The ongoing Charter-Disney carriage dispute is absolutely significant in its own right. It’s already led to Spectrum customers (Charter’s branding for its cable and internet services) missing college football (particularly Florida-Utah) and US Open content, and it’s likely to lead to more complaints around missed college football this Labor Day weekend and missed college football and Monday Night Football NFL action next weekend and beyond (if a deal isn’t struck by then), and to more people leaving Charter for other multichannel video providers.
But the impacts are likely to go well beyond Charter and Disney. That was illustrated in comments from Charter CEO Chris Winfrey on an investor call Friday, where he said that the dispute here is part of a wider issue the company has with programmers’ “massive cannibalization” of linear content for over-the-top streaming services and with an overall “broken” system. MVPDs like Charter have issues with what’s going to those services, as part of their bundle value (and the per-subscriber fees they pay companies like Disney for individual channels) is about that content, and if it’s also available direct-to-consumer, that makes the bundle a harder sell.
And, notably, Winfrey acknowledged Friday that Disney is far from the only or worst (especially on the sports side, at this particular moment before the launch of a full DTC linear ESPN feed) offender here from their perspective. And he said that Disney actually was appealing to them as the first place to try to propose a new strategy, where MVPD customers would gain free access to Disney’s OTT apps and Charter would work with Disney to sell those apps to its internet-only customers.
Some of Winfrey’s comments there included “We always thought Disney was in a position to be in a leadership position for the entire industry because today ESPN has not gone direct to consumer,” “Given how much of the expense is tied up in sports, Disney has to lead rather than pursuing the same playbook,” “The Walt Disney Company and Charter are uniquely capable to lead the way, which is why we are disappointed that thus far they have insisted on unsustainable price hikes and forcing customers to take their products, even when they don’t want or can’t afford them,” and “This is not a typical carriage dispute. It is significant for Charter, and we think it is even more significant for programmers and the broader video ecosystem.” So those are certainly pointed remarks, and they indicate the issues here aren’t only with Disney.
The direct effect here is on Disney, for the moment. But there are certainly indications for other programmers that Charter plans to take similar tacks in renewal negotiations with them, and the sports overlaps (which are a huge part of this) are more notable with CBS and Paramount+ and NBC and Peacock than with ESPN and the current ESPN+. And they could show up elsewhere as well: Warner Bros. Discovery does not currently have a lot of overlaps in sports carried on TBS and TNT and what they stream on Max (formerly HBO Max), but there have been lots of discussions about them going to more sports there.
That was further stated in comments on Friday’s call from Charter president (product and technology) Rich DiGeronimo. He spotlighted how they viewed Disney as the “ideal partner” to debut a new approach with.
“Disney has acknowledged that the most sensible financial outcome for Disney content, specifically ESPN, is a hybrid approach, whereby it is able to retain a sizeable portion of revenue from the linear cable bundle, including Charter systems, while incrementally growing the DTC streaming space. We believe that Charter and Disney are the ideal partners to establish a hybrid linear TV and direct-to-consumer model, as Charter is a pure-play connectivity company, Charter has the necessary scale and presence in key markets like New York and LA, and Disney has a key app in ESPN that is widely seen as the linchpin for the evolution of the video system.”
The comments from Winfrey and DiGeronimo Friday have led to some concerns about impacts from potential future carriage disputes with Charter for other programmers. And those are notable; Charter has around 15 million estimated subscribers, making them the second-largest U.S. cable provider, behind only Comcast, and the third-largest MVPD, behind only Comcast and AT&T’s spun-off U-Verse/DirecTV unit. And those concerns have led to major stock drops, as Brian Steinberg writes at Variety:
Shares of Charter were off nearly 3% Friday afternoon, falling $12.77 per share to $425.40. Meanwhile, Disney stock slipped 2.2%, or $1.83 a share, to $81.83 per share.
Paramount Global stock dipped 7.59%., or $1.14 a share, to $13.95. Shares in Comcast, owner of NBCUniversal, fell 2.28%, or $1.06 a share, to $45.70. Warner Bros. Discovery stock tumbled 10.16%, or $1.34 a share, to $11.82. Shares in Fox Corp. were off 5.66% or $1.87, to $31.19.
What’s perhaps particularly interesting there is the Fox drop. Unlike the current CBS/Paramount+ and NBC/Peacock overlaps, and a potential future WBD/Max overlap, Fox has made it very clear that they plan to keep their focus on linear. And they’ve said they don’t intend to start selling a separate paid OTT service for their programming, sports and beyond. (They do have free ad-supported streaming television service Tubi, but FAST services work under very different models, and Fox has made it clear they don’t currently plan to put a lot of live sports on Tubi.)
But carriage disputes do still matter to Fox. And that’s true both with retransmission fees for broadcast networks and with per-subscriber fees for cable networks like FS1 and BTN (where Fox holds a majority stake). So even while the actual dispute terms wouldn’t be quite the same with them, this more hardball tack from Charter (unlike some MVPDs known for repeated tough carriage fights, Winfrey noted that Charter hadn’t seen major carriage disputes until now since his 2010 start with the company as CFO, and said “We’ve generally been able to solve problems behind the scenes”) has possible implications for them as well.
As noted at the top, the Charter-Disney fight is going to be highly significant in its own right. There are a number of ways this could end, from the sides coming to terms quickly to them not coming to terms at all (and Winfrey noted that the longer this goes on, the more likely it is that Charter “permanently” moves on from Disney). But the stock impacts to date alone illustrate that this is a dispute well beyond these two companies.
At the very least, whatever resolution Charter does or does not find here will impact their renewal negotiations with other providers. But it’s also quite possible that a deal or lack thereof here is going to have impacts on other MVPDs’ renewals or lack thereof with programmers. And that will likely be not just about Disney, but also about these other media companies. While the stock market absolutely does not know everything, especially in one-day results, it’s still significant to see that the market does not have a lot of faith in either Charter or any of these media stocks at the moment.
[Variety]
