After ESPN and ABC stations lost power for more than 10 days, angering customers and threatening to hasten the cable bundle’s demise, The Walt Disney Company and cable giant Charter Communications reached a truce that returned Disney Channels to its Spectrum pay-TV service.
The two companies announced a new agreement Monday that requires Charters to pay higher fees to distribute Disney programming. The cable company gained the ability to offer Disney’s ad-supported streaming apps — including Disney+, Hulu and ESPN+ — as well as its Spectrum TV service. Charter will eventually be able to offer ESPN as a streaming add-on when Disney brings that service directly to consumers.
Some analysts had warned that failure to resolve the dispute would have hastened the dismantling of the traditional pay-TV package. Charter’s CEO, Christopher Winfrey, said early on that his company was ready to “move on” from streaming Disney Channels, which would have been a major disruption to the entertainment landscape — and diminished Disney’s influence.
But in the end, executives on both sides exerted enormous influence — and worked together to reach an agreement that preserves the cable bundle for now. The deal recognizes that the way people watch TV has rapidly evolved into a system where on-demand options through streaming apps are more popular with consumers than traditional linear channels.
Even sports fans, long the glue holding the cable package together, have embraced different ways of watching their favorite teams.
Dana Walden, co-president of Disney Entertainment, acknowledged that the two companies made trade-offs to facilitate the deal.
“This is the most recent deal we’ve ever done,” Walden said in a brief interview Monday. “This is an innovative agreement and the first of its kind, and it took some time to determine the greatest value for each company.”
Disney, long the most powerful programmer in the industry, ceded its ground by abandoning its request for Charter to carry its entire lineup of more than two dozen linear television channels. Eight networks, including Freeform and Disney Junior, have been dropped from Spectrum’s lineup, in a major settlement by the Burbank entertainment giant.
Nineteen Disney Channels will be available in Spectrum packages, including Disney-owned ABC stations such as KABC-TV Los Angeles Channel 7, FX Entertainment Channel, National Geographic, and Disney Channel, which offers children’s programming. But much of Disney’s programming for kids and teens will be made available through the basic ad-supported version of the Disney+ streaming service.
Disney’s full lineup of ESPN sports channels will continue to be offered in Spectrum packages distributed to 14.8 million homes, a big win for Disney, which has indicated that ESPN will be a key part of its future.
Charter has secured the ability to sell Disney’s streaming apps to millions of additional customers who only receive Spectrum broadband internet service. Early in the negotiations, Charter demanded the ability to offer those apps for free to its broadband customers — but Disney refused to bend that point.
Instead, Charter said in a statement that it will offer Disney’s direct-to-consumer services to its customers “to purchase at retail prices.”
“We looked at the core of this dispute that centers on how each of these legacy companies shares the economics of the future business model and its importance in how contracts are created across the entire industry,” Guggenheim Securities analyst Michael Morris wrote Monday morning. “We believe today’s deal reflects a trade-off from the linear economy, but positions both Disney and Charter to drive value amid the shift toward streaming in the digital future.”
Executives from both companies worked all weekend to reach a comprehensive agreement ahead of ESPN’s highly anticipated “Monday Night Football” game featuring quarterback Aaron Rodgers leading his new team, the New York Jets, against the Buffalo Bills.
Sports fans in New York, Charter’s largest market, were eagerly awaiting Rodgers’ first appearance in the green and white. With the popular quarterback moving on from the Green Bay Packers, the Jets are expected to play their strongest team in years. The match between two New York teams took on added significance, as it was played on the 22nd anniversary of September 11.
Spectrum customers across the country were excluded from ESPN’s coverage of much of the US Open tennis tournament in Queens, New York, as well as college football matches. Subscribers in Los Angeles, San Francisco, Fresno, New York and Philadelphia missed the “Jeopardy!” and “Wheel of Fortune” as well as ABC news programming through their local stations.
The power outage began late August 31 with a blue screen replacing some of the country’s most popular programs. The feeds were restored Monday morning.
“Our collective goal has always been to build an innovative model for the future,” Disney CEO Bob Iger and Winfrey said in a joint statement. “This transaction recognizes the continued value of linear TV and the growing popularity of streaming services while meeting the evolving needs of our customers.”
Pressure increased on the two companies to reach a solution. TV viewers were missing favorite programs and were looking for alternatives to Spectrum. Politicians have become vocal about companies withholding content from consumers.
“It’s simple: If you pay your cable bill, you deserve to get the services you pay for.” New York Governor Kathy Hochul He said in a statement on Friday, urging the companies to end their dispute “as soon as possible.”
Early in the dispute, Charter offered customers who complained about channel outages a $15 credit. By the end of last week, Charter was directing angry customers to its streaming service Fubo TV and Disney was promoting its Hulu+ Live TV service.
The governor on Monday praised both sides for making concessions. “I am pleased that Disney and Charter have resolved their corporate dispute and have resumed service to the more than 1.5 million New York customers who lost access to channels owned by ESPN and Disney,” Hochul said.
Charter executives entered the negotiations and insisted that Disney provide it with more flexibility in how it broadcast Disney-owned channels, including ESPN, which is already the most expensive channel available on cable.
Charter executives were also concerned about Disney’s plans to offer its flagship ESPN channels — with football and other marquee games — directly to consumers in the next two years, which would position the company as one of Spectrum’s biggest competitors in the video channel business and potentially lead to a mass exodus of customers. Spectrum is a sports fan.
“After years, or decades, where programmers like Disney had all the leverage, this time the shoe is in another position,” senior cable analyst Craig Moffett of MoffettNathanson wrote Monday in a note to clients. “The charter now has all the influence.”
The new deal solves several problems for Stamford, Conn.-based Charter and preserves an important revenue stream for Disney at a key time.
Charter said it plans to pay Disney $2.2 billion this year in programming fees, and those payments will continue.
While the loss of freeform may upset some TV viewers, the two companies found that younger viewers were increasingly watching video on demand. The long-term viability of a linear free-form channel remains unclear because Charter is the country’s second-largest pay-TV provider and other distributors could follow Charter’s lead.
The charter will include ad-supported Disney+ in the Spectrum TV Select Video Package, which will help Disney reach an additional 9.5 million subscriber homes. This should help Disney+ ramp up this version of the service and generate more ad revenue.
Charter will have “the flexibility to offer a range of video packages at varying prices based on customers’ different viewing preferences,” the two companies said in their statement.
Paul Verna, principal analyst at Insider Intelligence, called the result a “tie.”
“Both sides had a lot to lose in a long battle,” Verna said. “Disney certainly had a lot to lose — it couldn’t afford to lose $2 billion in carriage fees paid by Charter, and it didn’t need any additional PR headaches. Perhaps Charter was bluffing when they said they were ready to pull out of the cable business.” “And they are still investing a lot in it.”
Both Disney and Charter have also pledged to crack down on password sharing by customers of the streaming service that allows friends and family members to watch without paying.
Disney shares rose about 1% to $82.52. Charter shares rose nearly 3.2% to $435.84.
In many ways, the compromise simply eases tensions between the streaming and linear TV models, Verna said.
“There is too much inertia in the pay-TV ecosystem for it to just become a thing,” Verna said. It will be several more years before people say: OK, we’re done with cable TV. “It would have been too radical, too sudden, too soon for cable TV to go away.”
Staff writer Stephen Battaglio contributed to this report.
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