• by Karlene Lukovitz  @KLmarketdaily, September 14, 2023

“We are really happy with the deal. We met all of our objectives.”

That’s how Charter Communications’ CFO Jessica Fischer summed up the company’s groundbreaking, three-day-old carriage deal with Disney, during a Bank of America investor conference on Wednesday.

“I really think everybody wins in this deal,” Fischer added. “I think it was a win for us, I think it’s a win for Disney, I think it’s really a win for consumers.”

For the industry overall, the deal will “stabilize the linear video ecosystem and provide a glide path that gets us to the new direct-to-consumer environment,” she said. 

In addition to realizing distribution growth across all of Charter’s linear channels, Disney will have access to a “really great distribution engine” in Charter’s broadband system, she said. Plus, “They’ll get the ad revenue, because the D2C that we’re bundling in is ad-supported.”

Charter won the ability to distribute the ad-supported tier of Disney+ and ESPN+ at wholesale rates as part of certain Spectrum cable packages, and access to the new ESPN streaming hub once that launches. It also won greater flexibility in how it packages Disney channels for subscribers, and the ability to drop eight less-watched Disney channels (Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild and Nat Geo Mundo) that were challenged for viewership due to competition from FAST channels.

During the deal negotiations, Charter took a highly public and confrontational approach, declaring that it was ready to walk away from Disney distribution, and linear video in general, if necessary.

Asked about that stance, Fischer said that Charter needed Disney "to be a first mover to get us into this transitional model." Disney “had the linchpin asset in ESPN… You couldn’t move to a new transformation model without ESPN," she explained. 

While Disney will gain from benefits including higher carriage fees for its big networks and broader reach for the Disney+ ad-supported tier, analysts have generally characterized the deal as more of a win for Charter.

Asked to summarize the benefits for Charter, Fischer said the deal is first about “taking the valuable content that had been leaking out of the system” via programmers’ shifting of sports and other content to their D2C streaming assets and “putting it back in our packages” in the form of the inclusion of ad-supported Disney+, ESPN+ and the coming ESPN streaming hub.

Charter not only won more flexibility to create lower-priced, so-called “skinny” bundles as it sees fits, but a model that exceeded its expectations “in terms of our ability to drive total economics that we think will enable us to offer our video packages to customers at a value, which was always our goal,” she said. Most important, the deal sets a precedent enabling Charter to strike future deals with distributors that allow the company to “moderate the growth in content costs for consumers,” she said.

“What we really envision going forward is having the use of our sales and marketing engine and our bundling capabilities pulled together with the highest-value content that’s available across the industry where we can offer packages to consumers that fit both their preferences and their budget,” she said.

Charter didn’t even take a consequential subscriber hit as a result of the nine-day blackout of Disney channels for Spectrum subscribers that left them without direct access to events including the U.S. Open and a college football season opener, according to Fischer.

Subscriber losses “have been much less than what we initially anticipated,” she said, although not citing specific numbers. The impact on broadband subscribers — the relationships that are key to Charter’s financial model — “has been very, very small,” she added. “We believe we’ve come out on the other side of this really still doing well, from a subscriber perspective.”

As of the second quarter, Charter added 77,000 broadband subscribers, for a total of 30.6 million, and lost 200,000 video subscribers, for a total of 14.7 million. The company's share price has risen by nearly 28% year-to-date.

Charter's streaming joint venture with Comcast, Xumo, is set to launch in this year's fourth quarter.