An ongoing dispute between media giant The Walt Disney Company
Analysts size up what's at stake and what the two companies should do.
Needham on Disney: The battle between Disney and Charter could benefit other companies, according to Needham analyst Laura Martin.
Martin, who has a Hold rating on Disney and no price target, sees FuboTV Inc
Distributors that still have ESPN on the air and other OTT services that benefit from additional viewing hours could benefit from the carriage dispute, the analyst said.
"Based on this year's Upfront, studios are putting their best new content onto their streaming apps but still charging high per-sub subscription fees to MVPDs owing to long-term contracts. MVPDs are mad," Martin said.
Martin calls this the final countdown and says that it is Disney that should cave.
"To maximize ad revs, we believe DIS's content must be on all platforms, including MVPDs. More reach has a larger TAM, and higher economics."
The analyst said the battle between the two companies could impact the future business model for the media industry.
"For media industry economics, we believe bundling is beat and a la carte is worst."
Without an agreement with Charter, Disney would see its revenue fall, but its costs for sports rights would remain the same.
"This would destroy its margins and ROICs for at least 12 months. Also DIS's ad rev would also fall by an additional $1B/year."
Without an agreement, Disney could also see users flock to competition like other media companies and other video platforms, Martin added.
"Having a rev stream from linear TV would represent a competitive advantage for the studios that many other types of competitors for time do not have.
Macquarie on Disney: The blackout of ESPN and other Disney channels on Charter marks a key direct-to-consumer moment for the media sector, Macquarie analyst Tim Nollen recently said.
The analyst, who has a Neutral rating and $94 price target on Disney, calls this more than a typical carriage dispute. Nollen said the dispute comes on the heels of the U.S. Open tournament and the beginning of the NCAA Football season.
"Charter's position is essentially that Disney is trying to have it both ways, with price increases and higher penetration levels for its linear channels as well as demanding accessibility for its DTC services on Charter's TV packages," Nollen said.
Charter proposes a "glide path" for both sides to benefit, and is looking to pay Disney a market rate price increase for carriage of Disney channels. It would also get access to bundled packages that could include Disney+, Hulu and ESPN+.
"Charter wants to extend its recent efforts to aggregate cable networks' streaming apps in combined linear+streaming offerings."
Nollen highlighted Charter's comments that around 25% of its video customers watch Disney content, and only half of those consumers are highly engaged with the content.
Charter has 14.7 million pay TV subscribers, which represents around 20% of ESPN's subscriber base of 74 million. This represents around $5 billion in potential lost revenue on a full year basis, according to Nollen.
The battle between Charter and Disney could set the table for future deals with media companies, Nollen said, adding that "TV industry disruption is why we downgraded DIS shares in May."
Nollen expects a deal soon, as the "stakes are too high for both."
DIS, CHTR Price Action: The battle between the two companies comes as their stocks have also gone in different directions.
Disney's shares have hit ten-year lows at $80.62 and are down 9% year-to-date.
Charter shares trade at $420.30 versus a 52-week trading range of $297.66 to $452.25 and are up 23% year-to-date.
