Following Thursday night’s incident where channels owned by The Walt Disney Company were abruptly taken off the air for Spectrum customers, Charter Communications held an investor webcast explaining its position in the negotiations. The incident occurred moments before kickoff of ESPN’s college football Thursday night opening game between Florida and Utah, disheartening sports fans and leaving them with more questions than answers. Charter Communications knows that ESPN and the Disney portfolio of networks is important to its business, with estimates stating that about one-fifth of all cable subscribers to the channel receive their service through Spectrum.
During the meeting, Charter affirmed that “the current video ecosystem is broken” and believes it can be part of the solution. Price hikes that would impact all customers, however, are purportedly being offered by Disney that would make the service less affordable for consumers. Charter conveyed that it is an atypical carriage dispute and something that could have significant repercussions on the future of the video ecosystem. The company pays $2.2 billion in annual programming costs to Disney with 25% of their 14.7 million subscribers engaging with its content.
Charter has offered The Walt Disney Company the opportunity to enter into a partnership that it says will help grow the video business. For its customers, Charter shared that they would be able to select different packages with content tailored specifically to factions of offerings that “meet their viewing and budgetary needs.”
Charter believes it can retain parsimonious customers on linear platforms while having the property to incentivize broadband-only customers to purchase its direct-to-consumer (DTC) service. As Disney strives to grow its footprint in the DTC marketplace, Charter has asserted that it can provide a starting point and the ability to augment advertising revenue. In exchange for these market rates, the cable provider also is urging Disney to provide their ad-supported applications, such as Disney+, Hulu and ESPN+, within the linear products so customers only pay once for the programming. Charter says that Disney would be able to drive consumers to upgrade and “churn” in the business by establishing “a more sustainable revenue stream.”
In accordance with the proposal, Charter disclosed that it offered The Walt Disney Company a short-term contract extension with penetration mediums; however, the proposal was ultimately shot down by Disney. Charter also publicized that Disney is not willing to accept a short-term contract extension, portraying the company’s offer as “ignoring the realities of today’s video business and [accelerating] its decline.”
The long-term deal from Disney includes higher licensing fees, less packaging flexibility and paying for Spectrum customers that do not receive its channels. Over the last five years alone, the cable industry has lost almost 25% of its total customers, forcing change across the board. In its most recent earnings report, Disney shared that its year-over-year revenue from its linear networks is down 7%, while its operating income also decreased 23%. As it pertains to cable, Disney attributes the decreased income to more costs associated with sports programming and production. At the same time, ESPN+ maintained its approximate level of paid subscribers for the quarter with 25.2 million with a 3% decline in average monthly revenue per paid subscriber.
“We’ve been in ongoing negotiations with Charter Communications for some time and have not yet agreed to a new market-based agreement,” The Walt Disney Company said in a statement. “As a result, their Spectrum TV subscribers no longer have access to our unrivaled portfolio of live sporting events and news coverage plus kids, family and general entertainment programming.”
We think the opportunity for customers and all of us as market participants is too big, too important, and too timely to pass up,” Charter Communications President Chris Winfrey countered. “The Walt Disney Company and Charter have the opportunity to work together on transforming the industry for the long-term benefit of both companies and their customers. Without them, we need to pivot to other models to drive value for our connectivity relationships. We are either moving forward together with a collaborative business model, or we’re moving on.”
