By Lucas Shaw and Scott Moritz | Bloomberg
Charter Communications, the second-largest cable TV provider in the US, has entered into a contentious battle with Walt Disney Co. over skyrocketing fees for ESPN and other programming.
In response, Disney, the world’s largest entertainment company, has pulled its channels, including ESPN and ABC, from Charter’s Spectrum TV service. This move has left Charter’s 14 million video customers without access to popular shows and sports events, potentially including the upcoming NFL season.
With 5 million customers, Charter Spectrum dominates as California’s leading cable and internet provider.
Disney’s sudden removal of channels replaced them with a blue screen displaying a message from Spectrum, claiming they are “on your side” and working towards a fair agreement for customers.
The future of the pay-TV business hangs in the balance, as cable and satellite providers have lost 25 million subscribers over the past five years, according to Charter. As the second-largest cable company after Comcast Corp., Charter is determined to escape the constraints of traditional industry contracts that require customers to pay for channels they don’t watch, particularly sports channels.
Instead, Charter has proposed an alternative arrangement that provides consumers with more options to select the channels they want to pay for. However, Disney rejected this proposal, which included bundling Disney’s streaming services, like Disney+ and ESPN+, with Charter’s other products.
During an investor call on Friday, Charter CEO Chris Winfrey emphasized that Disney had given them a choice to continue down an unfavorable path for consumers or explore entirely new video models.
In response, Disney released a statement on Thursday night expressing its commitment to achieving a mutually agreed-upon resolution with Charter, despite removing channels such as ABC and ESPN from Charter’s systems. Disney also urged Charter to minimize any disruptions for customers.
This dispute could prove to be a tipping point for the industry, as highlighted by New Street Research analyst Jonathan Chaplin in a research note on Friday. The main source of contention appears to be ESPN, which Disney has hinted at offering directly to consumers through online platforms.
Chaplin stated that Charter risks losing dedicated sports fans, particularly football enthusiasts, who may seek alternatives due to the dispute.
As a result of the dispute, Disney’s shares dropped 2.4% to $81.61, while Charter’s shares fell approximately 2.8% in New York at 10:46 a.m. on Friday.
Charter revealed that it pays around $2.2 billion annually in programming costs to Disney, excluding advertising revenue. However, only a quarter of its subscribers regularly engage with Disney content. The company suggested that one option under consideration is exiting the video business entirely.
Many of Charter’s customers reside in major cities like Los Angeles and New York.
Media companies, such as Disney, have long been at odds with pay-TV providers over the value of channels like ESPN and Freeform. This often results in contract disputes and temporary blackouts. The rising cost of TV packages, along with the inclusion of numerous channels that consumers do not watch, has prompted tens of millions of people to cut their live TV subscriptions.
Charter expressed that “the multichannel video product is too expensive and packages do not meet consumer needs.” It also highlighted Disney’s insistence on a traditional long-term deal, which includes higher rates and limited flexibility in packaging.
The potential short-term effects of this dispute include an immediate reduction in programming costs and some one-time expenses, such as customer credits, according to Charter.
Although ESPN+ does not offer the same programming as the ESPN cable channels, Disney may still see an increase in ESPN+ subscribers as a result of this conflict.
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