Charter CFO: Disney deal met all of our objectives

Speaking at an investor conference Wednesday, Charter CFO Jessica Fischer said the recent carriage deal with Disney met all of the cable operator’s objectives.

The agreement, reached Monday, restored 19 linear Disney channels, including ESPN, to Charter’s cable systems after a more than  one-week blackout that coincided with the kickoff of NFL football season for its more than 14 million pay TV subscribers. The deal also adds Disney-owned direct-to-consumer apps, including the ad-supported version of Disney+, ESPN+ and the forthcoming flagship DTC ESPN app once it launches, in certain Charter Spectrum TV packages.

During an appearance Wednesday at the Bank of America Media, Communications & Entertainment Conference, Fischer said Charter is really happy with the deal that met all of the cable operator's goals. Charter had already been nearing indifference on video and during the dispute publicly decried a broken linear video ecosystem alongside a willingness to walk away from Disney for good as it sought for the two to bring forward a new model.

In terms of Charter’s aims, Fischer said “first it was about taking the valuable content that had been leaking out of the system and putting it back in our packages, and we did that,” noting the addition of DTC apps.

Charter has argued that programmers are devaluing content as they charge distributors higher rates that are passed on as costs to consumers, while putting content on their own DTC apps that makes it available elsewhere for a lower price or that consumers have to pay twice for. Charter also had issue with ESPN, long seen as a linchpin of the pay TV ecosystem, when it knows Disney plans call for an inevitable shift to DTC for the network. By including the flagship ESPN DTC app in linear Spectrum TV Select video packages when it launches, Fischer said it “is really preventing additional content leaking out of the system going forward,” adding bringing that value in was important.

“You couldn’t move to a new transformational model without ESPN, and so because of that, we needed [Disney] to lead,” Fischer said, noting Charter was willing to accept Disney’s market rate increases because it has the linchpin asset in ESPN that was key to setting the path for a new model.

The finance chief also said Charter was able to maintain flexibility of TV packages it was looking for including skinny bundles it offers today and to have flexibility going forward. Finally, she cited total economics, where she said Charter “really exceeded our expectations” and supports the cable operator’s goal of being able to offer video packages to customers at a value.

In terms of how the brief Disney blackout affected the cable company’s subscribers, Fischer acknowledged Charter has lost video subscribers, but said so far “those losses have been much less than we initially anticipated” and the impact on broadband subs has been very small.

Win all around

To Fischer, the agreement is a win all around for the cable operator, Disney and consumers.

On the Disney side, Fischer pointed to Charter’s significant marketing and broad distribution capabilities across both its linear subs, and its large broadband base of nearly 30 million subscribers, to which it agreed to market all of Disney DTC apps to. Disney will also get ad revenue from the ad-supported version of Disney+ that Spectrum TV subscribers take, as well a revenue related to upgrades if TV subs want to shift to ad-free versions of the Disney+ app.

The other important win for Disney and Charter, the finance chief said, is “we’ve pulled together a package that we think can stabilize the linear video ecosystem and provide a glide path that gets us to a new direct-to-consumer environment.”

And consumers benefit, she said, as Charter can offer packages with choice and high valued bundled services customers are looking for, and subscribers won’t be asked to pay twice for content they get through linear and on Disney DTC apps.

Charter is getting Disney+ included in packages at wholesale rates and asked by BofA analysts how it plays into the company’s transition from linear to streaming and other DTC products, Fischer indicated plans to bundle more apps that Charter will then put its marketing power behind (Charter had already said the model it proposed to Disney was one it would pursue with other programmers).

“What we really envision going forward is having the use of our sales and marketing engine and our bundling capabilities, pulled together with highest value content that’s available across the industry, where we can offer packages to consumers that fit both their preferences and their budget,” Fischer said.

And based on the arrangement with Disney, going forward in the long term with other agreements, she said Charter believes it will be able to moderate the growth in content costs for consumers.

In the fourth quarter Charter, through its joint venture with Comcast, is launching its own Xumo-branded streaming platform. Fischer said the easy search and content discovery capabilities on the platform set Charter up for delivery of those products “in a really consumer friendly way.”

As streamers look for new avenues of growth and cable operators seek ways to offer video alongside higher value connectivity services like broadband, bundling has emerged as one strategic play. For a deeper dive on why bundles could be the next move and who might be best to deliver, read here.