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Paramount (FOR) reached a new multi-year distribution agreementl with Charter Communications (CHTR) on Thursday, a significant victory for the company while evaluating its strategic options and a possible acquisition from Skydance Media or Apollo Global and Sony. (Disclosure: Yahoo Finance is owned by Apollo.)
Charter, the parent company of Spectrum TV, will continue to carry all of Paramount’s networks, including Showtime, CBS and Paramount+. Additionally, Charter’s highest tier subscribers will receive the ad-supported versions of Paramount+ and BET+ at no additional cost.
Financial terms of the deal were not disclosed.
“With its TV Media segment largely driven by linear networks representing two-thirds of Paramount’s revenue last year and the company’s entire EBITDA, [Charter] had the potential to do serious damage if it decided to tighten the screws on Paramount,” said MoffettNathanson analyst Robert Fishman in a new note to clients on Friday.
“This means that Paramount has successfully avoided one of the biggest risks it faced (downfall of its longer-tail networks) while confirming an expensive yet widely expected development (providing Paramount+ for free),” continued the analyst. “[This forgoes] the dramatic blackout which occurred last September during Charter’s negotiations with Disney.”
Last year, Disney (DIS) removed its owned and operated channels, including ESPN and ABC, from Charter Spectrum cable systems after the two sides were unable to reach a distribution deal. At the time, the media blackout impacted a number of high-profile sporting events, including the US Open, and arrived shortly after the NFL debut – increasing pressure for both sides to make a deal.
The impasse ended up being resolved as Charter has agreed to offer some Disney streaming services – the ad-supported version of Disney+, ESPN+ and ESPN’s yet-to-be-launched direct-to-consumer offering – as part of select cable packages at no additional cost to the consumer.
But for Paramount, the stakes seemed even greater amid its uncertain future.
“We have repeatedly discussed this Charter negotiation as a potential obstacle to any strategic action or larger deal for Paramount, as buyers need confidence in the trajectory of the company’s linear cash flows,” Fishman said. “With this deal now closed, we wouldn’t be surprised to see some renewed progress on the Skydance Media bid or the Sony/Apollo bid.”
“Depending on the terms of the Charter distribution agreement, the newly created Office of the CEO led by a trio of senior executives may even have more conviction to move forward with its own long-term plan.”