Charter/Disney Deal Seen Spawning Broader Cable Industry Changes

The deal is the logical transition step between the traditional cable bundle and MVPDs moving toward becoming curators of streaming apps for their subscribers, Berke said in an interview Tuesday. Whether other programmers with streaming offerings, like Paramount Global and its Paramount+, NBCUniversal and Peacock or Warner Bros. Discovery and Max buy in remains to be seen, "but now there's a road map," he said. Regardless of how MVPD negotiations with those programmers go, "you can see where things are going to end up," he said.

Pointing to the launch later this year of the Xumo streaming platform joint venture with Comcast, Deutsche Bank analysts Bryan Kraft and Benjamin Soff wrote investors Tuesday that Charter's moving toward becoming a large-scale distributor of streaming apps is a strategic initiative. Both Charter and Disney are likely satisfied with the agreement, but Disney especially so, they said. There were fears the contract dispute could jeopardize the foundation of Disney's linear TV business without a renewal, while its streaming business was jeopardized if Disney gave in to Charter demands about streaming services being included with linear TV networks at no extra charge, Kraft and Soff said.

This linear/streaming hybridization "isn't entirely new," with cable HBO subscribers having Max access, but expect to see more linking of streaming access with carriage negotiations moving forward as MVPDs and content companies try to manage the decline of linear TV, emailed former Warner Bros. executive Daniel Ornstein, now CEO of media subscription aggregator Bundler. The issues pressuring the sides for the deal -- maintaining linear revenues to subsidize streamline losses for Disney, slowing TV sub losses and evolving the TV product for Charter -- still exist, "so we can probably expect future deals to follow a similar pattern: price hikes for linear channels with some new flexibility for MVPDs to offer smaller packages and customer perks like access to Disney+, ESPN+, Paramount+, Max, and maybe Peacock," he said.

It wouldn't be surprising to see MVPDs increasingly become distributors of streaming services for TV and for broadband subscribers, Ornstein said. "Offering streaming services to broadband providers will be a delicate dance, as neither MVPDs nor content companies want to do anything to accelerate cord cutting, but something some internet providers are already doing (see Verizon and T-Mobile)," he said. Such a move also could help content companies slow the decline in linear revenues, he said. Using MVPDs as distributors for streaming services could help content companies manage churn "and address consumer fatigue with a complicated, fragmented, and increasingly expensive streaming landscape," he said.

Ornstein said that in coming years, carriage negotiations "will probably revolve around a few key things: price, of course, flexibility for MVPDs to offer slimmer packages, and terms around access to streaming services." Content companies might require a linear sub for "free" access to streaming services at least for now, but they may eventually allow MVPDs to distribute streaming services to broadband-only subs, he said.

Both Charter Communications and Disney seem to have won in the carriage fight settled this week, with Charter gaining the ability to marry direct-to-consumer streaming to its linear channel lineup and Disney likely getting strong rate increases, MoffettNathanson wrote investors Monday. It said other MVPDs likely will factor Charter's Disney agreement into their own future affiliate fee renewals. It said the Charter deal also likely means Disney is open to other distributors offering the Disney+ ad-supported tier to their subscriber bases through wholesale agreements. "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 greater subscription VOD functionality, it said.

Most-favored nation clauses in licensing contracts could mean Disney+ and ESPN+ being included in other cable, direct broadcast satellite and telco TV service packages the way they are in the Charter/Disney agreement, nScreenMedia analyst Colin Dixon blogged Monday. Even if an operator doesn't have an MFN with Disney, "the precedent has been set, and others will undoubtedly demand a similar deal to Charter’s" from Paramount Global with its Paramount+, NBCUniversal for its Peacock, and WB Discovery for Max, he said. Charter's deal with Disney still doesn't address the core problem the cable bundle faces, being too expensive and forcing viewers to pay for content they don't want, he said.