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WHEN: Today, Thursday, November 16, 2017
WHERE: CNBC's "Squawk Alley"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Charter Chairman & CEO Tom Rutledge and CNBC's David Faber on CNBC's "Squawk Alley" (M-F 11AM-12PM) today Thursday, November 16th. Following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2017/11/16/charter-ceo-viacoms-strategy-is-better-now.html.
All references must be sourced to CNBC.
CARL QUINTANILLA: LIBERTY MEDIA HOSTING ITS ANNUAL INVESTOR MEETING IN NEW YORK CITY. OUR DAVID FABER IS THERE AND JOINS US WITH YET ANOTHER SPECIAL GUEST. DAVID?
DAVID FABER: THANK YOU, CARL, WE'RE JOINED BY TOM RUTLEDGE, OF COURSE, CEO OF CHARTER COMMUNICATIONS. ALWAYS NICE ENOUGH TO SIT DOWN WITH US HERE, PRETTY MUCH YEAR AFTER YEAR AT LEAST. GLAD WE COULD HAVE YOU NOW.
RUTLEDGE: YEAH, THANK YOU.
FABER: I WANT TO START OFF WITH VIACOM ACTUALLY BECAUSE THAT STOCK IS DOWN THIS MORNING. YOU GUYS PUT OUT A PRESS RELEASE ON THE NEW DISTRIBUTION DEAL. THERE HAVE BEEN QUESTIONS AS TO WHY WHY CHARTER NEEDED VIACOM. AND A LOT OF PEOPLE ACTUALLY THOUGHT WELL, MAYBE THEY DON'T. SO, WHY DID YOU DO THE VIACOM DEAL?
RUTLEDGE: WELL, LOOK, YOU KNOW, WE WANT TO HAVE A GREAT VIDEO PRODUCT THAT INCLUDES ALL THE SERVICES. VIACOM HAS HAD DIFFICULTIES, THEY'VE GOT A NEW CEO, BOB BAKISH, HE'S DOING – HE'S GOT A GREAT STRATEGY AND HE WANTS TO EXECUTE ON IT, SO WE DID A DEAL AND I THINK THAT DEAL IS GOOD FOR VIACOM AND IT'S GOOD FOR CHARTER. THEY ARE GOING TO, YOU KNOW, WORK OUT THEIR PROBLEMS, THEY HOPE, AND BUILD A BETTER SERVICE. AND THEY'VE ALREADY GOT SOME NUMBERS WORKING IN THEIR DIRECTION. AND, YOU KNOW, WE WANTED TO HAVE A LONG-TERM RELATIONSHIP WITH THEM, AND WE DO. AND, YES, IT'S A DIFFERENT RELATIONSHIP, AND, YES, THE LEVERAGE WAS CHANGED BECAUSE OF THEIR PERFORMANCE, BUT OUR GOAL WORKING WITH THEM WAS TO CARRY THEM AND TO CARRY THEM AT THE PROPER VALUE AND TO GO FORWARD TOGETHER.
FABER: AND THAT PROPER VALUE SEEMED TO BE SOMETHING OF A SHOCK TO SOME INVESTORS THIS MORNING, WHO WERE SENDING VIACOM SHARES DOWN, THOUGH NOT AS BADLY AS THEY WERE EARLIER. CLEARLY, YOU'VE GOT A DEAL THAT WAS DIFFERENT THAN THE ONE YOU HAD PREVIOUSLY?
RUTLEDGE: WELL, IT WAS DIFFERENT, BUT, YOU KNOW, IT WAS DIFFERENT IN MANY WAYS, BUT FUNDAMENTALLY IT WAS DESIGNED FOR THEM TO BE SUCCESSFUL AND US TO BE SUCCESSFUL. WE DID SOME CREATIVE THINGS TOGETHER.
FABER: WHAT'S THAT MEAN?
RUTLEDGE: WE AGREED TO CREATE NEW PROGRAMMING TOGETHER OUT OF THEIR STUDIOS THAT WE WOULD HAVE AN OWNERSHIP INTEREST IN, AND TO PUT THAT PROGRAMMING IN AN ON-DEMAND ENVIRONMENT FOR A PERIOD OF TIME AND TO SHARE THE VALUE OF THAT CONTENT CREATION. WE AGREED TO REPOSITION THEIR SERVICES, WHICH WE HAD DONE TO THEIR DETRIMENT, IN THEIR VIEW PREVIOUSLY. WE PUT –
FABER: TIERING YOURE TALKING ABOUT?
RUTLEDGE: WE HAD TIERED IT DIFFERENTLY ON THE INCREMENT, ALTHOUGH MOST OF THE CUSTOMER BASE WAS STILL THE WAY THEY HISTORICALLY HAD BEEN CARRIED. AND WE AGREED THAT WE WOULD GIVE THEM FULL DISTRIBUTION. SO, YOU KNOW, THERE ARE PUTS AND TAKES ALL ALONG, AND -- BUT I THINK, YOU KNOW, THEY GOT A GOOD DEAL FROM THEIR POINT OF VIEW. THEY HAVE THE LEADERSHIP NOW TO MAKE THEIR BUSINESS SUCCESSFUL.
FABER: YOU THINK SO? YOU JUST SAID YOU THINK IT'S A GREAT STRATEGY. I MEAN – YOU RUN CHARTER, NOT VIACOM, BUT STILL WHY –
RUTLEDGE: YEAH, IT'S NOT MY JOB TO FIGURE OUT THEIR PROBLEMS.
FABER: NO, BUT WHY DO YOU THINK IT'S A GREAT STRATEGY?
RUTLEDGE: WELL IT'S A BETTER STRATEGY THAN WHAT THEY HAD. I THINK THEY LET THEIR PRODUCT, FROM A CREATIVE POINT OF VIEW FALL APART, AND THEIR RATINGS REFLECTED THAT, AND, YOU KNOW, THAT AFFECTED THEIR ABILITY TO NEGOTIATE WITH US. AND SO -- BUT AS A RESULT OF THE NEGOTIATION, WE HAD SOME CONFIDENCE THAT THEY WERE GOING TO BE SUCCESSFUL GOING FORWARD, AND, YOU KNOW, IT'S UP TO THEM, THOUGH, TO MAKE THAT HAPPEN, NOT US.
FABER: SURE, SURE.
RUTLEDGE: BUT OUR GENERAL VIEW IS, WE WANT TO CARRY SERVICES. WE WANT TO HAVE EVERYTHING THERE IS AVAILABLE FROM A VIDEO PERSPECTIVE, WHETHER IT'S TRADITIONAL CABLE, WHETHER IT'S NETFLIX OR HULU OR YOUTUBE OR ANY OTHER PRODUCT THAT MIGHT BE OUT THERE. WE WANT TO INTEGRATE THAT INTO OUR VIDEO PACKAGING, OUR USER INTERFACES. WE WANT TO DELIVER EVERYTHING TO THE CUSTOMER AND MAKE IT AS GOOD A SERVICE AS WE CAN MAKE IT.
FABER: OF COURSE, AND YOU WANT TO GIVE THEM OPTIONS, ONE WOULD THINK, BUT THOSE SAY CHARTER IS STILL NOT OFFERING ENOUGH WHEN IT COMES TO THE SKINNIER BUNDLES, AND THAT YOU'RE LOSING VIDEO SUBS LIKE EVERYBODY ELSE, OR AT LEAST YOU DID LAST QUARTER, AND THAT'S NOT GOING TO STOP UNTIL YOU GIVE CUSTOMERS MORE OF WHAT THEY WANT. AND WHAT THEY WANT IS NOT TO PAY FOR EVERYTHING, PARTICULARLY SPORTS.
RUTLEDGE: YES -- SO THAT'S SOMEWHAT TRUE.
RUTLEDGE: WE'RE ACTUALLY GROWING OUR EXPANDED VIDEO CUSTOMER BASE AND LOSING BASIC ONLY – LIFELINE BASIC ONLY CUSTOMERS. AND AS WE CHANGE OUR CUSTOMER BASE INTO OUR NEW PRICING AND PACKAGING, WE EXPECT TO GROW VIDEO, TRADITIONAL VIDEO, AND WE DID AT LEGACY CHARTER. IT TOOK US A NUMBER OF QUARTERS WITH THE PRICING AND PACKAGING, BUT WE BELIEVE IN DRIVING HIGH VALUE PRODUCTS INTO THE HOME, AND WE BELIEVE THAT HIGH VALUE PRODUCTS STAY WITH CUSTOMERS AND CUSTOMERS WANT –
FABER: WHAT REPRESENTS A HIGH VALUE PRODUCT TO THIS POINT YOU'RE MAKING—
RUTLEDGE: FULLY FEATURED WITH LOTS OF CONTENT IN IT. NOW, IT'S TRUE THAT THERE'S TREMENDOUS PRICE PRESSURE ANDTHAT A LOT OF CONSUMERS CAN'T AFFORD A FULL VIDEO PACKAGE.
FABER: AND THERE'S A LOT MORE OPTIONS NOW THAN THERE WERE.
RUTLEDGE: AND THERE ARE A LOT MORE OPTIONS, EXCEPT WHEN YOU ADD THEM ALL UP, THEY COST MORE.
FABER: THEY CAN.
RUTLEDGE: THEY CAN. UNLESS YOU WANT LESS. AND MOST PEOPLE DON'T WANT TO PAY MORE FOR LESS. THEY WANT MORE FOR LESS.
RUTLEDGE: AND -- AND SO WE -- WE THINK THAT THERE IS A MARKET FOR SMALLER PRODUCTS FOR SOME CUSTOMERS, AND WE'RE TARGETING CUSTOMERS WITH THOSE PRODUCTS. WE HAVE ALL THE RIGHTS TO SELL OVER THE TOP SERVICES TO OUR DATA-ONLY CUSTOMER BASE. WE DO DO THAT, BUT WE STILL BELIEVE FUNDAMENTALLY THAT VALUE-RICH PRODUCTS, MEANING FULLY FEATURED VIDEO PRODUCTS ARE WHAT MOST CONSUMERS WANT TO BUY.
FABER: YOU DO. YOU BELIEVE THAT THEY DO.
RUTLEDGE: YES, WE DO.
FABER: OF COURSE, BROADBAND IS SOMETHING EVERYBODY NEEDS TO BUY, IT'S ALMOST LIKE WATER AT THIS POINT, BUT I'M CURIOUS WHEN YOU TALK ABOUT YOUR COMPANY, WHICH IS A BROADBAND FIRST COMPANY, LIKE SO MANY OTHERS ARE AT THIS POINT TO A CERTAIN EXTENT, THE NET ADS HAVEN'T BEEN QUITE AS STRONG AS SOME PEOPLE MIGHT HAVE THOUGHT. WHY IS THAT?
RUTLEDGE: WELL, YOU KNOW, I THINK THAT FROM OUR POINT OF VIEW WE EXPECT THE NET ADS TO BE CONSISTENT WITH OUR HISTORICAL NET ADS. WE ARE, YOU KNOW, ABOUT 50% MARKET SHARE, AND WE THINK WE HAVE A SUPERIOR PRODUCT. WE ARE INVESTING IN TAKING THAT PRODUCT FURTHER IN TERMS OF SEPARATING IT FROM A PERFORMANCE PERSPECTIVE AGAINST OUR COMPETITORS, TAKING SPEEDS UP, MINIMUM SPEEDS WE'RE 100 MEGABITS MINIMUM SPEED PRETTY MUCH EVERYWHERE NOW. NEXT YEAR WE'RE GONNA TAKE THAT HIGHER. WE'LL HAVE A GIGABYTE SERVICE PRETTY MUCH EVERYWHERE WE OPERATE IN ALL 50 MILLION HOMES PASSED. AND SO WE THINK THAT WE CAN CONTINUE TO TAKE SHARE AND CONTINUE TO GROW THE BUSINESS. WE HAD SOME HURRICANES LAST QUARTER – I DON'T KNOW ABOUT ONE QUARTER.
FABER: PEOPLE PAUSED AT LAST QUARTER FIRST. BECAUSE FIRST WE HAD COMCAST SORT OF SAY SOME THINGS WERE UNEXPECTED. YOU GUYS DIDN'T WHEN GIVEN THAT OPPORTUNITY, THEN YOU CAME WITH A QUARTER PEOPLE FRANKLY, DID NOT RESPOND WELL TO.
RUTLEDGE: YES, BUT YOU KNOW, I JUST MADE A PRESENTATION HERE WHERE I WAS TRYING TO SHOW THAT OUR HISTORIC GROWTH IS NOT LINEAR, IT'S LUMPY. AND IF YOU LOOK AT IT SMOOTHED OUT, IT LOOKS WONDERFUL, AND IF YOU LOOK AT THE STOCK PRICE SMOOTHED OUT, IT LOOKS WONDERFUL. BUT YOU KNOW, QUARTER TO QUARTER WE HAVE A LOT OF MOVING PARTS IN OUR COMPANY. WE'RE INTEGRATING THREE BIG COMPANIES. THERE'S A LOT OF ACTIVITY AROUND THAT – WE HAVE MARKET FORCES, TOO, YOU KNOW, NEW COMPETITORS THAT HAVE NEW PRICING PACKAGING PLACES IN DIFFERENT PARTS OF THE COUNTRY. AND YOU MIX ALL THAT UP, THE QUARTERLY GROWTH ISN'T ALWAYS LINEAR. BUT OUR FUNDAMENTAL UNDERLYING GROWTH, WE THINK, IS VERY SOLID AND VERY CONSISTENT WITH OUR HISTORIC GROWTH RATES.
FABER: WHICH GOES TO THE POINT MR. MALONE WAS MAKING EARLIER WHEN HE SAT DOWN AND WE TALKED ABOUT THE VARIOUS SPECULATION AROUND OFFERS THAT HAVE BEEN MADE OR AT LEAST TRIED TO HAVE BEEN MADE FOR CHARTER.
RUTLEDGE: FOR CHARTER?
FABER: YES. HE TALKED ABOUT –
RUTLEDGE: NO ONE HAS MADE A REAL -- AN OFFICIAL OFFER FOR CHARTER.
FABER: NO ONE HAS MADE AN OFFICIAL OFFER. BUT THEY GO THROUGH LIBERTY A LOT, IT WOULD SEEM –
RUTLEDGE: YES, SOME PEOPLE GO THROUGH LIBERTY. AND BECAUSE LIBERTY IS AN INTERESTING PLACE TO BE AND THEY ARE TRANSACTIONALLY ORIENTED, PEOPLE GRAVITATE THERE, YOU KNOW. LIBERTY OWNS ABOUT 19% OF CHARTER, AND WE HAVE OTHER BIG SHAREHOLDERS AND WE HAVE THE PUBLIC SHAREHOLDERS AND WE HAVE ACTUALLY A UNIFORMED VIEW FROM LIBERTY AND ALL OF THE SHAREHOLDERS ABOUT THE VALUE OFTHE COMPANY AND HOW WE CREATE VALUE. AND, YOU KNOW, I DON'T THINK WE'RE MISALIGNED AT ALL. BUT YOU'RE RIGHT, PEOPLE GO TALK TO JOHN AND HE'S AN INTERESTING GUY TO TALK TO.
FABER: HE IS, OR TO GREG, AND PEOPLE HEAR ABOUT IT AND ASSUME SOMEHOW THERE MIGHT BE SOMETHING. BUT THEY ALWAYS COME BACK TO THIS WITH ME, RUTLEDGE HAS OPTIONS THAT DONT VEST UNTIL 564. I DON'T KNOW IF I GOT THE NUMBER RIGHT. IS THAT IT?
RUTLEDGE: IT'S NEAR THERE.
FABER: NEAR THERE. IS THAT A FACTOR? DO YOU BELIEVE THAT STOCK EVENTUALLY YOU WILL BE ABLE TO COLLECT ON THOSE OPTIONS IF YOU FOLLOW YOUR LONG-TERM PLAN?
RUTLEDGE: YES. THAT'S WHY I SIGNED UP TO DO THIS. I SIGNED UP FOR A FIVE-YEAR DEAL, AND I HAVE VERY HIGH TARGETED PERFORMANCE OPTIONS, AND LOTS OF THEM, SO THEY CREATE ENORMOUS VALUE FOR ME.
FABER: THEY HAVE THAT'S WHY YOU'RE THE HIGHEST PAID EXECUTIVE IN AMERICA LAST YEAR?
RUTLEDGE: WELL YES, THAT'S NOT REALLY TRUE UNLESS THESE OPTIONS PAY OFF. THAT IS THE BLACK SHOALS VALUE OF THE OPTIONS, BUT IF WE DON'T HIT THOSE STOCK PRICES, I WON'T BE THE HIGHEST PAID EXECUTIVE IN AMERICA AND I'LL BE DISGRACED. AND I DON'T WANT THAT.
FABER: NO, WE DON'T WANT THAT EITHER. FINALLY, NOT TO BRING – YOU KNOW, A FEW YEARS AGO REMEMBER WE DID THE SAME INTERVIEW AND WE WERE TALKING ABOUT DIRECT TO CONSUMER AND HBO THEN. YOU SAID THEY'D BE SOWING THE SEEDS OF THEIR OWN DEMISE. DOESN'T SEEM LIKE THAT ANYMORE. REVISIT THAT TOPIC FOR ME.
RUTLEDGE: THAT HBO WOULD BE SOWING THE SEED?
FABER: -- IF THEY DID A DIRECT TO CONSUMER OFFERING, WHICH THEY HAD TO DO.
RUTLEDGE: YEAH, THEY HAVE WELL, YOU GOT TO PUT IT INTO CONTEXT, WHAT I SAID, BUT I BELIEVE THAT IF YOU HAVE A GOOD DISTRIBUTION SYSTEM AND YOU THEN GO DIRECTLY TO A CONSUMER WITH THE SAME PRODUCT AND YOU CAN BUY THAT A LA CARTE AS A CONSUMER, THEN HAVING THE DISTRIBUTOR WHO PACKAGES YOU WITH OTHER SERVICES TO DRIVE YOU WITH A VALUE-RICH PRODUCT INTO THE MARKETPLACE MEANS THEY NO LONGER NEED TO INCLUDE YOU. AND IF YOU COULD LIVE WITHOUT YOUR HISTORIC BASE OF CUSTOMERS, I THINK THAT'S FINE. BUT JUST TAKE ANY CHANNEL, YOU KNOW, THAT YOU WANT TO NAME. CNBC, JUST TO BE CONTROVERSIAL. IF YOU WERE STAND ALONE AND HAD TO SELL YOURSELF DIRECTLY, YOU WOULDN'T HAVE THE PENETRATION YOU DO. YOU MIGHT BE ABLE TO CHARGE MORE TO A NICHE MARKET, BUT WOULD THAT BE AS VALUABLE? AND WOULD – IF YOU WERE -- IF ALL OF NBC, ALL THE PRODUCTS OF NBC WERE SOLD A LA CARTE, WOULD I NEED TO CARRY THOSE AS PART OF MY PACKAGE, OR WOULD I SELL THEM INDIVIDUALLY? AND THAT'S ALL I WAS SAYING.
FABER: UNDERSTOOD. AND THAT'S STILL THE KEY QUESTION IN MANY WAYS. TOM, THANK YOU AS ALWAYS FOR SPENDING TIME WITH US, APPRECIATE IT. TOM RUTLEDGE, CEO OF CHARTER, BACK TO YOU GUYS.
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