One of the largest cable companies in the United States is sending a message to its long-standing partners in the media industry: the traditional cable TV model is broken and needs to be fixed or abandoned. Charter Communications, in an 11-page presentation to investors, stated that cable TV has become too expensive for consumers and providers. The company believes that cord-cutters and increasing fees are contributing to a “vicious video cycle.”
This presentation comes at a time when Charter is in negotiations with the Walt Disney Company for carriage agreements. Charter’s nearly 15 million pay-TV subscribers will not have access to popular cable channels, such as ESPN and FX, until a mutual agreement is reached regarding how much Charter will pay Disney to carry its channels. As a result, subscribers will be unable to watch events like the U.S. Open tennis tournament and college football games over a holiday weekend.
While these carriage fights between cable providers and content creators are not uncommon, Charter’s admission that parts of its own business model are in disrepair adds a new dimension to the challenges facing the cable TV industry.
The fight between Charter and Disney occurs in the midst of declining cable TV subscriptions. Research from SVB MoffettNathanson shows that over five million Americans cancel their cable TV subscriptions each year. With this trend, traditional media companies are attempting to maintain their lucrative cable partnerships while simultaneously building streaming businesses to eventually replace those alliances. However, investors in these traditional media companies are growing impatient with the profitability of these new streaming ventures compared to cable TV.
The pressure to find alternative revenue streams is leading traditional media companies to collaborate with competitors and bundle their streaming services. Additionally, tech giants like Apple and Amazon are willing to pay high prices for live sports rights, further increasing programming costs. In response, cable companies have diversified their revenue streams by offering services like wireless internet.
In their negotiation with Disney, Charter’s presentation goes further by delivering a scathing critique of the cable television industry that has generated enormous profits for companies like Charter and Disney for decades. It is a significant acknowledgment from Charter, a company that played a crucial role in the industry’s growth.
Charter’s presentation acknowledges that customers are leaving the traditional video ecosystem, leading to accelerated losses. Richard Greenfield, a media analyst for LightShed Partners, suggests that if ESPN permanently departs from Charter, it will have a catastrophic snowball effect on traditional TV companies.
Disney responded to Charter’s claims, stating that the cable giant rejected a deal based on market terms and that Disney had proposed creative ways to make its streaming apps available to Charter’s cable subscribers. Disney emphasized that their offer included the most favorable terms for rates, distribution, packaging, and advertising.
The dispute between the two companies revolves around the rates Charter will pay for Disney’s programming and the distribution of these movies and shows through Charter’s bundles. Charter insists on not paying a premium for channels that its customers do not watch, citing rate increases as the reason for customers cutting the cord.
Christopher Winfrey, Charter’s CEO, expressed his disappointment with the stalemate on an investor call. He stated that the company had proposed an alternative model that Disney did not accept. Winfrey emphasized that Charter is ready to move forward with a new collaborative video model or move on altogether.
Charter’s news conference led to a sell-off of traditional media stocks, affecting the broader entertainment industry. Disney’s shares dropped nearly 3%, Paramount declined over 9%, Warner Bros. Discovery fell 12%, and Charter shares were down over 3%.
As viewers increasingly opt for streaming services like Netflix, cable providers like Charter and Comcast are growing frustrated with paying a premium for content that fewer people are watching through traditional means.
To adapt to the changing landscape, content providers like Disney are making their own adjustments. Disney plans to offer a streaming version of ESPN, one of its most valuable TV channels. Disney’s CEO, Robert Iger, is exploring options for ESPN, including finding new distribution or content partners.
In response to Disney’s rejection of its terms, Charter proposed a subscription package that combines traditional TV with streaming apps. Charter remains open to exploring alternative video solutions, including services offered by Apple and Roku, and is even considering splitting off some sports programming into a higher-cost package.
Overall, the ongoing dispute between Charter and Disney highlights the challenges facing the traditional cable TV industry, including declining subscriptions, the rise of streaming services, increasing programming costs, and the need for innovative solutions to meet changing consumer demands.
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