Analysts at Bank of America have welcomed a multi-year agreement between The Walt Disney Company (NYSE:DIS) and Charter Communications, Inc. (NASDAQ:CHTR) that resolved their week-long dispute over the renewal of Disney's cable networks on Charter's systems.
The analysts said the deal, which allows Disney networks like ESPN and ABC to return to Charter's cable service, removes the worst-case scenario from the table — a potential dramatic decline in the linear subscriber universe that would also have had a significant earnings impact on the broader ecosystem.
“For that reason, we are encouraged that both sides came to an agreement and did not prolong this dispute through the Monday Night Football broadcast on 9/11,” the analysts wrote in a note to clients.
“We view this deal as better for the broader media universe than market expectations. There were concerns about the industry's ability to extract additional affiliate rate increases and changes to minimum penetration rates.”
According to the analysts, it appears that the two media companies were able to maintain the status quo on those two critical items: Charter agreed to keep ESPN subscriber levels at the standard 85% of total and also agreed to per-subscriber affiliate fee increases.
Despite concessions that included Charter dropping several Disney networks, the analysts said the cumulative payment to Disney programming may not change significantly even with the affiliate rate increases.
Still, they don’t expect this new agreement ultimately to change the current trajectory of the linear ecosystem, which they said continues to face secular challenges.
As such, the BofA analysts have maintained their ‘Buy’ rating on Disney and ‘Neutral’ rating on Charter.
Contact the author at stephen.gunnion@proactiveinvestors.com