Future of Charter Communications Amid Disney Programming Dispute: Analyst Weighs

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

The current stock price level adequately recognizes uncertainty about how the programming dispute and carriage blackout with Walt Disney Co DIS evolves. 

Also Read: Warner Bros. Discovery Takes on Disney, Paramount and Comcast, Eyes Live Sports for Max

Tactical moves by Charter and Disney align with CEO Chris Winfrey’s position that this is not the de rigueur perennial negotiating faceoff timed to coincide with the NFL/NCAA football season opening and U.S. Open tennis. 

There is evident merit to Winfrey’s adamance that video bundles have been too expensive for many customers, especially non-sports fans, and have not addressed customer needs. 

Charter’s claim of having reached “economic indifference” on video appears credible, although, in Benchmark’s assessment, this requires a disciplined runoff of the current installed base while monetizing expended SAC. 

Within Benchmark’s price target, Harrigan sees a sustained video business representing $110 inclusive of $100 for the current installed base runoff. 

Sustained value would likely be lower than runoff if Charter concedes to aggressive Disney demands for ESPN pricing, even as it uses linear to subsidize DTC growth, implying Charter could make an intermediate pivot totally to broadband, mobile, and business services with a fair value price target declining only to $565. 

The analyst suggests a combo of Charter and especially Disney with a rapprochement allowing skinny bundles sans sports and tossing AVOD (advertising video on demand) services into the overall bundle.

Disney is subject to significant share price and performance pressure and stands to lose $2.2 billion in very high incremental margin carriage fees, with lost advertising taking the overall free cash flow hit to $4 billion+. 

A Benchmark mantra has been the gravitation of viewing activity to streaming, even with a significant linear tail and the concomitant need to collapse arbitrary walls between the two consumption modes. 

Given the significant inconvenience of switching to a competing fiber alternative like FiOS, the immediate winners of the dispute are virtual MVPDs, including Alphabet Inc GOOG GOOGL YouTube TV, Hulu+ Live TV controlled by Disney with Comcast Corp CMCSA negotiating an accelerated and favorable exit, and even smaller alternatives like FuboTV Inc FUBO. 

Unsurprisingly, Charter is already directing agitated sports customers to Fubo while Disney is promoting ESPN on Hulu+. 

Isolating the value of the video business is necessarily tricky, necessitating nuanced analysis, even internally or for engaged consultancies. 

Price Action: CHTR shares traded higher by 0.94% at $420.89 on the last check Friday.