{"id":590876,"date":"2023-09-12T16:27:49","date_gmt":"2023-09-12T13:27:49","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/disney-charter-deal-wall-street-dissects-wins-losses-and-impact-on-disney-espn-and-pay-tv\/"},"modified":"2023-09-12T16:27:49","modified_gmt":"2023-09-12T13:27:49","slug":"disney-charter-deal-wall-street-dissects-wins-losses-and-impact-on-disney-espn-and-pay-tv","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/disney-charter-deal-wall-street-dissects-wins-losses-and-impact-on-disney-espn-and-pay-tv\/","title":{"rendered":"#Disney-Charter Deal: Wall Street Dissects Wins, Losses and Impact on Disney+, ESPN and Pay TV"},"content":{"rendered":"
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\n Two industry giants collided in showdown that led to a blackout for millions of pay TV customers \u2013 but then still managed to strike a deal. With the Walt Disney Co. and Charter Communications unveiling a new carriage agreement on Monday, both sides could argue success. But Disney executives also acknowledged that the entertainment powerhouse had to give and take to reach the new pact. <\/p>\n

\n Overnight, Wall Street experts started sharing their analysis of where Disney and Charter won, and lost, in the new deal. Here is a closer look at some of their thoughts.<\/p>\n

\n Macquarie<\/strong> analyst Tim Nollen<\/strong>, who has a \u201cneutral\u201d rating on Disney shares with a $94 price target: \u201ca first down for both companies.\u201d Nollen, like many of his peers, expects this arrangement to affect future carriage deals for Disney and other entertainment giants. \u201cIn the end this wasn\u2019t as revolutionary a deal as Charter seemed poised to hold out for, but it does move the sticks down the field toward a fully streaming future,\u201d he argued in his report, suggesting that both companies can walk away feeling good about themselves. \u201cThis agreement advances hybrid linear\/direct-to-consumer bundles that better match customer demands, but doesn\u2019t upend the ecosystem.\u201d<\/p>\n

\n Looking at key wins, the expert assessed what\u2019s in it for Disney in this deal. \u201cWhile it may at first seem like Charter had its way, this settlement has several positives for Disney,\u201d Nollen wrote. \u201cOn top of the increased linear bundle price, Disney now gains new distribution of Disney+ with ads to a majority of the 14 million-plus Charter pay TV subscribers \u2013 so assuming this means about 12 million additional subs, Disney stands to gain additional revenue of around $400-500 million annually, plus it keeps 100 percent. of the advertising sales.\u201d <\/p>\n

\n ESPN will also see a gain in its viewer base. \u201cEven if that means no sub revenue, it gains more eyeballs to serve ads to,\u201d Nollen explained. And the upcoming new ESPN streaming service will have \u201ca built-in starting point on subs from Charter when it launches,\u201d with Disney benefitting from Charter marketing.<\/p>\n

\n What\u2019s in the deal for Charter? Its Spectrum Select pay TV customers will now have access to the Disney+ basic ad tier plan, \u201cfor which Disney receives a wholesale price from Charter (roughly half the retail rate of $7.99), and Spectrum TV Select Plus subscribers will now get ESPN+ in their bundle; Charter will not pay Disney for this service,\u201d the Macquarie analyst wrote. And \u201ceight long-tail networks [are] now removed,\u201d he noted. \u201cCharter does maintain some flexibility in its video offerings, meaning it may not have the same prior minimum penetration thresholds, so won\u2019t have to force channels onto users who don\u2019t want them.\u201d<\/p>\n

\n The expert\u2019s takeaway: \u201cPut together we\u2019d consider this a win for Charter, saving a bit on some unwanted linear networks, and avoiding extra payments for Disney+.\u201d<\/p>\n

\n Guggenheim Securities<\/strong> analyst Michael Morris<\/strong>, who has a \u201cbuy\u201d rating and $125 stock price target on Disney: the deal \u201cpositions both \u2026 to drive value amid the shift toward streaming.\u201d<\/p>\n

\n In a report, Morris argued that the new carriage deal should have \u201can overall positive result across Disney\u2019s total company economics\u201d and \u201creflects a trade-off from linear economics, but positions both Disney and Charter to drive value amid the shift toward streaming in a digital future.\u201d <\/p>\n

\n One example of this trade-off: Charter will no longer carry eight Disney networks, including Disney Junior, Freeform, FXM, FXX, and Nat Geo Wild. Morris estimated, based on SNL Kagan data, that these networks combined represent around 11 percent of Disney\u2019s affiliate revenue per subscriber fees. And he highlighted that the news<\/a> will likely raise questions about the future of these channels. \u201cWe expect that Disney will re-evaluate these networks and the amount spent to operate them as other distribution agreements come up,\u201d Morris explained. <\/p>\n

\n The Guggenheim expert also dissected the wholesale arrangement under which Charter will offer Disney\u2019s streaming services, including the Disney Bundle, to all its broadband customers at retail rates. In addition, the Disney+ Basic advertising-supported service will be provided to subscribers of Charter\u2019s Spectrum TV Select pay-TV package with the ESPN flagship streaming service to be made available upon launch, while ESPN+ will be provided to Spectrum TV Select Plus subscribers. \u201cWe believe that this new agreement reflects the value of these direct-to-consumer (DTC) services in this wholesale arrangement, with Disney taking a lower wholesale subscript<\/a>ion rate for Disney+ but retaining 100 percent of the advertising revenue for the Disney+ and ESPN+ subscribers,\u201d Morris argued. <\/p>\n

\n MoffettNathanson <\/strong>analysts Michael Nathanson and Robert Fishman<\/strong>, who have an \u201coutperform\u201d rating and $115 stock price target on Disney: \u201cWho blinked?\u2026 It depends on which part of the deal you want to focus on.\u201d <\/p>\n

\n The team analyzed the financials behind the carriage pact. \u201cDepending on the discount to the retail rate, we should see some revenue per user impact from the addition of these lower-priced subscribers once the deal kicks in,\u201d they explained. \u201cAt an estimated 9-10 million Spectrum subscribers on the TV Select tier, adding these subscribers to the Disney+ ad tier should provide an immedia<\/a>te boost in helping Disney grow their DTC advertising business, and we would expect some cannibalization from existing Spectrum subscribers that spin down for free to Disney+.\u201d<\/p>\n

\n For Charter, possibly \u201cthe biggest win\u201d under the deal is that ESPN+ will be provided to Spectrum TV Select Plus subscribers, while the ESPN flagship streaming service will be made available to Spectrum TV Select subscribers when it launches, the MoffettNathanson analysts suggested. But they also highlighted that this was \u201cat the same time likely something Disney knew was inevitable as part of future affiliate deals.\u201d <\/p>\n

\n Given that Disney has been \u201cmuch more vocal on the inevitability of taking its ESPN flagship over-the-top, we think including ESPN+ in all new deals will likely be a central deal point for future renewals,\u201d Nathanson and Fishman wrote. \u201cHaving a template with ESPN+ bundled together with ESPN, Disney should be able to have more leeway on putting more of its premium sports rights on ESPN+ going forward and avoid the perception of cheating its linear partners.\u201d<\/p>\n

\n With Charter committing to using its distribution capabilities to offer Disney\u2019s streaming services to all its customers, including its big broadband-only user base, for purchase at retail rates, the analysts see a natural next step taken in the cooperation between content and distribution giants. \u201cWe believe this will help formalize the relationship Disney (along with most other media companies) have with distributors to sell its DTC services across its footprint,\u201d they wrote, adding: \u201cWe would expect Charter to receive a cut of these new sign-ups.\u201d<\/p>\n

\n The MoffettNathanson analysts also highlighted Charter\u2019s success in getting its pay-TV packages not to have to carry various Disney networks anymore. \u201cWithout knowing the specifics of the deal, it is hard to say whether price increases Disney won for its remaining networks will be enough to fully offset this loss, pegging this as a win for Charter,\u201d they concluded. <\/p>\n

\n Based on rough estimates of what Charter has been paying so far, the experts estimated that the removal of these networks \u201cwill cost Disney in the range of $300 million per year in high-margin lost affiliate fees.\u201d And they emphasized: \u201cLike much of this deal, we anticipate this setting a precedent for similar surgical culling in all future renegotiations across the industry.\u201d<\/p>\n

\n A key question they raised is whether Disney had to give up anything else as it relates to its ESPN flagship network, \u201cby far the biggest piece of economic value the company receives today, generating the vast majority of linear networks affiliate fees.\u201d A reduction in ESPN minimum guarantees would likely trigger changes of deals with other distributors \u201cthat would be a much more significant financial impact to the company,\u201d Nathanson and Fishman wrote. With ESPN chair Jimmy Pitaro telling The Hollywood Reporter<\/em> that \u201cwe secured commitments that were very strong in terms of rates and minimum penetration,\u201d that sounded like Disney had gotten what it needed on that front.<\/p>\n

\n \u201cSo ultimately who won these very visible negotiations?\u201d the MoffettNathanson analysts asked at the end of their report. \u201cIf the framework to make the call is an evolution of prior deals to include DTC as part of a new way to provide value to subscribers along with cutting down on long-tail cable network payments, then we can see how Charter can claim victory,\u201d they concluded. \u201cHowever, from an economic standpoint, as long as Disney gets the \u2018very strong\u2019 rate increases on its core cable networks and ABC retrans, plus the wholesale arrangement for Disney+ ad tier, we would expect the $2.2 billion Charter is set to pay Disney this year to keep going up nicely over the multi-year agreement. We would call this a win for Disney.\u201d<\/p>\n

\n UBS <\/strong>analyst John Hodulik<\/strong>, who has a \u201cbuy\u201d rating and $122 stock price target on Disney: \u201cgreater flexibility and better content\u201d for Charter and \u201cnet positive\u201d for Disney as \u201cstreaming offsets linear pressure.\u201d<\/p>\n

\n For Charter, the new Disney deal means better content and greater flexibility, Hodulik wrote in his report. \u201cCharter is dropping long-tail cable networks while still preserving the most popular linear programming and getting access to more attractive DTC content,\u201d he explained. \u201cWe believe this will reduce linear fees but drive net upside to the total payment to Disney previously, although within historical renewal trends.\u201d He also sees the pact allowing Charter \u201cto offer an increasing range of video products on the low end while improving the quality of the product with a linear\/streaming hybrid on the high end.\u201d<\/p>\n

\n For Disney, the agreement allows for streaming upside to offset linear pressures, Hodulik argued. \u201cWe estimate dropping of long-tail cable networks will provide a roughly 1-2 percent headwind to linear affiliate revenues, partly offset by rate increases on the remaining networks,\u201d he wrote. \u201cThat said, downside in linear should be more than offset by the benefits in DTC, including Disney receiving a wholesale rate for the majority of Charter\u2019s 15 million video subscribers now receiving access to Disney+; Charter promoting Disney\u2019s DTC services to its broadband-only customers; and potentially greater advertising revenues.\u201d<\/p>\n

\n Hodulik also warned of the impact on the broader entertainment industry. \u201cWe believe dropping the long-tail entertainment networks and Charter\u2019s tougher stance on the inclusion of DTC apps, especially where the content is the same, could create more difficult negotiations for other media networks (Warner Bros. Discovery, Paramount Global, AMC Networks),\u201d he concluded. \u201cCharter\u2019s ability to continue offering more flexible packaging while including DTC apps could help the pace of cord cutting (but lowers the ability for media nets to \u2018double-dip\u2019 on DTC and linear revenue streams).\u201d<\/p>\n

\n Bank of America analyst Jessica Reif Ehrlich<\/strong>, who has a \u201cbuy\u201d rating on Disney with a $135 price objective: \u201clive to fight another day.\u201d<\/p>\n

\n For Disney, the expert sees one key benefit in the deal helping to drive the Disney+ ad-supported streaming service\u2019s growth. \u201cDisney+ is in the very early days on their ad-supported streaming launch, so there is limited subscriber overlap within both customer bases,\u201d she explained. \u201cTherefore, this wholesale agreement with Charter can be an effective way to scale Disney+ distribution. Disney will receive wholesale payments from Charter (with built-in escalators) but will retain all of the advertising revenue. Net\u00a0net, we expect this deal would be additive to total DTC revenue.\u201d<\/p>\n

\n Reif Ehrlich concluded that \u201cmedia lives to fight another day,\u201d summarizing: \u201cWe view this deal as better for the broader media universe than market expectations. There were concerns about the industry\u2019s ability to extract additional affiliate rate increases and changes to minimum penetration rates.\u201d<\/p>\n

\n She also noted that shares of both companies, along with other media and entertainment stocks, \u201coutperformed\u201d following the deal news. \u201cSimply put, this agreement (at least for now), removes the
worst-case scenario from the table \u2014 a potential dramatic decline in the linear subscriber universe that would also have had a significant earnings impact on the broader ecosystem,\u201d Reif Cohen explained. \u201cHowever, we do not expect this new agreement ultimately to change the current trajectory of the linear ecosystem, which continues to face secular challenges.\u201d<\/p>\n<\/p><\/div>\n

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Two industry giants collided in showdown that led to a blackout for millions of pay TV customers \u2013 but then still managed to strike a deal. With the Walt Disney Co. and Charter Communications unveiling a new carriage agreement on Monday, both sides could argue success. But Disney executives also acknowledged that the entertainment powerhouse…<\/p>\n","protected":false},"author":1,"featured_media":590877,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/www.hollywoodreporter.com\/wp-content\/uploads\/2023\/09\/GettyImages-1675213830.jpg?w=1024","fifu_image_alt":"","footnotes":""},"categories":[17],"tags":[134740,44087],"class_list":["post-590876","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-social-mediaa","tag-charter-communications","tag-walt-disney"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/590876","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=590876"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/590876\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/590877"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=590876"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=590876"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=590876"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}