Charter vs Disney: ‘A line in the sand for pay-TV’
September 1, 2023
Charter Communications, where top Disney channels are blacked out from its 14.7 million US subscribers, sees its talks with Disney as a chance to fix a broken TV model.
“Disney and Charter have the opportunity to work together on transforming the industry for the long-term benefit of both companies and consumers — but we are either moving forward together, or moving on,” Charter told an investor call.
Part of their plan is an agreement that lets people who don’t like sports buy a bundle of programming that doesn’t force them to pay for expensive networks like Disney’s ESPN. Charter said it is currently paying about $2.2 billion in annual programming costs to Disney, not including the impact of advertising revenue for both parties. It said only about 25 per cent of Charter video subscribers regularly engage with Disney content.
“Disney pulled its content which will impact our operations and financials,” Charter said. The blackout means a reduction in programming costs, but there will be other costs, including more calls from customers and customer credits, churn and reputation.
But, long term, Charter said its concerns include maintaining relationships with subscribers, and finding alternative video solutions for its connectivity customers. “Cash flow from video has already declined significantly and video is ultimately cash flow neutral without structural changes,” Charter said. “Forcing customers to pay for Disney content they opted out of, or don’t view and pay even higher rates, would negatively impact our connectivity relationships.”
Charter states that the “multichannel video product is too expensive and packages don’t meet consumer needs” and notes that “customers are leaving the traditional video ecosystem and losses have accelerated.”
“Programmers are caught in a self-imposed dilemma as they have moved content to their DTC products for short-term profit maximisation and their management teams are not incentivized to drive business for the long-term,” Charter said, describing the vicious cycle that erodes the value of pay-TV for non-sports viewers and encourages them to leave pay-TV for SVoD. Distributors and programmers need to work together to entice and reward customers to utilize bundled subscription products – most programmers simply will not be able to profit/survive solely on a-la-carte streaming revenue and need a hybrid, customer centric model,” Charter said.
It noted that both companies are at a “crossroads with their video strategy” with Disney looking at a hybrid approach for ESPN that embraces streaming options.
For now, it is believed Disney is sticking to its traditional channel packaging approach for pay-TV takers.