Are Discovery's Deals With Hulu and Sling More Hope Than Hype?

Everyone needs a little TLC, after all.

That's investors' read of Discovery Communications' Sept. 12 carriage deal with Hulu's $40-per-month live TV service for Discovery Channel, TLC and other channels, followed by news of a similar agreement with Dish's Sling TV.

The appetite of two major digital players for Discovery brands seemed proof that a company without broadcast networks or major sports content could still survive in the age of digital "skinny" bundles. To wit: Discovery's stock rose about 12 percent within days.

"Discovery has been viewed as a 'have-not,' given less carriage in new virtual bundles," wrote Guggenheim Securities' Michael Morris on Sept. 14. "However, this has changed with these new agreements and would be further solidified with inclusion on YouTube TV, which management has indicated is being negotiated." And Jefferies analyst John Janedis called the Hulu and Sling news the "first catalyst of many" for Discovery, led by CEO David Zaslav.

But others warn that the stock may have gotten too much of a boost. The day after the deals were announced, Sanford C. Bernstein analyst Todd Juenger wondered if the pacts could be "bad news because it shows Discovery's future domestic portfolio will have eight networks instead of 16," given that the skinny bundles don't carry all of its U.S. channels. He suggested this could reduce Discovery's U.S. revenue by about $900 million, or 15 percent.

And Pivotal Research Group analyst Brian Wieser cut his rating on Discovery's stock Sept. 18 from "hold" to "sell," saying, "Although news of agreements with Hulu and Sling are positive, they do not meaningfully alter fundamentals by much."

This story first appeared in the Sept. 20 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.