Paramount (PARA) on Thursday signed a new multiyear distribution deal with Charter Communications (CHTR), a major win for the company as it considers strategic options and a possible acquisition from Skydance Media or Apollo Global and Sony. (Disclosure: Yahoo Finance is owned by Apollo.)
Spectrum TV's parent company, Charter, will continue to carry all of Paramount's networks, including Showtime, CBS and Paramount+, plus Charter's largest tier of subscribers will be able to receive ad-supported versions of Paramount+ and BET+ at no extra cost.
Financial terms of the transaction were not disclosed.
“The television media division is driven primarily by linear networks, which accounted for two-thirds of Paramount's revenue last year and all of the company's EBITDA. [Charter] “If they had decided to pressure Paramount, it could have caused significant damage,” MoffettNathanson analyst Robert Fishman wrote in a new note to clients on Friday.
“This means Paramount has successfully avoided one of the biggest risks it faced (the elimination of its long-tail networks) while simultaneously locking in a widely expected but costly rollout (offering Paramount+ for free),” the analysts continued.[This forgoes] The dramatic blackout occurred last September during negotiations between Charter and Disney.
Last year, Disney (DIS) pulled its owned-and-operated channels, including ESPN and ABC, from its Charter Spectrum cable system after the two sides couldn't come to a distribution deal. At the time, the media ban affected a number of high-profile sporting events, including the U.S. Open, and came shortly after the NFL's debut, increasing pressure on the two sides to come to an agreement.
The stalemate was eventually resolved, with Charter agreeing to offer Disney's streaming services — an ad-supported version of Disney+, ESPN+ and ESPN's yet-to-launch direct-to-consumer service — as part of certain cable packages at no extra cost to consumers.
But for Paramount, the stakes seem even higher amid an uncertain future.
“We have repeatedly discussed that the charter negotiations could be an impediment to larger strategic moves or transactions for Paramount, as a buyer would need to have confidence in Paramount's linear cash flow trajectory,” Fishman said. “Now that this deal is finalized, we would not be surprised to see new developments in the Skydance Media bid or Sony/Apollo proposal.”
“Depending on the terms of Charter's distribution agreement, a newly created CEO office led by three senior executives may have more confidence to pursue its own long-term plan.”
