Disney's Strategic Move With Charter: Analysts See Financial And Strategic Alignment As Key To Dominating Streaming And Linear TV Markets

Yesterday, The Walt Disney Company DIS (Overweight rating, $105 Price Target) and Charter Communications Inc CHTR (Equal-Weight) announced a transformative, multi-year distribution agreement under which the majority of Disney's networks and stations will be immediately restored to Spectrum's video customers. 

According to Morgan Stanley analyst Benjamin Swinburne, most Spectrum TV customers will be getting a better product, one with ad-supported Disney Plus, ESPN Plus, and ESPN DTC flagship when launched in 2024 or 2025.

By adding Disney Plus and ESPN Plus/DTC to Charter's video products, the two companies are better aligned financially and strategically moving forward, noted the analyst.

The wholesale distribution agreement for ad-supported Disney Plus will grow Disney Plus AVOD subscribers upon launch, albeit at wholesale rates, said the analyst.

The analyst estimates roughly 6-10 million of Charter's 14mm+ video customers may be included in tiers that will see Disney Plus included for free to the consumer.

The primary negative for Disney in securing ESPN and other major network linear distribution is the lost distribution of 8 smaller networks, which in aggregate may have monthly affiliate fees of roughly $2.

For Disney, there are benefits to securing ESPN linear economics that co-exist with an ESPN DTC launch, observed the analyst.

According to Needham analyst Laura Martin, through the deal, DIS (Hold rating) will save the linear TV revenue stream, maintaining its primary revenue competitive advantage.

Charter will retain ESPN, ABC, FX, the Disney Channel and all other DIS empire linear TV channels for its customers, noted the analyst.

Longer term, the analyst believes DIS will be a winner in the streaming wars owing to its superior marketing skills, lower SAC, strong IP franchises, A+ library titles and world-class storytellers at Pixar, Lucas Films and Marvel. 

Price Action: DIS shares are trading higher by 1.68% at $83.90 on the last check Tuesday.