Paramount CEO Bakish: Charter, Disney Dispute Underscores Need to ‘Modernize’ Pay-TV Deals

With the carriage dispute between Disney and cable TV operator Charter/Spectrum now in its second week, the standoff over the growing fiscal impact direct-to-consumer video distribution has on legacy pay-TV underscores the need to rethink standard business agreements, according to Bob Bakish, CEO of Paramount Global.

Speaking at last week’s Goldman Sachs investor event in San Francisco, Bakish was asked about the dispute, which has elevated beyond the usual public carriage rights negotiations. Charter has blasted Disney’s attempts to increase its fees while it also transitions its distribution beyond pay-TV to branded streaming platforms.

Charter in 2023 is slated to pay Disney $2.2 billion in carriage fees, according to CEO Chris Winfrey, who says that without a better deal, the cabler will not carry Disney content, which includes ESPN.

Bakish said the impasse was inevitable and underscores the need to modernize carriage agreements in the age of DTC.

“Frankly, it wasn’t a surprise; the exact timing was, but it was inevitable that something like this would happen,” Bakish said.

The executive said Paramount management’s strategy has evolved over the years to include co-marketing agreements with pay-TV operators and online TV platforms in the United States for Paramount + Showtime.

“So, [pay-TV] very much ha[s] an interest in the broadband side of our business, video distribution, as well as the linear side of the business,” Bakish said, adding that outside the United States, Paramount+ is carried by Comcast-owned satellite TV operator Sky, in addition to the SkyShowtime service.

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“When we look at skinny bundles, and Charter Spectrum Essentials is an example of a skinny bundle, we are in that too,” he said.

Bakish said Paramount “fundamentally” believes in multi-platform content distribution, which he contends includes embracing the linear ecosystem and the streaming ecosystem.

“We’re focused on providing our partners solutions as consumer behavior continues to migrate.,” he said. “So yes, inevitably you have to modernize these relationships. You have to do things like again, streaming co-marketing partnerships.

“We’re very pleased by the way with the financial expression of Paramount+ with Showtime on a multi platform basis. And frankly, I think we’re ahead of the curve.”

Comcast CEO Brian Roberts: NBCUniversal Would Love to Buy Hulu Outright From Disney

Hulu has become a hot commodity. The subscription streaming video pioneer is majority owned (67%) by Disney, with Comcast’s NBCUniversal owning the other 33%. The platform has nearly 50 million subscribers when combining the SVOD service with the online TV offering.

In 2024, Comcast has the right to sell its remaining stake to Disney for at least $27.5 billion. Disney CEO Bob Chapek would like to move up the sale window at a lower price (of course) to expedite melding Hulu within the Disney+ ecosystem.

But Comcast CEO Brian Roberts may have other ideas.

Speaking Sept. 14 at the Goldman Sachs + Technology confab in San Francisco, Roberts was asked about the pending sales date — a move that would seem in the cards considering NBCUniversal’s recent decision to begin pulling original content from Hulu to put on its own proprietary Peacock streaming service.

Roberts, however, recognizes a valuable asset in Hulu, and believes selling NBCUniversal’s stake could instead transform into an offer to buy Hulu outright.

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“Hulu is a phenomenal business,” Roberts said. “Its scale is fantastic.”

The CEO said he believes Hulu’s content offering combined with brand value make the platform a prized commodity in an ecosystem that has gone all in on the streaming window. In addition, despite Roberts’ words of encouragement, the Peacock streaming service has failed to resonate with consumers. Less than 15 million people pay for the platform, which is offered free to Xfinity subscribers.

“I believe if Hulu was put up for sale, Comcast would be interested [in buying it],” Roberts said. “So would a lot of other tech and media companies. You would have a robust auction.”

Indeed, there never has been a bidding process for an established streaming player like Hulu, and such a process, Roberts contends, should not take place in private, rather than public markets.

Under the companies’ agreement, Disney has the right to acquire NBCUniversal’s stake, and Comcast has the right to a put, or the option, but not the obligation, to sell a specific asset at a predetermined price until a certain date.

“Of course, we are always happy to talk about it, and the value we structured into the [original operational control] agreement [with Disney] anticipates that a ‘robust’ auction for 100% of the company as a going concern and what would somebody pay for that, a third of the company’s equity value,” Roberts said.

In other words, Roberts contends Hulu represents “tremendous value,” a sentiment he believes Comcast shareholders are on board with. Whether the streaming platform and online TV service are put up for sale is Disney’s decision.

“Regardless, 100% value of Hulu is what we are entitled to,” Roberts said. “But if it were up for sale, we certainly, and I think others would want to get into that opportunity. I think our position [in Hulu] is very enviable for us and our shareholders. As a company, Hulu has done a spectacular job.”

Goldman Sachs Puts Netflix Stock Rating Up for ‘Sale,’ Citing Recession and Competition

Wall Street powerhouse Goldman Sachs June 10 shifted its “neutral” rating on Netflix shares to “sell,” lowering its price-per-share target on the subscription streaming pioneer to $186 from $265.

Netflix shares closed June 9 at $192.77 per share. The stock, which is down more than 10% in pre-market trading, has declined 72% since a market high of $690.31 per share on Oct. 21. 2021.

Sachs analyst Eric Sheridan, writing in a note, cited ongoing inflationary concerns and rising competition from Disney+, HBO Max and Paramount+, among others, for putting the brakes on Netflix’s stock.

“We [also] have concerns … on demand trends (both in the form of gross adds and churn), margin expansion, and levels of content spend and view Netflix as a show-me story with a light catalyst path in the next six to 12 months,” Sheridan wrote.

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The analyst said he is lowering Sachs’ 2022-23 revenue estimates for Netflix to incorporate a greater probability of a weaker macro environment going forward, which includes greater subscriber losses.

“More specifically, we modestly lower our paid streaming subs across every region but incorporate higher [average-revenue-per-user] levels in the U.S. in 2024 and beyond to reflect Netflix’s initiatives around its ad-supported tier and password sharing,” Sheridan wrote.

Ozy Media Loses Top Journalist, Investor Amid Internal Probe

Ozy Media, the Mountain View, Calif.-based digital platform covering news, arts, culture, politics, business and sports for millennials, has hired a law firm to investigate allegations a co-founder reportedly tried to deceive Wall Street investors.

Troubles began this week following a report in The New York Times and elsewhere that claimed Ozy co-founder and chief operating officer Samir Rao impersonated a YouTube executive during a conference call earlier this year with Goldman Sachs, which was reportedly considering a $40 million investment in the company. On the call, Rao claimed Ozy content was “a great success” on YouTube.

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Following the call, Goldman Sachs declined to invest, and instead alerted the Federal Bureau of Investigation, according to media reports.

Fallout from the move has been swift. Recent high-profile hire Katherine “Katty” Kay, a former BBC anchor and correspondent, resigned Sept. 29 after just four months on the job. And key investor SV Angel announced it would sell all of its shares in the 8-year-old platform.

Former CNN host Carlos Watson, who started Ozy with Rao, told the Times that Rao had been dealing with “a mental health crisis” during the Goldman Sachs call, and had subsequently taken time off to deal with it.

In a statement, the Ozy board of directors said it “fully support[ed]” how the situation was handled, and said it would “continue to review” the company’s leadership in the coming months.

Brian Roberts: Comcast is ‘Really a Broadband Company’

Comcast has quietly become the top provider of high-speed Internet, or broadband connectivity in the United States (and globally), with 33 million customers and 31 million monthly subscribers.

Broadband is the lifeline for distribution of over-the-top video into consumer homes, including for SVOD services such as Peacock, Netflix, Disney+, Hulu, HBO Max and Amazon Prime Video.

Speaking Sept. 22 at the virtual Goldman Sachs Communacopia Conference, Comcast chairman/CEO Brian Roberts said the company has been adding about 1 million broadband subscribers a year over the past 20 years — greatly offsetting ongoing declines in legacy cable TV subs.

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“It’s a fantastic, well-sized business,” Roberts said. “So, we’re really a broadband company. That’s the shift that occurred over those 20 years.”

The executive said the goal is to “deepen” those broadband relationships through enhanced connectivity, free voice-based remote navigation of streaming video or less expensive access to Xfinity Mobile telecommunications.

To further accelerate broadband adoption domestically and in Europe through its Sky satellite TV subsidiary, Comcast just announced the launch of XiOne, new global wireless streaming device aimed at competing against Roku, Amazon Fire TV and Google Chromecast, among others.

“We’re building a [broadband] company we believe is sustainable, growing residential [subscribers] and business services and is second to none,” Roberts said.

The executive said the evolution of high-speed Internet over the past 10 years has moved beyond basic connectivity to delivering data across business, entertainment and educational segments.

“Ten years from today, I believe broadband will be just as unrecognizable,” Roberts said. “If you had to place a bet, you’d probably say it would probably happen faster, not slower than the pace of change the last 10 years before that.”

He said the ongoing rollout of xFi Pods affords Comcast households “wall-to-wall Wi-Fi” connectivity and more than 1 billion devices nationwide. Subscribers are also able to “pause” their Wi-Fi, in effect not being charged for unused data. Future enhancements include text messages to customers alerting them how to improve connectivity for household products, including stationary exercise devices.

“I think that positions our company as a leader in broadband, in an enviable place,” Roberts said. “It plays to our strengths, and I hope will lead the way as we invest in our network and develop these newer applications.”

Bob Chapek: Disney+ Eyeing Subscriber Headwinds in Q4

Disney+ has been an industry success since launching in November 2019, driving exponential subscriber growth past 116 million — surpassing SVOD sub growth market leader Netflix in the process. That ride is about to get bumpy in the fourth quarter (October to December), according to CEO Bob Chapek.

Speaking Sept. 21 at the virtual Goldman Sachs Communacopia Conference, Chapek said the explosive Disney+ subscriber growth has been driven in large part by Disney’s acquisition of the Hotstar streaming platform through its $71.3 billion 20th Century Fox purchase. A large segment of Hotstar subs follow professional cricket, specifically the Indian Premier League, to which the platform has exclusive streaming rights.

Disney also launched general content platform Star+ in Latin America, in addition to the Disney+ Hotstar rebranding in India. The Star+ rollout has seen its challenges with the platform having to adapt to 18 different markets, eight separate pay-TV distribution agreements in seven different currencies, across six different platforms, according to Chapek.

“That was quite ambitious,” he said. “It was a little slow going in the beginning as our partners mobilized. But at the same time, our trajectory is going to change very quickly, just like it did with Disney+.”

Separately, Chapek said the Sept. 19 re-launch of the the IPL underscores a shift in the league’s schedule and coincides with the annual expiration of many Disney+ subscriptions. Unlike in the U.S. and other markets, annual streaming subscriptions do not automatically renew. As a result, Disney has to re-engage millions of its streaming subs.

“Every time you lose that [sub], you have to get that [sub] back,” he said, adding that with the reboot of the IPL, there will lots of incentive among subs to renew.

“But you have to take a step back before you can take a step forward in terms of those [Indian] renewals,” Chapek said. “It’s a claw-back if you will.”

The executive used the subscriber situation in India to underscore what he contends is a significant “non-alignment” with Wall Street thinking on Disney+ SVOD subscriber growth. Chapek said growth is not linear quarter-to-quarter. He said Disney’s previous growth prediction of 230 million to 260 million subs led many analysts to project a required quarterly sub growth trajectory. Chapek said that thinking doesn’t reflect global reality.

“These [subscriber] numbers tend to be a lot noisier,” he said. “They are not a straight line relationship quarter-to-quarter.”

As a result, Chapek warned that Q4 sub growth would see a “low single-digit” increase compared with Q3. He added that the core sub market growth would increase both domestically and internationally.

“But we hit some headwinds,” he said, alluding to ongoing production shutdowns due to the pandemic. “This is a kink in the supply chain of new content coming onto the service. But this is very short-term.”

Indeed, Disney currently has 61 movies in production, in addition to 17 episodic shows earmarked for streaming, according to Chapek.

“We’re only in the first year-and-a-half of this wonderful experience of our direct-to-consumer business,” Chapek said. “We’re in inning one, and we have a lot to learn, but we’re really pleased how it’s gone [thus far].”

Disney+ Day After: Stock Up, Netflix Down

The morning after Disney’s unveiling of branded subscription streaming video platform, Disney + launching on Nov. 12, Wall Street applauded the move, upping Disney shares nearly 10% to $128 per share in mid-morning trading.

Netflix, which is Disney’s targeted competitor despite myriad denials, is down slightly (2.79%) at $357.37 per share.

Goldman Sachs welcomed the service’s wide content selection, pricing (23% lower than Netflix), global rollout and aggressive subscriber projections.

Credit Suisse cautioned about Disney’s projected losses (approaching $1 billion) in the upstart direct-to-consumer & international business segment, which includes ESPN+ and Hulu. Disney expects Disney+ to be profitable in five years.

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SunTrust, citing an internal survey, found that just 8% of Netflix subs said they expected to switch to Disney+, with 59% sticking with Netflix. Another 24% said they would subscribe to both.

“Bottom-line, Disney+ features family content, while Netflix offers a much broader range of content with the majority of the most-searched content on the platform,” SunTrust analysts wrote in an April 12 note as reported by CNBC. “As such, we do not view Disney+ as a strong alternative to Netflix.”

Rich Greenfield, media analyst at BTIG Research in New York and former Netflix earnings webcast moderator, wondered if original Disney+ series will be available to binge view or just on a weekly basis similar to HBO and Showtime.

“No clarity on release schedule for show yet,” Greenfield tweeted. “Sounds like no binging.”

Notably, while the last original new-release Disney movies coming to Netflix this year include Solo: A Star Wars Story, Incredibles 2, Ant-Man and the Wasp, Christopher Robin, May Poppins Returns, Ralph Breaks the Internet, and The Nutcracker and the Four Realms, among others, little attention has been made that catalog Disney movies will reportedly still be heading to Netflix on a per-title basis.

The “pay 2” window essentially follows the free cable window when movies are released on networks such as USA Network and FX, among others.

“Wonder if Disney will explain how Disney+ will lose access to certain Pixar, Marvel, Disney and Star Wars films as they enter the “pay 2” window and revert to Netflix,” Greenfield tweeted.

Separately, Michael Pachter, media analyst with Wedbush Securities in Los Angeles, suggested Netflix sub growth could be negatively affected in Q2 following the service’s recent price hikes.

“Although domestic Q1 [ended March 31] subscriber additions will likely be in line with guidance, the price increases in April – June may limit growth (and guidance) to below 1 million net additions, which may weigh on the stock,” Pachter wrote in an April 11 note.

Netflix releases Q1 fiscal results on April 16.





Report: U.S. Fiscal Investment in A.R./V.R. Waning

Financial investment in virtual reality (VR) and augmented reality (AR) technology in the United States is on the decline – and on the rise in China, according to new data from fiscal advisor Digi-Capital.

North American investment in VR/AR fell about 92% to $120 million in the third quarter 2018 from $1.5 billion in Q4 2017. The majority previously invested in smart glasses, video games, location-based entertainment, video, advertising and marketing.

Indeed, global shipments of AR and VR headsets dropped more than 30% this year, according to International Data Corp. A separate report found significant declines in sales of VR headsets on Amazon from Sony, Samsung, Facebook and HTC.

Digi-Capital said global VR/AR investment has declined about 10% per quarter after plateauing at $2 billion in Q4 2017. In China, VR/AR investment has approached $3.9 billion.

Goldman Sachs projects Asia – spearheaded by China – will be become the world’s largest VR market by 2021 with 45% market share.

“American and Chinese investment had an inverse relationship in the last 12 months,” Tim Merel, managing director at Digi-Capital, said in a statement.“American investors increasingly chose to stay on the sidelines, while Chinese investor confidence grew to back up clear vision with long-term investments. The differences in the data couldn’t be starker.”