Cable giant Charter Communications and content titan Disney are squabbling over about $2 billion in programming costs, but the price of their battle for the media industry overall could be exponentially higher.
Disney on Thursday yanked its popular TV networks, which include ESPN, ABC and Disney Channel, from Charter’s Spectrum cable service, which reaches nearly 15 million homes, including many in big markets like New York City and Los Angeles. At issue, the companies say, is Disney’s interest in seeking higher rates placed against Charter’s desire to gain more flexibility in the way it packages Disney’s properties Charter also wants to offer Disney streaming services like Disney+ at no additional cost to its customers — a move that would erode some of the new business Disney has gained with these popular hubs.
Skirmishes like these happen frequently in the media business and have surfaced even more as content companies and their distributors scramble to keep revenue locked in while consumers move to streaming outlets. Charter estimates it pays Disney about $2.2 billion each year in fees for its programming, but when subscribers are so willing to cut the cord and move to streaming, any new hikes threaten the base that’s left.
Charter may not get everything it seeks, but its demands are likely to be echoed elsewhere. “The future of this Charter/Disney negotiation has dramatic ramifications on the rest of the industry aside from Disney,” said analysts from the MoffettNathanson research firm in a Friday note.
One of the biggest sticking points in the discussions, according to a person familiar with the matter, is the notion that Disney’s streaming services be accorded no extra value, while being made available to a broad set of Charter subscribers. To be sure, Disney has created a full lineup of programs that are separate from those that appear on its TV networks, including series based on its Star Wars and Marvel properties, and the company no doubt wants a return on the investment it has made in such programming. Charter will have to make its case as football season gets underway, with a move that could deprive its subscribers in weeks to come of “Monday Night Football.” Disney had sought to keep its networks on the air under a short-term agreement while talks continued.
All the media companies are trying to more full-bore into streaming, working to offer sports, news and scripted programming on services like Paramount+, Hulu, Max, Tubi and others. And yet, they continue to rely on the fees Charter and its brethren pay for programming. How this current cable fracas gets resolved may be of interest to people outside the Magic Kingdom. “If others follow, this increases the risk of future carriage disputes, blackouts and less affiliate growth,” said Steven Cahall, a Wells Fargo media industry analyst, in a Friday research note. He said the fight between Disney and Charter was “likely more tempest than teapot.”
In a different era, the distributors had exclusive access to big-audience shows and sports events. In 2023, they enjoy less of it. And that’s why Charter CEO Chris Winfrey has introduced new demands. As the content companies move more shows to streaming video, cable is less attractive to the consumers who subscribe to it. So why keep paying more? “The idea that somebody has publicly said, repeatedly, that it is going to go direct to consumer, and you’re signing up for that kind of long-term deal, that is untenable,” Winfrey said during a call with investors on Friday. He even threatened to move forward without Disney permanently if a deal could not be reached “quickly.”
Disney has started talking of a day when its most coveted TV property, ESPN, makes all of its programing available to streaming subscribers. But so have others. Warner Bros. Discovery plans to start showing the Major League Baseball, NBA and NHL games it regularly airs on TNT and TBS simultaneously on its Max streaming service, under the Bleacher Report brand. The same company is also planning to live stream CNN programs like “Anderson Cooper 360,” “The Situation Room with Wolf Blitzer” and “The Lead with Jake Tapper” on Max at the same time the shows run on the cable-news outlet.
Other dire scenarios are possible. Fox Corp. CEO Lachlan Murdoch has told investors in several recent earnings calls that Fox is slated to negotiate renewal of about a third of its carriage contracts over the next 12 months or so. Imagine if Charter or one of its rivals insisted that its customers not be forced to pay for Fox News Channel, which is the linchpin of Fox’s finances. That network is expected by S&P Global Intelligence to generate more than $1.95 billion in affiliate fees in 2024. Meanwhile, Paramount Global is putting lots of promotional firepower behind the Paramount+ streaming service, but many of its cable outlets have been starved of new content for months. Comedy Central, for example, has stopped airing even repeats of its signature “Daily Show” amid the Hollywood labor strikes and fills a good chunk of its schedule with repeats of “The Office” and “Seinfeld.” MTV, once a network that was emblematic of youth culture, has stocked its schedule over the next several days with repeats of “Ridiculousness” and “Catfish: The TV Show” along with a movie marathon of the “Twilight Saga” films.
Even Comcast, more familiar with Charter’s quandary than most of the content companies because it also operates the nation’s largest cable business, has gotten in on the act. It has begun to make “Saturday Night Live” episodes available simultaneously on both NBC and Peacock whenever the show debuts new episodes. Peacock also offers a “bundle” of morning-news programs from across NBC’s linear channel portfolio, allowing certain subscribers to stream “Today,” “Morning Joe” and “Squawk Box” live.
Little wonder that, according to Charter, nearly 25 million customers, or 25% of the base of multichannel video programming distributors, have canceled their subscriptions over the last five years. Most of the hot stuff is easily available via streaming. Even if there is a window of exclusivity for cable, it’s not long enough to matter. Disney’s Hulu has put up episodes of a new run of “Justified” on Hulu within a day of their debut on FX. Fox News Channel makes new episodes of its primetime opinion lineup available on Fox Nation within hours of their live debut on cable.
Charter isn’t the sector’s flashiest competitor. The company is headquartered in a new building close to a train station in downtown Stamford, CT. But it has emerged as a tough negotiator. In 2017, Charter moved cable networks owned by Paramount predecessor Viacom to a higher service tier, limiting the number of customers who would pay for it, partially out of frustration at the networks’ performance. It has also unveiled plans to offer a bundle of networks without sports included, a move that would reduce costs for subscribers. Charter has teamed up with Comcast to launch a Xumo service that will offer cable networks and streaming apps via a single, smaller device ,rather than a cable box.
Charter is taking risks all its own. The company could see as many as 1.8 million subscribers exit if Disney fans left to find its programming elsewhere, says Cahall, the analyst. He estimates such a dynamic could affect $3.7 billion of revenue., or 7% of his estimated total for 2024. The conflict with Disney could also affect future plans. Launching Xumo might be more difficult if Charter is at odds with many of the companies that operate streaming hubs.
Charter’s aggressive stance toward a programmer might not be so surprising, however. Liberty Broadband, a company controlled in part by media entrepreneur John Malone, owns about a quarter of Charter’s stock. Malone made a good chunk of his wealth by taking stakes in big media companies like Discovery, News Corp. and Time Warner when he ran TCI, then the nation’s largest cable distributor, in the 1980s and 1990s.
At the time, the content companies needed distribution on cable badly in order to make their new networks a success. Today, they need access to whatever cash cable relationships can generate. Perhaps they will trade again with another entity Malone controls.