The recent carriage dispute between Walt Disney and Charter Communications has captured the attention of Wall Street and sparked speculation about the future of the video industry. Analysts from Bank of America, Guggenheim, MoffettNathanson, and LightShed Partners have all weighed in on the battle, using colorful language to convey the seriousness of the situation.
Charter, the second-largest cable TV provider in the US, has been shifting its strategic focus towards broadband as cord-cutting and streaming losses have affected the profitability of traditional media and entertainment companies. The rising affiliate fees for TV networks and the declining number of viewers have made the current video ecosystem unsustainable, according to Charter.
However, Disney has argued that it has successfully negotiated deals with pay-TV providers across the country and the rates and terms it is seeking from Charter are driven by market forces. The blackout of Disney channels in Charter households during key sporting events has garnered attention and raised questions about the future of video.
The dispute between Charter and Disney has far-reaching implications, not only for the two companies involved but for the entire industry. Guggenheim analyst Michael Morris warns that if Charter shifts its strategic focus away from its video product, it could put video economics at risk for other media companies as well. The potential loss of subscribers and reduction in affiliate fees could have a negative impact on Charter’s bottom line and could also hasten Disney’s plans to launch its own stand-alone ESPN streaming product.
For Disney, the $2.2 billion in affiliate fee revenue from Charter represents a significant portion of its cable affiliate revenue and overall linear networks affiliate revenue. The loss of this revenue could impact Disney’s fiscal year 2023 segment operating income.
The industry-wide ramifications of the Charter-Disney dispute are not lost on experts. Bank of America analyst Jessica Reif Ehrlich warns that if this posture becomes a trend among major video distributors, it could have a devastating impact on the profit and loss of the traditional media and entertainment group. This could lead to a decline in highly profitable linear subscribers, which would only be partially offset by fewer and less profitable direct-to-consumer subscribers.
The MoffettNathanson team also sees this dispute as a potential tipping point for the pay-TV space. The analysts believe that if Charter is successful in changing the terms of affiliate fee deals or punishing companies that leak premium content to their own streaming services, it could have a significant impact on Paramount and NBCUniversal’s linear affiliate fees. Fox, on the other hand, with its greater exposure to linear affiliate fees, could benefit from the exclusive nature of its premium content.
The LightShed team explores the possibility of a permanent drop in the linear TV business and the sports media ecosystem if Charter insists on including streaming services at no extra cost. While they believe that an agreement will likely be reached, they acknowledge the possibility of a darker outcome if both sides remain steadfast in their demands.
In conclusion, the Charter-Disney dispute has raised important questions about the future of the video industry and the profitability of traditional media and entertainment companies. The outcome of this battle could have far-reaching implications for the industry as a whole, and experts are closely watching to see how it unfolds.
