Disney’s dispute with Charter is a lose-lose, underscoring just how broken legacy TV has become
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From the Hollywood strike to streaming losses to a slower-than-expected turnaround, Walt Disney ‘s (DIS) carriage war with cable TV giant Charter Communications (CHTR) is the latest headwind for Disney CEO Bob Iger to navigate since returning late last year to the top job at the company he ran for nearly 15 years. The almost weeklong stalemate between Disney and Charter lays bare the broken business model around distributing legacy television in the age of cord-cutting. It’s a lose/lose for both companies. Last Thursday, Disney pulled its programming from Charter-owned Spectrum due to a dispute over the financial terms of their carrier fee contract. Disney blocked ESPN, ABC, and other Disney-owned channels, disrupting the critical start to the fall sports season for Spectrum’s nearly 15 million customers during the U.S. Open tennis tournament, the opening weekend of college football, and ahead of the first “Monday Night Football” game of the NFL’s new season on ESPN and ABC on Sept. 11 . In the talks, Charter agreed to shell out more than the $2.2 billion annually it paid Disney under the old carriage deal. But it also wanted the ad-supported versions of Disney+, Hulu and ESPN+ to be packaged with the linear cable and broadcast channels at no additional cost. Disney rejected the offer. On Monday, Disney urged Spectrum customers to sign up for live TV from Hulu. Jim Cramer did say Wednesday that he believes Disney may have somewhat of the upper hand in the dispute since ESPN+ is “a great intellectual piece of property” where most of the value from ESPN comes from. Shares of Disney have fallen 4% since our last buy above $84 each on Aug. 28. We saw an opportunity to scoop up shares on weakness after the entertainment giant reported a fiscal third quarter . The results highlighted narrowing losses in streaming and showed that cost-saving efforts announced early this year by Iger were working, albeit slower than expected. DIS 1M mountain Walt Disney stock performance month-to-date. Linear TV is an issue for Disney. In fiscal Q3, Disney reported $1.9 billion in operating income for its linear networks, suffering a 23% year-over-year decline. While streaming remained unprofitable, the red ink for the quarter was cut in half, compared to the loss of $1.06 billion in the year-ago period, thanks to higher subscription revenue and lower marketing expenses at Disney+. Still, with progress on the streaming front, Disney has work to do to figure out its business strategy for its linear networks. The longer the Disney-Charter dispute lasts, the more negative it would be for Disney, which has also been dealing with the Hollywood strike. While Disney is yet to quantify it, rival Warner Bros Discovery (WBD) said Tuesday that it expects adjusted earnings to take a hit of $300 million to $500 million due to the walkout. In the event of a permanent Spectrum blackout, Disney could lose affiliate and advertising revenue to the tune of $1.55 billion to $2.9 billion, according to JPMorgan. That would be about 6% to 11% of 2024 estimates for linear revenue, and about 16% to 30% of 2024 estimates for linear EBITDA (earnings before interest, taxes, depreciation, and amortization). The analysts maintained their overweight, buy-equivalent, rating on the stock. When Iger came back to the helm, investors were anticipating a swift turnaround since he moved quickly to restructure the company, cut costs, increase the price of its ad-tier streaming options, and crack down on streaming password-sharing. Progress on many of these fronts has been slower than anticipated. The Club continues to be believers in Disney’s iconic franchises and the company’s leadership. However, we would like to see a quick end to the Charter dispute and to see Iger resolve Disney’s challenging position in the traditional linear TV market. We have a price target of $120 on Disney shares and a 1 rating as indicated by our recent buy. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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From the Hollywood strike to streaming losses to a slower-than-expected turnaround, Walt Disney‘s (DIS) carriage war with cable TV giant Charter Communications (CHTR) is the latest headwind for Disney CEO Bob Iger to navigate since returning late last year to the top job at the company he ran for nearly 15 years.
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