Comcast, Disney see endless possibilities

Duo say 'deep, broad' affiliate deal great business for both sides

Execs from Comcast and Walt Disney Thursday patted themselves on the back for a major affiliate deal announced earlier this week that they said is great business for both sides and may even help preserve the television ecosystem as we know it — for a decade at least.

“It’s the embodiment of a deep, broad, multi-platform deal,” said Disney chief financial officer Jay Rasulo at a Citigroup media conference in San Francisco of the 10-year pact that will take the partners into the next decade together. “If nothing else, it’s a major reinforcement,” he said, of the marriage between content companies and video service providers — as new entrants like Netflix look to edge out traditional players.

It’s “the next phase of enhanced television for a big content creator and a big distributor,” he said.

Comcast chief financial officer Michael Angelakis, speaking earlier in the day at the same event, said, “What’s most unique about it and different is that it is very broad… It really is about how we can utilize the Disney suite of services over many platforms: in the home, outside the home, linear, on demand, mobile, TV Everywhere. It’s really where we are going.”

The pact covers 70 individual Walt Disney products offered to Comcast, the nation’s largest cable operator, through all available formats. It includes the full suite of ESPN networks, the newly launched Disney Junior and retransmission consent for seven ABC-owned television stations.

Wall Street applauded the deal too. Nomura Securities Michael Nathanson said that it shored up Disney’s key source of revenue — affiliate fees. They totaled $8.79 billion in fiscal 2011, repping 21% of total revenue.

He also said it gives Disney the ability to service customers through its existing authenticated products like WatchESPN, as well as upcoming authenticated products like WatchDisneyChannel, WatchDisneyXD and WatchDisneyJunior. “By

doing so, Disney and its products have the special ability to personally connect with their customers across multiple platforms.”

He also noted that there’s less risk now that ESPN will be tiered, or moved to a smaller package that subscribers pay for separately.

Rasulo said the length of the deal is a plus since it ensures revenue to cover hefty long-term sports rights deals to which ESPN is already committed. He said it will add between $70 million to $80 million in revenue — or about 2¢ a share in earnings — to both the fiscal second and third quarters vs. the first quarter ended Sept. 30.

“If you have a deal that you think has what you need and what your partner needs, why not extend it rather than come together again in three years?” he said.

David Joyce of Miller Tabak said it shows that all systems are a go on the “TV Everywhere” front and that he expects Comcast to attract to new subs faster with the deal.

“Disney’s TV+ initiative, and Comcast’s authenticated XFinity TV On Demand platforms “have been designed precisely to accommodate these wide-ranging deals that give verified consumers access to essentially all of the content all of the time. This is a way to preserve the evolving TV ecosystem, and should help retain pay-TV subscribers.”

Miller said he expects Comcast to pay $39 million in retransmission fees for Disney’s ABC stations in 2012, and another $1.85 billion for the cable networks. He sees Comcast’s total programming expense rising at an 8% compound rate for the next five years, with the Disney portion of that rising at a 6.6% rate, then moving to 7.8% as Comcast eventually adds subscribers.