With the ink still drying on a closely tracked carriage renewal with Charter, Disney execs Dana Walden and Jimmy Pitaro told Deadline in an interview that the agreement’s details suit the current streaming/linear hybrid environment.
The companies announced the settlement earlier today, a bit more than 10 days after their initial clash left 27 networks and ABC stations dark for the 14.7 million subscribers to the No. 2 U.S. cable system. The impasse ended just hours before the regular-season kickoff of Monday Night Football, an anticipated matchup between the Buffalo Bills and newly Aaron Rodgers-led New York Jets.
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While financial terms were not divulged, the main deal points had various puts and takes for both sides. Charter gains the right to take a wholesale fee in exchange for offering the ad-supported tier of Disney+ to its estimated 9.5 million Select video subscribers. It also will carry only a “curated” selection of networks, with Freeform, FXX and several other established outlets left without distribution on Spectrum, meaning a lower overall bill for programming. Disney, though, is getting Charter’s distribution muscle to help push its entire DTC portfolio on both a bundled and stand-alone basis, as well as the inclusion of ESPN+ with Charter’s Spectrum TV Select Plus package. And it is understood that the nine ESPN networks at the heart of the dispute secured not only rate increases but penetration minimums, both sticking points earlier in the rift.
Overall, the deal is “indicative of the times that we’re in,” summed up Walden, Co-Chair of Disney Entertainment. Asked about what the slimming-down of the Disney linear portfolio on Spectrum means for traditional networks in the future, she said, “We were prepared to be flexible and deliver the best results for our company.”
As far as viewer impact, while the new arrangement could leave a few gaps for fans of specific shows, Walden reasoned, “A lot of the programming on those channels is windowed to their cable channel siblings” as well as Disney+. Securing a boost for ad-supported Disney+, Walden said, was crucial. “This is the future of our business,” she said. The ad tier, which launched last December, had attracted about 3.3 million subscribers through the end of June. CEO Bob Iger has said the company’s ability to derive revenue both from ads and subscriptions — a double-barreled approach reminiscent of pay-TV — will be key to the company hitting its streaming targets.
As to why Hulu didn’t get integrated into the Spectrum subscriber tiers, unlike other Disney streamers, Walden said the deal still preserves “the ability for subscriber to add Hulu – so felt like there was a way for everyone to achieve their objectives.” A pending unified app interface blending Hulu and Disney+ content will also keep Hulu in the mix as Disney looks to finally close a deal to buy out Comcast’s stake in the streamer.
The last public indicator prior to today’s peace accord left plenty of doubt about whether the parties would ever get on the same page. Charter CEO Chris Winfrey indicated last Thursday that little progress had been made in negotiations, reiterating the company’s outlook that it could wind up “moving on” entirely from the video business. Asked about when the sides dug in to reach a compromise, Pitaro, ESPN’s chairman, replied, “Getting this deal done has always been a priority for us. We’ve been all hands on deck with a singular focus of getting a deal done. … I can’t tell you there was a defining moment. It was more of a gradual meeting of the minds.”
Cord-cutting has ravaged the pay-TV business, with Charter estimating it has lost about 25% of its customers in the past five years alone. Streaming, meanwhile, has an economic model that has not yet proven to be as lucrative as that during the heyday of pay-TV. Disney, meanwhile, has an interesting asset in the mix. It had been pointing customers affected by the outage Hulu + Live TV, its pay-TV service, even rolling out a $30-a-month discount in recent days. Asked how the company’s own pay service fits strategically with efforts to forge partnerships with outside distributors, Walden said, “It is definitely a tool in our arsenal” and signaled that “we were coming to market with Charter in a specific way.”
Added Pitaro, “We wanted a deal that would protected that traditional business model and also enabled us to create new pathways.”
Charter declined to make any of its executives available for additional comment to Deadline. The company’s CFO, Jessica Fischer, is scheduled to speak Wednesday at a BofA Securities conference in New York.
Wall Street appeared to view the settlement as a plus for both Disney and Charter shares, with the latter perking up 1% and the latter rising 3% on heavier-than-normal trading volume.
In a note to clients, MoffettNathanson’s Michael Nathanson scored the outcome a split decision, with pluses for each company but plenty of unknowns. In an appearance last Friday on CNBC, the veteran media analyst had predicted it would be “game over” for the Disney-Charter relationship if a compromise couldn’t be worked out before Monday night’s football game.
“While perhaps not the end of the pay-TV world as we know it, we very much can look back at this Disney/Charter deal as an opening salvo of a broader re-bundling and a step in giving customers smaller linear bundles with increased SVOD functionality,” Nathanson wrote in today’s note.
Michael Morris, an analyst with Guggenheim, was more certain that a compromise solution was likely given the near-term financial stakes. (Charter has pegged the annual value of its Disney carriage deal at $2.2 billion.) “We believe that today’s deal reflects a trade-off from linear economics, but positions both Disney and Charter to drive value amid the shift toward streaming in a digital future,” he wrote in a client note.”
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