Charter 'met all of our objectives' in new Disney deal, CFO says

The dust is still settling on the new distribution deal between Charter Communications and Disney. Industry-watchers are analyzing who came out on top and wonder if it was truly a "transformational" agreement or merely an incremental move. Whatever the case, Charter believes it got what it was after.

"We're really happy with the deal. We met all of our objectives," Jessica Fischer, Charter's chief financial officer, said Wednesday at the Bank of America Media, Communications & Entertainment Conference.

Among the announced terms, Charter will add the ESPN+ streaming service to its sports-oriented pay-TV package and be able to include the ad-supported version of the Disney+ premium streaming service at a wholesale rate. Charter also got clearance to make the coming ESPN flagship direct-to-consumer (DTC) streaming service available to customers on the Spectrum TV Select package for no added cost. In turn, Charter is agreeing to some undisclosed rate increases.

Fischer said a primary objective was to ensure Charter could capture content "leaking out of the system" from streaming services and prevent consumers from paying twice for that content by tucking it back into the operator's pay-TV packages. Charter said it also maintained the flexibility to offer a wide range of packages, including less expensive "skinny" packages that don't pack in a bunch of pricy sports networks.

Related:Disney vs. Charter: Who came out on top?

She believes that both sides came away with wins. On Disney's side, it will be getting a higher rate for content and more distribution of its streaming services.

With everything rolled up, "we pulled together a package that we think can stabilize the linear video ecosystem and provide a glide path that gets us to the new direct-to-consumer environment," Fischer said.

She was pressed on why Charter took such a public stance in its negotiation with Disney. The Charter exec reiterated the operator's position that securing Disney's buy-in toward this new path forward was critical.

"They had the linchpin asset in ESPN. You couldn't move to a new transformation model without ESPN. Because of that, we needed them to lead," she said.

The deal also comes together as Charter prepares to transition to a new platform that aims to unify the traditional pay-TV world with streaming. Fischer said Charter will be launching products based on that platform, underpinned by the Xumo Comcast-Charter national streaming joint venture, in the fourth quarter of 2023.

RDOF sub penetrations hit 50% at the 12-month mark

The discussion also focused on Charter's rural buildout initiatives, which include its current RDOF (Rural Digital Opportunity Fund) commitments and its potential participation in the $42.45 billion Broadband Equity Access and Deployment (BEAD) program.

Related:Charter could lose 1.2M pay-TV subs if Disney impasse is permanent – analyst

Fischer said subscriber penetration in RDOF cohorts have hit 50% at the 12-month mark.

Some of Charter's RDOF-related costs have gone up due to inflationary pressures, but in some cases the operator has also ended up passing more homes with fiber than Charter originally mapped out.

"While our costs for some of that build have increased versus the original plan, the passings we're getting as part of it have increased as well, which means that the total cost per passing of the build is actually still coming in line with our original expectations," Fischer said.

As for BEAD, she said Charter is engaged with states that are developing frameworks for those buildouts and looking to ensure that those builds make sense from both a regulatory and economic standpoint.

Those comments come about a week after Charter CEO Chris Winfrey noted that the intricacies of the BEAD program have been "a little trickier than we were originally hoping for."

"Ultimately, I think we'll be successful in making that happen with state regulators," Fischer said.

Charter's opportunity for BEAD is sizable. According to a New Street Research analysis, Charter over-indexes in states that received the lion's share of BEAD funding allocation.

Confidence grows on free mobile lines pivoting to pay

Turning to mobile, Fischer said Charter still feels good about retaining customers who will soon roll off of a "Spectrum One" promotion that provided a free mobile line for a year. Charter launched several similar pilot programs in multiple markets in the third quarter of last year and found that the number of customers who rolled to pay have exceeded the company's expectations.

"I'm more confident today than I was when we delivered our earnings a month ago," Fischer said regarding Charter's ability to retain those mobile lines as the number of customers reaching the end of the promotional period starts to ramp up this fall.

"We've had very good usage on the free lines," she said. "We've had a device mix that looks very much like the device mix in our broader mobile business."