Weekend Investor: The Week That Was

I hope you had a wonderful week!

The Apple event came and went without much news, so I won’t be covering it here. There’s a new iPhone, a new watch, and USB-C cables. The products are great but are only incremental improvements that will keep the company on top.

Instead, the cable TV industry had an interesting week, which I’ll get to below.

In case you missed it

Here’s some of the content I put out this week. Enjoy!

• Spotify and the Importance of Long-Term Thinking: Spotify is an Asymmetric Investing stock and I think the company itself has done very well over the past six months. But the stock has been all over the place on its path to beating the market again and is an example of why investors looking for asymmetric returns need to look past the day-to-day noise of the market.

• Tech Doesn’t Win, Business Models Do: In business, the best technology is often beaten by a better go-to-market strategy. I think we’re seeing that dynamic right now in autonomous vehicles.

• 3 Incredible Dividend Stocks: Not all dividends are created equal. These dividends have amazing businesses behind them, which is key to a healthy, growing payout.

• Value Investing Gems: Value isn’t dead, it’s just hiding and I love the value of these stocks right now.

Cable’s The Great Re-Bundling

We have a resolution in the Disney/Charter squabble and it’s clear that content companies (Disney, Paramount, Fox, NBCU, Warner Bros. Discovery) have lost a lot of leverage. Here’s what we know about the deal.

• Disney got its ~$1.50/subscriber price increase for ESPN.

• Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo will no longer be part of the bundle, reducing non-ESPN carriage fees for Disney. This may seem like no big deal, but Disney bundled ESPN with these throw-in channels to extract more revenue from the cable bundle and that power play is clearly not as effective in 2023.

• Disney+ Ad-Supported will now be included with basic Charter cable packages.

• ESPN+ will be included with the sports-oriented “Spectrum TV Select Plus” package.

• Charter will have a wholesale agreement with Disney to sell (bundle) the company’s streaming services to non-cable TV customers.

There’s a lot going on here, but the short story is that Spectrum was able to push low-value channels out of the bundle and get some streaming services included with cable packages. Disney’s days of double dipping in cable and streaming are coming to an end.

On the plus side for Disney, the company gets more distribution to its streaming services. I wrote during the standoff that ESPN may have more upside in advertising than it loses in carriage fees, so this may be a win for Disney in the long run if it accelerates Disney’s path to a leading position in streaming and streaming advertising.

We also saw what the future bundle will likely look like. Buy Charter broadband and we’ll include Disney+, Hulu, and ESPN+ for a “low” fee. Maybe that fee even becomes invisible in the new bundle.

What’s different about this bundle is that it’s not a monopoly. Cable was often a single-source supplier for TV content to homes in the U.S. but with broadband there’s DSL, cable, fiber, and now 5G fixed broadband options. I think the future will local broadband providers and big telecoms like Verizon, AT&T, and T-Mobile competing more with the likes of Charter to offer a broadband+TV bundle. This will be the great “re-bundling”.

The future streaming bundle may not have the financial might of a more monopolistic cable bundle, but it’ll lean into the internet’s strengths: An abundance of content.

The question now is if Disney and any other surviving streamers can make the economics of the new bundle anywhere as attractive as the economics of the old bundle. We’re about to find out.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.