Charter Communications, Inc.
Q4 2015 Earnings Call Transcript

Published: 4 Feb 2016

[Operator:]

Good morning. My name is Kim, and I'll be your conference operator today. At this time, I would like to welcome everyone to Charter's Fourth Quarter 2015 Investors Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Stefan Anninger, you may begin your conference, sir.

[Stefan Anninger:]

Good morning and welcome to Charter's fourth quarter 2015 investor call. The presentation that accompanies this call can be found on our website at ir.charter.com, under the Financial Information section. Before we proceed, I would like to remind you that there are a number of risk factors and other cautionary statements contained in our SEC filings, including our most recent proxy statements and Forms 10-K and 10-Q. We will not review those risk factors and other cautionary statements on this call; however, we encourage you to read them carefully. Various remarks that we make on this call concerning expectations, predictions, plans and prospects constitute forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward-looking statements reflect management's current view only, and Charter undertakes no obligation to revise or update such statements or to make additional forward-looking statements in the future. During the course of today's call, we will be referring to non-GAAP measures as defined and reconciled in our earnings materials. These non-GAAP measures, as defined by Charter, may not be comparable to measures with similar titles used by other companies. Please also note that all growth rates noted on this call and in the presentation are calculated on a year-over-year basis, unless otherwise specified. Joining me on today's call are Tom Rutledge, President and CEO; and Chris Winfrey, our CFO. With that, I'll turn the call over to Tom.

[Thomas M. Rutledge:]

Thanks, Stefan. Charter's Spectrum, our advanced and high-value product suite, continues to attract consumers. Our residential and commercial customer growth continues to accelerate, and Charter remains the fastest-growing cable company in the United States. By providing highly competitive products at attractive price points and simple packages with quality service, we will continue to add customer relationships inside both Charter's legacy footprint and new Charter's broader footprint. We'll do that by applying the same customer-friendly operating strategy to the Time Warner Cable and Bright House assets as we migrate those footprints to our Spectrum product, pricing, packaging, and customer-friendly operating practices. We finished 2015 with 6.7 million residential and small business customers. For the full year, that base of customers grew by 6%, with residential customer growth growing by 5% and SMB growing by 17%. We grew our total video customer base by 11,000 relationships in 2015, compared to a loss of 78,000 last year. This is the first time in over a decade that Charter has added video customers over any 12-month period. Driving that growth is an improved video offering with better pictures, more HD than satellite, Video On Demand and Interactive Guide functionality on every TV outlet, combined with high-quality, in-sourced and U.S.-based customer service, all in an easy-to-understand pricing and packaging structure, which makes our products competitive well beyond the point of sale. We also continued to grow our Internet business in 2015. We added nearly 450,000 residential Internet customers, up 9% compared to last year. Our low-cost, high-speed Internet offering provides great value to consumers, whether purchased inside one of our bundles or on a standalone basis. Nearly, one-third of our total residential customers, close to 2 million customers, are now non-video customers and that grew by about 18% year-over-year. As of the end of the fourth quarter, nearly 90% of our residential Internet customers subscribed to Internet service that provided speeds of 60 megabits or more. We continue to be an industry leader in Internet customer growth by offering high speeds at low prices points with no data caps, no usage-based billing, no modem rental fees; and that's been our operating practice for the last four years, and we plan to continue to that. In Commercial, we also continued to drive accelerating customer growth. After we separated our Small Business and Enterprise segments early last year, we launched new pricing and packaging to both marketplaces and are seeing the results we expected. SMB PSU growth accelerated by 30% from 2015 and 47% year-over-year in the fourth quarter. In time, that accelerating Commercial unit growth will drive faster revenue growth as it has in Residential. Business services remains an area of significant long-term opportunity for Charter and we have demonstrated that we can grow business customers faster with a highly-competitive operating strategy. For the full year, we grew our revenue by 7.1%. Excluding Advertising, revenue grew by 7.7%, all while taking meaningful lower pricing increases than in 2014. Our EBITDA growth, excluding transition costs, grew by 8.5% and continued to exceed our revenue growth. That EBITDA growth combined with declining capital intensity is driving greater free cash flow conversion. We generated approximately $550 million of free cash flow in 2015, up from approximately $170 million last year. Excluding M&A-related costs, our free cash flow was even higher, over $1 billion, up $700 million compared to 2014 on the same basis. So as we continue to grow our EBITDA and our capital intensity declines, Charter is becoming a meaningful generator of free cash. In 2016, we have three key priorities

[Christopher L. Winfrey:]

Thanks, Tom. I mentioned on our last call that we've migrated our customer reporting methodology to match the approach used by our peers in advance of closing and dual report last quarter and this quarter. The results we issued today in our press release and trending schedule present our residential customer results using the doors methodology. Our SMB video customers are now based on relationships instead of EBUs, and we separately report Enterprise PSUs to reflect our recent organizational changes. Our P&L presentation similarly separates SMB revenue from Enterprise revenue and, obviously, our new presentation approach does not impact our overall financial results. The customer PSU revenue and adjusted EBITDA trends that you see under the new methodology used today are very similar to the trends that you would see under the previous methodology. In fact, pages 2 and 4 of today's trending schedule provide our results under the prior presentation methodology as well to provide a transparent transition. So starting with slide 8 of today's presentation, during the fourth quarter we grew Residential PSUs by 191,000 versus 151,000 last year. And in video, we added 29,000 residential customers versus a loss of 3,000 last year. In residential Internet, we added 115,000 customers, and we grew residential voice customers by 47,000. Over the last year, our residential customer base has grown by 294,000 or by 5%. And over the same period, residential ARPU is up by 2.3%, driven by a larger Triple Play base and step-ups, loss (13

[Operator:]

And your first question comes from the line of John Hodulik with UBS. Your line is open.

[Stefan Anninger:]

John, are you there?

[Christopher L. Winfrey:]

Operator, why don't we move on to the next one and, if John comes back on, we'll take him in the following question.

[Operator:]

Thank you. Marci Ryvicker with Wells Fargo. Your line is open.

[Marci L. Ryvicker:]

Tom, you mentioned pricing being flat in 2016 versus 2015. I think, Chris, you said there were modest increases in 2015 over 2014, so I just want to make sure that we heard this right. There won't be any rate increases across your products in 2016. That's the first question. And then, Chris, you gave us CapEx, sort of a light guide for 2016. Anything on programming costs you can tell us, either to be aware of seasonally by quarter or a growth rate? Thanks.

[Thomas M. Rutledge:]

Marci, there are no material rate increases in 2016 planned...

[Marci L. Ryvicker:]

And that's been consistent, correct?

[Thomas M. Rutledge:]

Yes.

[Marci L. Ryvicker:]

Okay.

[Thomas M. Rutledge:]

Yes. On programming cost, we don't typically give guidance. We're not going to do it today. But I think what I would say is that the back half of last year you saw a continued high amount of programming cost increase, but at a lower rate than it had been; and that's kind of where we are today. So, for Charter on a standalone basis, of course, that's not where we intend to be. We're in that range that you're seeing in the financials today.

[Marci L. Ryvicker:]

Okay. Then I have one follow-up on the sub results. I'm assuming this is due to better churn. That's kind of been consistent across what we've heard from Time Warner Cable and Comcast. Any comment on churn versus gross adds?

[Thomas M. Rutledge:]

Our gross adds are up and our churn is down, both.

[Marci L. Ryvicker:]

Got it. Thank you.

[Operator:]

And your next question comes from the line of Mike McCormack with Jefferies. Your line is open.

[Mike L. McCormack:]

Thanks. Tom, just maybe a quick comment. We heard more clarity coming out of Comcast yesterday regarding the spectrum auction. Your thoughts on that auction going into 2016? And then, maybe just a quick comment on what you're seeing with respect to off-promo churn. It seems like those customers are not churning. I just wanted to verify that. Thanks.

[Thomas M. Rutledge:]

Right. Well, with regard to the auction, we're not in exactly the same place as Comcast because we have this pending transaction. And at this point, we can't be assured of what our footprint is. And so, it's difficult for us to participate in the auction without regulatory clarity. And we haven't – for instance, even in the Time Warner assets and Bright House assets, we know there's an MVNO, but we haven't actually seen it. And so, we have a lot of unknowns in terms of our ability to participate. We've considered participating by filing – potentially filing the application. But if the timeline is as projected, we're not going to really be able to do it, given our regulatory status. With regard to off-promo churn, we have been reducing our churn throughout the year as a result of the quality of our products, and our off-promo churn is not inconsistent with that general trend.

[Mike L. McCormack:]

Okay. Thanks, Tom.

[Stefan Anninger:]

Thanks, Mike. Operator, next question, please.

[Operator:]

And your next question comes from the line of Ben Swinburne with Morgan Stanley. Your line is open.

[Benjamin Daniel Swinburne:]

Good morning. Can you guys talk a little bit about the revenue drivers for 2016 versus prior years, since you're not taking a rate increase? In other words, do you expect to get more volume, because you typically put a price increase and you're not going to, so the revenue growth will be shifted more to volume in 2016, and maybe any more color on your decision process there? And then, I just was wondering if you could talk about DOCSIS 3.1 and sort of what the technology road map looks like for Charter in deploying that across at least the standalone footprint? Thanks.

[Christopher L. Winfrey:]

Sure. So, Ben, if you take a step back at the high level, 2015 had very little in the way of price increases as well; so 2016 is not going to be that dramatic. The reality is if you're growing your residential customer base at 5%-plus, there's not much that you need to be doing on the rate side and you can be extremely competitive and go to grow and provide value to consumers. So, 2016, we have more momentum than the marketplace than we did coming into 2015, and there's even less need than in the past to have to take rate increases. You also have SMB and Enterprise, which right now you've seen a decelerating trend on revenue growth, but an accelerating trend on PSU growth. And we'd expect that over time, SMB and Enterprise would perform a lot like Residential did in the late 2012-2013 timeframe. And our goal is to reaccelerate the growth for revenue, not just customers and PSUs on that side as well. Clearly, we're in a political advertising year as well, and sometimes that's unclear how much of that is going to flow to you. But similar to what we've done in prior years, we'll always isolate that political advertising, so people have clarity around it so that they can isolate the growth rates in the good and in the bad. So we'll be doing that throughout the course of this year as well. So I don't think that – to put it bluntly, I don't think that a lower amount of rate increase really has a dramatic impact because of our improved ability to grow.

[Benjamin Daniel Swinburne:]

That's helpful. Thank you. Anything on 3.1?

[Thomas M. Rutledge:]

Yeah. With regard to 3.1, we didn't specifically plan for it in legacy Charter in this fiscal year, but the modems will become available commercially later this year and we think that it's possible that we'll start to deploy those modems in lieu of 3.0 modems; but we don't have a specific plan to do that, yet. But over the next 18 months, this platform is going to become available to the industry at commercially deployable pricing, and we expect that we will begin the transition in the new company over that timeframe.

[Benjamin Daniel Swinburne:]

Thank you.

[Stefan Anninger:]

Thanks, Ben. Kim, next question, please.

[Operator:]

And your next question comes from the line of Craig Moffett with Moffett. Your line is open.

[Craig Eder Moffett:]

Hi. Thank you. Tom, I wonder if you could just update us on the rollout of your Spectrum Guide, your sort of, I guess, IP-agnostic or legacy set-top-box-agnostic Spectrum Guide, and whether you can update the timing of when that will be fully deployed to your footprint? And then, Chris, if you could comment on the longer-term capital intensity outlook with that platform; capital intensity hasn't really come down quite as quickly as we would have expected. I think, longer term, your guidance has suggested that it come down well below 15%. I wonder if you could just kind of put some numbers around that in broad terms, if you could.

[Thomas M. Rutledge:]

So with regard to the guide, we're rolling it out now and we have the ability to roll it out inside our own footprint this year, meaning the existing footprint. The transition process of integrating the other companies and building a game plan to roll it out is going to take longer. And so, we will not – assuming we close sometime in the near future on those companies, we're not going to get them completely rolled out this fiscal year, but I think we can begin the process by the end of this year. The big issue, interestingly, we've gotten all the bugs that we think could exist out of this system and it works very well. The choice before us will be do we roll it out on every outlet in mass, or do we roll it out incrementally to just new customers, and then begin to make it optional to existing customers? And the tension there is that there's some people that just are confused by new user interfaces and you have to manage that process of the customer education, as well as the desire to get a highly functional UI out in front of everyone simultaneously. So we're still wrestling with the right rollout strategy, but, operationally, it works very well and it's capable of being fully deployed.

[Christopher L. Winfrey:]

And Craig, on capital intensity, you're right. A lot of people focus on CPUs being one of the big drivers, and it is primarily because it's the easiest to model. So the drivers around that are – once you've gone all-digital, you need less CPE per transaction. So just by going all-digital on a go-forward basis, you require less CPE for every (31

[Thomas M. Rutledge:]

And one more item is that if you reduce operating expenses by reducing transactions, the capital infrastructure that supports the operating expenses is also reduced.

[Craig Eder Moffett:]

That's helpful. Thanks.

[Christopher L. Winfrey:]

Same applies to EBITDA as well, and why you can grow your EBITDA at even faster rate than revenue from the same principles.

[Craig Eder Moffett:]

Thank you.

[Stefan Anninger:]

Kim, we'll take our next question, please.

[Operator:]

And your next question comes from the line of Vijay Jayant with Evercore. Your line is open.

[Vijay Jayant:]

Thanks. Tom, you sort of mentioned that you had hopes that the deal could close in March, and we read that the California PUC is holding out for a later date; and I understand you've have some meetings there. Any color you can share on that discussion? And then, on – just your view on the FCC's attempt of introducing this AllVid ability for customers to buy boxes elsewhere and what that means, especially within the context of your Worldbox initiatives. Thanks.

[Thomas M. Rutledge:]

Right. Well, with regard to the regulatory approval process, we're reasonably confident that the FCC and DOJ are on track to stay within the shot clock that they imposed on themselves, and that they're committed to that. And we are trying to move California in, which we think is really the only thing that would extend it out. And so, we've petitioned that California move us up in their docket and we have yet to hear on whether that's going to happen or not. With regard to AllVid type – we haven't seen the proposal, yet, really fully, but we think it's a very dynamic marketplace and that the business is moving toward app-based display and cloud-based display, and that we'll want to work carefully with the FCC as they attempt to change the marketplace as it currently exists.

[Vijay Jayant:]

Great. Thank you.

[Stefan Anninger:]

Operator, next question, please.

[Operator:]

And your next question comes from the line of Jonathan Chaplin with New Street Research. Your line is open.

[Jonathan Chaplin:]

Thanks. Two quick questions, if I may. On your cost to serve customers, they were sort of flat year-over-year. Have we gotten to a point where you've put all of the infrastructure in place that you need for the existing Charter business and you should start seeing operating leverage on that cost base? And we notice sort of the same trend with selling expenses as well. And the second question was just on the trends we're seeing in broadband subscriber growth for the industry, in general. It's been a phenomenal quarter and just a great year of accelerating growth for the industry. We think that's being driven by strong secular tailwinds. Is there any reason we shouldn't see continued acceleration in growth in 2016? Thanks.

[Thomas M. Rutledge:]

Well, the cost to serve and selling expenses really ties to some of the financial discussions we've already had in terms of efficiency. And yes, we think that Charter – standalone Charter continues to get more efficient. And as a result of the infrastructure we've put in place and the practices we've put in place and the changes we've done to our customer service operation, all of which ultimately improve customer life, customer satisfaction and reduce transaction volume in the business, which reduces selling expenses and cost to serve. Broadband growth, I think, is an opportunity for us. The Charter story, and I think the story for the New Charter, is that it's an underpenetrated business. And if you look at the market share that the Telcos have in Internet service and in – the satellite companies have in video service and the share that Telcos have in business services, we have a lot of growth in front of us. And we have good products that are driving that growth.

[Stefan Anninger:]

Operator, we'll take our next question, please.

[Operator:]

Thank you. Your next question comes from the line of Bryan Kraft with Deutsche Bank. Your line is open.

[Bryan Kraft:]

Hi. Good morning. I have two questions. First, you mentioned that you'll be hiring 20,000 people to in-source functions. Just wondering what the time period is that you'll be ramping up those costs to hire and train these new people before they fully hit the ground running, while at the same time you've got the outsourced labor still doing the day-to-day functions, and how long it takes to really work through that process. And then, the other question I had was for Chris. Chris, and I apologize if I missed this in your prepared remarks, but can you help us just understand better the $1.8 billion increase in the value of the tax loss carry-forwards since last year? Thank you.

[Thomas M. Rutledge:]

So, Bryan, the in-sourcing is kind of a proportional analysis of what we've done at Charter over the last four years and how that applies to the assets we're acquiring, given their scale. And in many ways, the level of outsourcing in Time Warner and Bright House is equivalent to what existed insider Charter. And the time – you're right. There is a timeline issue there, and there is a moment where you have costs of outsourcing while you're training new people, and you have capital intensity while you're building new call centers and buying trucks and tools and test equipment, all of which we had to do at Charter in order to get the operating model that we're currently enjoying running. And we'll have the same obligation and the same challenges as we go forward in the new company. But it will result, ultimately, in a higher return on investment than we'd get, otherwise.

[Christopher L. Winfrey:]

And also, the New Charter will have the transaction synergies to help fund and bridge those types of investments going forward.

[Thomas M. Rutledge:]

And it's also fair to say that the new assets have less issues in terms of plant maintenance and other things of that nature that were neglected at Charter because of its bankruptcy. That had to be fixed before we could even begin to improve the customer service.

[Christopher L. Winfrey:]

So, Bryan, on the tax assets, I did mention a few things in the prepared remarks. We had overall, the tax assets, an increase; and one of the biggest drivers occurred inside of the third quarter where we had the collapse of the partnership, which produced some additional step-up in basis, pretty significant. And then, over the course of the year we had the regular depreciation and amortization and the continued D&A of our excess tax basis. We also, in a material way, utilized the bonus depreciation, which has now been extended, which isn't something that Charter had historically done a lot of. And we also had tax benefits inside the year due to new tangible property regulations, generally, and some that applied to the cable industry, specifically. And so, as a result of all those factors, we had overall increase in tax assets and we had a shift of what was inside the overall tax basis into the loss carryforward category.

[Bryan Kraft:]

Okay. Great. That's helpful. Thank you.

[Christopher L. Winfrey:]

Good.

[Stefan Anninger:]

Thanks, Bryan. Kim, next question, please.

[Operator:]

And your next question comes from the line of Jeff Wlodarczak with Pivotal Research. Your line is open.

[Jeffrey Wlodarczak:]

Good morning. A number of cable operators in the U.S. and Europe have been moving fairly aggressively into customer self-install, which seems to be helping out their financial results. Can you talk about where you guys are on self-install and, broadly speaking, the upside you see from moving more aggressively there? And then, I've got a follow-up.

[Thomas M. Rutledge:]

Yeah. Jeff, it's Tom. Yeah, we think there's a lot of upside there and none of that has been realized in our current results, and none of that's actually in our models that we presented to you in our proxy. So, that's sort of an added opportunity for us going forward. We do think that in an all-digital world, you can go to a self-serve – self-provisioning environment. And one of the things we've been doing is building the infrastructure from a billing and servicing perspective so that we can do that, not just against legacy Charter, but against the new assets as well, and move quickly to a world where customers can go online, order equipment, have it delivered to them, and self-install it because the installation remains hot. We've also designed some security so that we can ensure the integrity of content, meaning that content goes where it's sold, by designing software that can let us know where boxes are in relationship to each other. And we've begun deploying that software. So, we're ready to go with that over the next year or two, and it will go along with our all-digital project and the – you'd take a significant amount of churn transactions – physical transactions out of the business if you get it right.

[Jeffrey Wlodarczak:]

Great. And then, the follow-up on the price increase, or the lack of one this year, can you confirm – you did have a broad cash fee increase in the fourth quarter, and what was – was that $1, or what was that, if I'm correct?

[Thomas M. Rutledge:]

The whole change was less than 1% of total revenue. I don't know the exact figure.

[Jeffrey Wlodarczak:]

Okay. But you did have a modest increase in the fourth quarter.

[Christopher L. Winfrey:]

We had a very small increase. It was – I don't remember if it was $0.70 or something in that category inside of, call it, October. That was a lower amount of increase relative to what it was in Q4 of 2014. So the important thing to keep in mind is, yes, there was a little bit there, but it was lower than it was in Q4 2014.

[Jeffrey Wlodarczak:]

Got it. Thank you.

[Christopher L. Winfrey:]

And later as well, actually.

[Stefan Anninger:]

Thanks, Jeff.

[Jeffrey Wlodarczak:]

Thanks.

[Stefan Anninger:]

Kim, next question, please

[Operator:]

And your next question comes from the line of Phil Cusick with JPMorgan. Your line is open.

[Philip A. Cusick:]

Thanks. I was amused with your letter to customers regarding the Time Warner Cable price increase and I wonder if you can help us think about where your sort of – where the net prices are for different types of customers today, yours versus Time Warner Cable, and – as well as sort of how things are billed and how we should think about the transition of Time Warner Cable revenue as you move those new prices through over the next year. Thanks.

[Thomas M. Rutledge:]

I don't know what letter you were referring to – to Time Warner customers. We didn't send any letter to our customers that I'm aware of.

[Philip A. Cusick:]

Wasn't there an open letter to Time Warner customers after their price increase?

[Thomas M. Rutledge:]

It wasn't from us.

[Philip A. Cusick:]

I'm sorry. I'm confused.

[Thomas M. Rutledge:]

I mean, Time Warner Cable is still an independent company and, if they sent a letter to their customers, I didn't see it.

[Philip A. Cusick:]

So maybe just the net question, anyway, on pricing, how – yours versus Time Warner Cable.

[Christopher L. Winfrey:]

How we'd transition post-close.

[Thomas M. Rutledge:]

How do we transition post-close, or what's the difference between us and them?

[Philip A. Cusick:]

What's the difference between you and them for a similar type of customer, and how do you transition that over the next year?

[Thomas M. Rutledge:]

Well, our plan is to move Time Warner and Bright House customers into our model, like we did legacy Charter into our model of building high-quality products at good prices and having customers move into those price and package scenarios based on their voluntary desire to get all the new service and functionality that we've put into those products. And so, we'll build a similar model inside of Time Warner and Bright House going forward. And as a result of that, we expect to accelerate growth in those markets and generate the kind of returns that we have forecasted. That's the basic notion.

[Philip A. Cusick:]

So, should we expect some revenue disruption during that period?

[Thomas M. Rutledge:]

We will, I think, have a similar outcome as to what we've had in Charter over the last four years.

[Christopher L. Winfrey:]

Phil, if you go back at the time, all the way back to late 2012 when we came out and told the market what we were doing with new pricing and packaging, in essence, we told people that we were going to take pricing down on every single one of our products. We were going to invest more in service and we were going to invest more in every transaction by putting more equipment and gear into the home. And that's how we were going to make money, which is a little bit counterintuitive until you think about the fact, by lowering the pricing on every single one of your product, you have the opportunity to sell more over time and get more revenue per household and get more efficient for all the reasons that we talked about. So we told people at the time that success would be defined by an accelerating amount of customer relationship growth, better sell-in to multiple products in the household, PSU growth as a result. And then, several quarters on, you'd see a reacceleration of the revenue growth which would be stunted short-term by putting in the high-value pricing and packaging. And then, over time you'd see EBITDA growth and a reduction of capital intensity; all of which you've seen at Charter, and it does provide the baseline model. The differences being, going forward, is we think we can do it faster because of the status of where TWC and Bright House are already at in terms of the quality of the plant and some improvements even in the past year, and the fact that we'll have transaction benefits, as a result, that can be reinvested into the business along the way to bring better products faster to the TWC and Bright House customers.

[Philip A. Cusick:]

Got it. Thanks, guys.

[Stefan Anninger:]

Thanks, Phil. Kim, next question, please.

[Operator:]

And your next question comes from the line of Amy Yong with Macquarie. Your line is open. Amy Yong - Macquarie Capital (USA), Inc. Thanks. Tom, can you just talk about the evolution of the bundle? And, I guess, Triple Play penetration has been growing nicely, both at Time Warner Cable and Charter, but how might that change as skinny bundles gain traction, or perhaps standalone Internet packages? Thank you.

[Thomas M. Rutledge:]

Well, you could still have Triple Play in a skinny bundle world. Triple Play refers to voice, data and video. And so, you could – if one could comprise or build skinny bundles that worked in the marketplace in a significant way, meaning customers adopted them, kept them and were happy with them, you could still build packaged products that would make sense for consumers. So I don't think it has any direct impact on Triple Play potential or any other bundled potential. That said, you know, 96% of our customers are still Expanded Basic customers. So it's a – the big package is still what most people take in our markets today and if, in fact, programmers allow their content to be sold in skinny bundles, which I think would be very consumer-friendly, you could still build high quality packages that would work in the marketplace, in my opinion. Amy Yong - Macquarie Capital (USA), Inc. Great. Thank you.

[Stefan Anninger:]

Kim, we have time for one last question.

[Operator:]

Thank you. Your last question comes from the line of James Ratcliffe with Buckingham Research Group. Your line is open.

[James M. Ratcliffe:]

Question, two quick ones, if I could. First of all, on set-top boxes, you mentioned bringing in Internet video into the fold as well. Were you talking about OTT services? And given that, how important do you think cross-platform search is to be able to make such an integration work? And secondly, you mentioned on video gross ads being up. How much of that do you think is the pool of gross ads are up or improved versus your share of the pool of gross ads are up? And for churn, any color on – any shifts where the video disconnect are going? Are they competitive services or just dropping video entirely? Thanks.

[Thomas M. Rutledge:]

Okay. There's a lot in that question. Yes, I think cross-platform search would be consumer-friendly. Almost all of our customers – the vast majority of our customers subscribe to us and over-the-top services, and we want our customers to be fully satisfied in their video experience and have that to be as seamless an experience as possible. And therefore, given the movement to On Demand programming and the volume – the sheer volume of products available, you need to be able to search and find and discover products in a much more efficient way than people have historically stumbled on to television. And that's why we're building the UI we're building; and it's fully capable of doing cross-platform search. There are business issues around that that we're working through with parties, but it's what customers deserve. With regard to gross ads and the share where they're coming from, I'm not sure whether the economic or the macroeconomic situation has changed at all, because growth rates in the country for all MVPDs – we think that in our – where we operate, our video share is about 50%. And so, we think that we have a tremendous upside to grow our own business with the quality of video services that we can build and provide, and with the service infrastructure we've built around that. I do think – we've talked about the macro issues, previously, and the pressures on video, most of which I think are economic. The costs have been high. It does look like costs have moderated a little bit on the margin, and that's partially because over-the-top is affecting the value of content in a good way, from our perspective. And so, I'm not – we'll have to look at the macro trends, but in terms of what our growth opportunities are, our biggest growth opportunity is to take video share from existing providers assuming that we had better products and services.

[James M. Ratcliffe:]

Great. Thank you.

[Stefan Anninger:]

Thanks, James.

[Stefan Anninger:]

That's all we have time for today. Thanks for joining, everyone, and we'll see you next quarter.

[Thomas M. Rutledge:]

Thank you very much.

[Operator:]

Ladies and gentlemen, this concludes today's conference call, and you may now disconnect.