Comcast-Disney Pact Signals More Deals Aimed Against Netflix
Comcast Corp. (CMCSA)’s rights agreement with Walt Disney Co. (DIS) may become the template for how pay-TV companies strike deals with programmers to defend their subscriber base against online rivals such as Netflix Inc.
The largest U.S. cable carrier and Disney yesterday reached a 10-year accord giving Comcast’s customers access to live and on-demand content on computers, smartphones and tablets. The deal lets Comcast subscribers watch real-time programming on ABC and cable networks including Disney Channel, ABC Family, ESPN and ESPN2 outside of the home for the first time.
Comcast benefits from the accord because it motivates customers to keep their subscriptions, said Craig Moffett, a Sanford C. Bernstein & Co. analyst in New York. The deal hurts Netflix (NFLX) and Hulu LLC, whose competitive advantage of offering content over the Internet will erode, he said.
“Comcast and Disney just made a lot of top-shelf content available out of the home for ‘free’ with a subscription to cable,” Moffett said. “That can’t be good news for the companies that hope to charge customers for the same functionality.”
The six largest U.S. pay-TV companies lost a net 711,000 video subscribers in the first nine months of 2011 amid gains by Netflix, Hulu and Amazon.com Inc. (AMZN), which deliver movies and TV programs over the Internet for free or a fraction of what cable companies charge. Disney and Comcast, together with News Corp. and Providence Equity Partners, are investors in Hulu.
The accord will give Comcast customers access to the Disney content “in the coming months,” said John Demming, a Comcast spokesman, without giving a specific date. It’s a “major step” for the evolution of so-called TV Everywhere, a concept giving pay-TV customers access to programming anywhere, said Bryan Kraft, an analyst at Evercore Partners Inc. in New York.
“This is where the industry is going,” Kraft said in an interview. “You’re going to see more agreements that allow distribution of content both inside and outside the home. It’s the logical progression.”
Netflix is a complement to cable TV, said Steve Swasey, a spokesman for the company. Its subscribers will still be able to “enjoy the ease of use, low cost and vast catalog of TV shows and movies available” even as cable companies strike broader deals for online rights, he said.
Netflix ended the third quarter with 23.8 million U.S. subscribers. The Los Gatos, California-based company will report fourth-quarter earnings and customer totals on Jan. 25.
Comcast had 22.4 million video subscribers and 17.8 million broadband customers as of Sept. 30. The Philadelphia-based company sees the agreement “as a template for other deals” it’s negotiating, Neil Smit, president of Comcast Cable, said in an interview yesterday.
Comcast differentiates itself from smaller cable rivals including Time Warner Cable Inc. (TWC) and Cablevision Systems Corp. (CVC) by allowing customers to watch programming out of the home on its Xfinity TV application. The app has been downloaded 7 million times, Chief Financial Officer Michael Angelakis said today at a conference.
Time Warner Cable and Cablevision’s mobile apps only give subscribers access to in-home live viewing. Comcast is probably paying more to give customers access anywhere, according to analysts.
Disney, based in Burbank, California, may receive $22 billion to $25 billion for ESPN programming alone over the 10 years, said Derek Baine, an analyst at SNL Kagan. The deal marks the first time Disney-branded cable channels will stream content to pay-TV customers using mobile devices and computers. ESPN already had such agreements with 40 million pay-TV homes.
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