Research staff explore issues in the ever-evolving media landscape. On this episode, we're going to delve into the video offerings of Charter Communications, which has charted a leadership position with a hybrid approach, bundling traditional linear programming options and channels with free access to streaming packages. Here today to talk about what the company calls its Seamless experience is Tom Montemagno, Executive Vice President of Programming Acquisition at Charter.

Tom's an industry veteran with 35 years of experience working for Cablevision and now for Charter, where he leads Spectrum’s negotiations with video content providers, including major media companies, sports leagues and sports networks, local broadcasters, independent networks, and streaming services. Tom has been the driving force behind Spectrum's effort to provide customers with more flexible and affordable packaging options, including TV Choice, TV Stream, and TV Stream Latino. He also leads the execution of the company's strategy to deliver a Seamless entertainment experience to Spectrum customers by integrating programmers, streaming apps, and the company's traditional video package at no additional cost, which is what we're about to dive into. Anyway, Tom, how are you doing today? Thank you for joining us.

Tom Montemagno: I'm doing well, and I'm happy to be here.

Reynolds: Let's go back to the start. Tom, when did Spectrum decide it wanted to go seamless, so to speak, and what was the thinking or sensibilities in moving in this transformative direction?

Montemagno: There were a lot of things happening in the video space. The pace of customer decline was accelerating a little bit. Our customers were migrating a little more into some of the cheaper, skinnier packages that we offer. We were not bundling video with broadband sales at that point. And there was this proliferation of streaming where our perception was that there was an investment pivot from linear into streaming, creating the dynamic that our customers either were losing access to content or not receiving content that we thought they should be receiving as part of their subscription.

As a way of background, while that was happening, we were midstream also in re-architecting our distribution model with regional sports networks, which we had been restructuring those agreements to provide and distribute in a more customer-friendly choice and flexible model. And then lastly, we had this really energetic new CEO come in with bold ideas, wanting to really transform the video product and make it something that we could be proud to put on the customer's bills again. All of that sort of was happening at the time that we were facing renewal with Disney/ESPN, who arguably is the most important service on the lineup and our biggest customer.

Reynolds: Sure. So that was late August, September of ‘23. I think you guys were disconnected for maybe 10 or 11 days. Tom, if you can bring us back to that. What did they want? What did you want? And you guys came together after a little bit.

Montemagno: Yeah, look, the end game there was a transformative deal that was a win for us, for Disney, and for customers and the industry at large. And yeah, we had that hiccup. If we were gonna do a long-term deal, we were aiming to include the streaming product for our customers for free in the deal. I think we shared our vision with Disney early on in the negotiation, and they were supportive. I think it was just a time and a place where they hadn't made some strategic decisions yet about how they were gonna address the streaming product with distributors. This deal forced their hand a little bit to make some decisions on their future strategy. But getting past that, they definitely saw that this was the best for the health of the TV ecosystem in general. To this day, they're one of our biggest supporters in helping us be successful with it.

Reynolds: So Tom, that was the first "quote unquote" Seamless experience deal, and many others have followed since then.

Montemagno: Correct. We had been in this sort of dynamic, if you will, where I was doing short-term deals with everyone because it was hard to envision the future and what the product would look like if we were getting the right price-value relationship. With content sort of seeping away from linear to streaming, we were doing a lot of short-term deals to protect our interests and be able to reevaluate should things change dramatically. Right? So in a matter of 15 months or so, we cycled through all of our major deals, and we were able to achieve the Disney model, which was really the catalyst with all the major programmers in a very short period of time because we had been doing these short-term arrangements. Three key partners were so supportive and excited about the strategy that we created with Disney that we actually did early renewals with them because they wanted to participate in the worst way. In a very short period of time, we really were able to transform the model with all the major programmers.

Reynolds: Forgive me, Tom, if I have this value wrong. I think the value of the streaming relationships you have is like $80 a month at retail. Is that right?

Montemagno: Yeah, that's correct. That's before factoring in the upcoming launch of ESPN and Fox, and I think there's probably some other rate increases on the horizon, right? For some of the existing services. Yeah, it's a very healthy value proposition that is gonna be a very effective marketing tool for us. We're really excited about talking about that with our customers come this fall in our marketing.

Reynolds: Has there been, with the enhanced ESPN, Tom, your sensibility that people are excited about that product?

Montemagno: Yeah, I don't necessarily have customer sentiment yet because it's not good there, but we've spent a lot of time with Disney understanding the product. They're really looking to personalize and transform and introduce some pretty cool viewing enhancements and features. Sure. So I think customers are gonna get excited about it. I know that Disney is really planning to get behind it in a big way from a marketing perspective here shortly. Okay. So I think the excitement level is gonna really be building right up to the start of the NFL season.

Reynolds: You mentioned Fox, and they're going to enter the aggregate streaming game as well with sports news and their entertainment products. Tom, do you guys have a deal with them yet? Are you talking to them about being part of your Seamless experience?

Montemagno: Yeah, we anticipated if they were to do something like this, that it would be included just like the others. I think they've announced publicly that their intention is to provide all of their MVPD distributors with access to the product. They have not announced specific timing or pricing yet, but that's, I think, on the near horizon as well. So expect to see us there with both of them. We expect our customers to have access day one.

Reynolds: So Tom, in addition to the enhanced ESPN product and FOX entering, maybe joining the lineup, I think you're also trying to get Discovery+ and BET+ in the package pretty soon.

Montemagno: Yes. We announced that we will be, those are part of our deals, so we will be offering those, and in the next few months, they will be available as well.

Reynolds: Okay. What do your customers have to do to get Disney+, Peacock, Paramount+ at all? Do I have to call a rep? Do I click through, run my remote, tap the Wi-Fi tab in my house? Tom, can you give us a little bit of a sense as to how you can actually watch one of the services?

Montemagno: Yeah, sure. The two primary ways today are to go to spectrum.com/getapp or the highly-rated My Spectrum app, which provides customers with utility to manage their subscriptions, their services, and their billing with us. With a few clicks and creating the credential and password with the programmer, it's pretty simple. We're working with everyone to improve every day. We expect and hope in the future to be able to do a one-click experience, particularly on the Xumo device. Okay. That's all in the works too; there's a lot of focus in our partnerships to improve that activation experience.

Reynolds: So I'm a Spectrum customer. I'm watching The Big Bang Theory on TBS. A promo comes on pointing out there's a new episode of The Gilded Age coming up, and it will stream on Max. How do I get there? Do I have to click out into the virtual side of this? Or is this listed within the traditional programming guide at this juncture?

Montemagno: So in your scenario, if you are an existing customer of Max, right? It all depends on the device you're watching it on, but let's, for argument's sake, say you're using the best outlet, which is the Xumo box. You can just press a button on the remote and say HBO Max, and it'll take you right into it.

Reynolds: So it's pretty seamless, as it were.

Montemagno: Absolutely. If you're not a subscriber, you'd have to go through the activation flow, right? Sure. Okay. Which is not yet enabled through the remote. It's through the My Spectrum app and the website. Okay. But expect to see developments and click-throughs from banners on our guide. Like we're working on all sorts of cool ways for customers to get to that endpoint.

Reynolds: Okay. Alright, Tom, I've put this one off long enough. So Charter's entered an agreement to acquire Cox Communications. What can you say about the deal?

Montemagno: Look, we're very excited, subject to getting through the regulatory and shareholder approvals. We're very excited to bring the Spectrum offerings into the Cox markets and provide that customer base with what we think is the best value proposition in the industry right now. So that's all I'll say at this point.

Reynolds: Okay. Alright. So we'll get back to the Seamless experience here. As you mentioned, you negotiated the deals with all the major programmers, but that's just step one in the process. Can you give us a little bit of a background? So you have a deal with Disney. What does it take to get Disney+ onto your systems?

Montemagno: Yeah, so look, there's a pretty complex technical integration in the background that has to happen. Each programmer tends to do it a little differently. Some have similarities, but okay. We have to have the sort of electronic handshake, if you will, to provide the authentication that the customer's entitled. We have to have the programming partner build into some of their buy flows in their app to address a Charter customer that uniquely comes in. So there's a fair amount of work just to get it up and running. But we've got a lot of experience now. It's happening quicker.

Reynolds: I take it that they're all different, but there's some basic templates that have made it an easier process as you've added the different programmers.

Montemagno: Yeah, that's fair. I think that's correct. They each have their nuances, but we're attempting to make it as similar as possible because it's one customer activating 8, 9, 10 apps, whatever it is. Sure. And the closer that experience is and frictionless we could make it is just beneficial to everyone. So that's something that we're spending a lot of time with each of the partners right now in improving that experience and trying to, like I said before, find one-click opportunities to really make it immediate that a customer can get access to content.

Reynolds: How are you communicating to your customers that yes, this programming is available to them?

Montemagno: We have very sophisticated marketing tactics to communicate with our customers, ranging from email to on-guide to promotional spots. We have addressable capability to target whether you're not a customer, whether you're a customer that is not entitled, or whether you're a customer that is entitled. Messaging differs depending on who you are. We're able to narrow our message and segment our customer population with different messages.

Reynolds: I believe on the first quarter earnings call, CEO Chris Winfrey mentioned that there'd been some ads that started to run in LA and in New York, and I saw some of those messages on some of at least ESPN morning shows. In my view, it's an introductory awareness spot. There were some logos, yours, and some of the players. Is that what we were talking about? Is that more widely disseminated at this point, Tom?

Montemagno: Yeah, so our marketing is everywhere. Again, it's somewhat targeting. So what you're referring to is our sort of "it's all here" messaging, which is general awareness. That's to build awareness and educate and shift perception. We have specific marketing that our programming partners are creating spots for us with talent from shows that are targeted to customers that are entitled to activate, and it'll walk you through how to activate and take advantage of the free offerings. We've been doing a lot of that. We are running our marketing nationally. We're really gearing up for a more aggressive campaign this fall. Okay. We'll take advantage of high viewership moments, such as the start of the NBA or NFL season and tent poles, and work with our partners to really take advantage. So stay tuned for a lot more of that coming in the fall. Okay. But I think what perhaps you have not seen the light and come over to become a Spectrum customer yet, and so maybe the spots you're seeing are the more generic. But right, if you're on plant, there's some real fun, interesting spots that we're working with our partners on.

Reynolds: Gotcha. So going back to an old advertising term, I don't know if it still exists. Are these co-op ads, Tom, or is it again more each of the companies working and then signaling back to you? Or is Charter working with, say, Paramount+, and saying, yes, this is how we want to direct the messaging?

Montemagno: We're working together. They want to support us. It's more they're creating for us, and we're running. Okay. And we're placing on paid air, we normally do for acquisition and brand awareness. So they're not running per se, but they're creating for us. It's important for customers just to bring more credibility. I think some segments of the customers are reticent. They see a lot of promotions for, you get an app free for a period of time, and then you get charged for it. That's not what this is. Okay. This is a paradigm change where these are free indefinitely, and you get them, and you need to take advantage. Having our programming partners say that for us with talent and trusted personalities is important. In your introduction, Mike, you mentioned I've been doing this for 35 years, and never in my experience have we been as aligned in a partnership, symbiotic relationship with the programmers that we are now. There's just complete buy-in and partnership and support, and you're gonna see a lot of creative marketing that's really getting the message out because it really is. Again, as I said before, it's good for us, for customers, and for the programmers' sustained health of their core linear business as well.

Reynolds: Chris Winfrey again, on the first quarter earnings call, he talked about a digital store. Can you take us through that a bit? Have the doors swung open yet, Tom?

Montemagno: When we really created this new model, one of the really interesting selling points that the programmers were interested in was to use our sales force, our sales capability, our marketing machine, to help sell for them the direct-to-consumer apps to broadband non-video customers as well. There's a revenue component to that. So we are, in the near term, going to stand up a video store, if you will, where customers will be able to purchase all of their favorite apps, not just the ones that are included in their video package. It'll be a much broader experience where they could purchase and manage their subscriptions on a single bill. We're working to bring that to life in the next few months and use all of the resources that we have in the touchpoints with our customer base to sell subscriptions, even for existing customers that are entitled to the apps to sell upgrades if they wanna get the ad-free, for example.

Reynolds: The products you're offering now, they're the ad-supported products.

Montemagno: Correct. So the programmers, when they are in our package, they're getting the benefit of ad impressions from our customers, and that was one of the selling points. Together, we're offering the ability for customers to upgrade for just that incremental differential in price. There's a revenue relationship we'll have there. So there's a lot of opportunity both here to help sustain their traditional revenue stream on the linear side, but then to really pursue new revenue streams on the digital side with their apps to broadband customers and upgrade opportunities and so forth. Having us be a sales agent extension for them is something that our partners are really excited about working with us on.

Reynolds: So as I look at the Seamless experience, this is something that works for Charter's bundle. This is a retention tool and an acquisition tool.

Montemagno: Yeah, that's correct. I think again, we'll be able to scream from the mountaintops this notion that when you take the more complete bundle, you're getting $80+ of free streaming product with your subscription. That's gonna have both an attention-drawing acquisition angle to it, but absolutely a retention angle. For those customers that are already purchasing some of these, there's a money-saving opportunity where they can get it free from us now. I think it's gonna end up being both, and I think that we're gonna show some pretty strong results from this that a lot of people are gonna be intrigued by and wanna copy our strategy over time. I'm excited, obviously, as you can tell, to talk about this and to get it all up and running and marketed. So I appreciate the opportunity to tell our story a little bit more.

Reynolds: That concludes this episode of “MediaTalk.” I wanted to thank Tom Montemagno for providing insights into the strategy behind Spectrum's Seamless experience. It's one that could shape the industry for years to come. Thank you, Tom.

Montemagno: Thank you for having me.

Reynolds: This is Mike Reynolds. I want to thank all of you for listening. We'll catch up soon on the next installment of “MediaTalk.”