Since no one had a gun to anyone’s head, Wall Street analysts believe that the big carriage deal announced Wednesday by Comcast and Walt Disney Co. is a positive one for both companies.
The deal is also a healthy sign for the current TV ecosystem. In comprehensive, multiplatform deals like these, cable operators, nervous that video subscriber counts may fall, are able ensure that they have ways to satisfy consumers who want to view content not only on their TV screens but on mobile devices. Deals like the Disney deal make getting popular programming like Monday Night Football easy to watch for Comcast subscribers whether they’re at home on the couch in front of the big flat screen, or at a school play with an iPad.
Anthony DiClemente, analyst at Barclays Capital, noted that while financial terms of the deal were not disclosed, they are likely to be favorable to Disney.
“Our view is based on: 1) this negotiation never evolving into a public fee dispute; 2) ESPN channels being included in the deal ahead of their expiration (the previous pact expired at the end of 2011 but was only for non-ESPN channels); and 3) this deal appearing to be more comprehensive in scope than other recent carriage deals (meaning Disney was offered attractive value for the expanded content),” said DiClemente in a research note Thursday morning.
He added that the deal gives Disney incremental monetization opportunities. “This deal is consistent with Disney’s strategy of offering content on the best available screen and represents an incremental monetization opportunity given the licensing of content rights on both linear (TV) and non-linear (tablets, mobile) platforms. We believe live-sports content is particularly valuable on non-linear platforms and ESPN is a clear beneficiary from increased multi-platform media consumption,” he said.
Benjamin Swinburne, analyst at Morgan Stanley, observed that for Disney, “this is the first agreement following the NFL Monday Night Football renewal and given it was done early, is likely a template for future agreements (now about 50% of contracts expire by year end 2014) that ultimately will help Disney effectively monetize those rights.”
Swinburne adds that for Comcast, “visibility into programming cost growth is a positive, while expanded rights (including On-Demand and authenticated multi-device viewing) drive incremental value to subscribers and help it leverage its Xfinity platform.”
Another part of the deal that solidifies the industry’s status quo is that the largest cable operator will not be putting the largest and most expensive sports network on a tier for 10 years.
Michael Nathanson, analysts at Nomura Securities, says this “should put to rest the idea that ESPN will be forced onto a sports tier in the coming years. Due to the impact of most favored nation clauses in these types of affiliate contracts, ESPN has established a precedent that every smaller distributor will have to live with. Why? Well, if Disney agrees to put ESPN on a sports tier or a smaller basic tier for a small distributor like Dish Network with 14 million customers, we think they would be contractually forced to offer Comcast (and their 22.3 million video customers) the same terms which takes money out of ESPN’s pocket.”
While Comcast and Disney declined to discuss numbers, David Joyce of Miller Tabak + Co., tried to put dollar figures on the deal.
“We expect Comcast to pay $39 million in Disney retransmission fees for its stations in 2012, and another $1.85 billion for Disney cable networks,” Joyce said in a research note. “While we expect Comcast’s total programming expense to increase at an 8.0% compound rate for the next 5 years (younger networks and earlier-stage retransmission fee deals may have higher growth rates in the near-term), we expect the ratable increase in the Disney portion of that to start at a +6.6% rate then move up to +7.8% based on the initial decline, then increase in, the Comcast subscriber base.”
Joyce said he also assumes “a 7.5% increase in ABC owned & operated TV stations covered in this deal (7 out of 8 ABC O&Os are in Comcast’s footprint; only Los Angeles is not) and also a 7.5% increase for the Disney cable networks included in the deal.”
By the end of the deal in 2021, Comcast programming bill for Disney content will be $3.573 billion.
In terms of individual properties, Joyce estimates that the retransmission consent payment for WABC in New York will go up from 65 cents a sub per month in 2012 to $1.25 a sub per month in 2021. The cost of the ESPN networks will rise from $5.05 in 2012 to $9.68 in 2021, Joyce estimates. Disney Channel will rise from $1.22 to $2.34 and ABC Family will increase from 31 cents to 59 cents.