Charter Communications, enmeshed overnight in a massive impasse over carriage with Walt Disney Co., said Friday it hopes it can turn the breakdown into a new fix for the media industry as cable subscribers keep migrating to streaming alternatives.
“This is not a typical carriage dispute,” said Christopher Winfrey, Charter’s CEO, during a call with Investors Friday morning.
Charter and Disney, one of the nation’s biggest cable providers and one of the nation’s most popular content companies, came to an impasse Thursday, with Disney pulling ESPN, ABC, and other big TV networks from Charter’s systems — on the cusp of the start of both the NFL and college-football seasons. Charter’s systems include some that serve New York City and Los Angeles, two of the biggest media markets in the country. Charter’s Spectrum cable service has just under 15 million subscribers.
“Disney Entertainment has successful deals in place with pay TV providers of all types and sizes across the country, and the rates and terms we are seeking in this renewal are driven by the marketplace,” Disney said in a statement. “We’re committed to reaching a mutually agreed upon resolution with Charter and we urge them to work with us to minimize the disruption to their customers.”
Doing so, however, may not be accomplished using the company’s regular playbook. Charter made its case Friday, noting that the rise of streaming services such as Disney+ and Hulu has degraded cable, forcing customers to pay for channels that have less premium content, or for networks they may not regularly use, then spurring them to pay in a second arrangement for a streaming alternative.
Carriage disputes have become increasingly common in the media industry, as programmers and distributors seek to keep revenue from linear TV flowing as customers jump to digital venues for their news, sports and entertainment. But consumers are opting for the cheaper rates and greater flexibility offered by broadband alternatives. Nearly 25 million customers, or 25% of the base of multichannel video programming distributors, have canceled their subscriptions over the last five years, according to Charter data. “It is staggering,” the company said.
Charter, said Winfrey, has proposed a new model that would allow for the flexibility of not forcing customers who don’t regularly engage with Disney or ESPN networks to pay more money for them, while making available ad-supported versions of Disney streaming services as part of packages. Disney, the executive said, “rejected” such ideas and tried to hew close to traditional tactics that include price hikes for traditional tiers of service.
In a statement, Disney said it took issue with the idea that its streaming offerings should be included for no extra payment. “Although Charter claims to value our direct-to-consumer services, they are demanding these services for free as they have stated publicly,” Disney said, adding: “Charter is depriving consumers of that content because they are failing to ascribe any value in exchange for licensing those services.”
The trouble, said Winfrey, is that customers who enjoy streaming alternatives have more choice, and more are rejecting the notion that they should pay for networks they don’t engage with regularly. Charter said it pays approximately $2.2 billion in annual programming costs to Disney, but only 25% of its video subscribers regularly engage with Disney content.
The company understands its stance is risky. If the dispute with Disney grows prolonged, executives said, customers may opt to cancel their subscriptions and move elsewhere, And Winfrey suggested that if Disney waits too longer, Charter’s customer loss may require “moving on” to a new model under which the company simply doesn’t offer Disney programming.
Charter executives said signing a new, long-term agreement with Disney was “untenable,” given that the company has expressed a desire for ESPN to, at some point in the future, become a stand-alone direct-to-consumer outlet. “There’s no way,” said Winfrey, that a company can enter into a multi-year agreement under such conditions.
