Charter Communications and Disney at Crossroads: What a Potential Agreement Means for the Future of Streaming and Linear TV

Benchmark analyst Matthew Harrigan reiterated Charter Communications Inc CHTR with a Buy and a $575 price target.

The analyst re-rated pending clarity on how the programming dispute and carriage blackout with Disney evolves. 

Predictably, it involves Disney and especially ESPN, given Disney's DTC emphasis and subsidization vs. linear, even as it charges Charter ~$12.50 monthly for its overall programming bouquet, perhaps 75% attributable to ESPN. 

The current impasse is off the superposition of Disney's streaming-centric DTC approach versus linear with decades-long subsidization of expensive ESPN by subscribers who do not watch sports. 

Winfrey suggested on last Friday morning's CC that any agreement with Disney could provide a template for other MVPDs and programmers. However, it is clear near sports peer NBCUniversal has divergent interests given Comcast Corp's CMCSA ownership. 

Charter and Disney are apt to be under heavy political and consumer pressure to conclude an agreement, which would entail Disney conceding to bundle AVOD offerings with linear networks with Spectrum marketing for SVOD products. 

This would involve pricing concessions to Disney for the overall ESPN bouquet with concomitant packaging flexibility for Charter. 

Migrating to the predominately a la carte sports model that Chris Winfrey enjoyed in his prior stint as CFO of Germany's Unitymedia is unrealistic given the long conditioning of U.S. sports fans to not bear the full sports rights cost freight. 

There are also non-ESPN issues with declining viewing for Disney and ABC non-sports programming, including kids. 

Major MVPDs are now adapting their video models to constrict subscriber acquisition costs while fostering gigabit+ broadband takeup. 

The new Xumo video product allows customers to access linear and DTC video content with unified search and discovery. 

Alongside the Spectrum TV app, the Xumo product will be the go-to-market platform for new video sales. Today, two-thirds of Charter's video sales do not involve a set-top box, as customers take platforms like Roku, Apple TV, or Samsung TV. 

Price Action: CHTR shares traded lower by 1.98% at $413.96 on the last check Tuesday.