The dispute is ostensibly about transmission fees, the fees cable providers pay networks to include certain channels in the cable packages they sell to consumers. Charter, however, sought to frame the divide as part of a broader debate about the financial viability of cable TV in the streaming age.
“We’re on the precipice,” Charter Chief Executive Chris Winfrey said of the situation on Friday. “Either we move forward with a new collaborative video model, or we move on.”
As of now, the two companies are at an impasse, with Charter blocking all Disney Channels available to its subscribers on Friday. The decision drew strong criticism from Charter subscribers, who were unable to watch some NFL games and all U.S. Open tennis tournaments.on tuesday some customers File a lawsuit seeking class action status Discuss the matter in Florida.
Charter is refusing to pay Disney’s demands for its channel because most of Disney’s best content is exclusive to its streaming service, making its cable channels limited to second-rate programming. Therefore, Charter wants Disney to offer its streaming service for free to Charter customers. Charter also hopes to be able to offer Disney-owned channels to a smaller number of households. This is also a major crux of the negotiation. Disney claims about 70% of Charter customers watch one of its channels per month, while Charter says 25% watch Disney content. (Both sides have been vague about how to define those metrics.)
Disney and Charter did not respond to requests for comment.
Disney needs consumers to recoup billions in lost revenue to keep its plan going
Disney, in particular, could lose billions of dollars. A report by analysts at Citigroup estimated that the company could lose between $1.1 billion and $2.3 billion in profit this year, depending on how many Charter customers switch to other cable or streaming providers that offer the Disney Channel. The higher the number, the more revenue Disney will be able to recoup. Citigroup predicts Disney will recover 25% to 65% of lost revenue.
“They’re betting that a lot of people will leave Charter, but they’ll sign up to YouTube TV, Hulu, DIRECTV or DISH, and the reacquisition rate will be high,” Citibank analyst Jason Bazinet said in a note. “That’s Disney’s argument.”
On Monday, Disney released statement Invites Charter customers to subscribe to its Hulu + Live TV offering.
Wall Street isn’t counting on Disney to save its moribund cable business. Bazinet said investors were skeptical of Disney’s plans to make up for the ongoing erosion of its cable business. “Disney has yet to develop the credible plan that Wall Street believes it can build a profitable streaming business,” he said.
Bazinet also pointed to the lukewarm investor reaction to Disney stock as evidence that investors have priced in declining cable revenue. Shares of Disney were down just 2% on Friday, the day Charter blocked the Disney Channel. Typically, when such deals come into the public eye, “stocks get out of touch,” Bazinet said.
Bazinet said in his report that the market sees a 33% to 70% chance that the dispute between Charter and Disney will become permanent.
Charter wants to reshape the cable business or ditch it
Part of the reason analysts have described the talks as “not another shipping dispute” is that Charter ostensibly agreed to Disney’s $2.2 billion asking price on the condition that the streaming service be free. Charter is hoping to leverage Disney’s strength to transform its cable business by creating a new cable bundle that also includes streaming. If Franchise doesn’t win, it could drop the cable business because it says it can’t make the numbers work otherwise.
“We have reached a point where the current model is economically apathetic,” the company said in an investor presentation, using terms that belied a threat to exit one of its core businesses entirely.
Charter’s cable TV unit will generate $17.5 billion in revenue in 2022, but the business is expensive to maintain and has low margins. In the same investor presentation, the company said its video business would remain cash flow neutral with “no need for structural transformation.” Once content providers like Disney started raising shipping prices even further, Charter no longer found it attractive to run a dying, low-margin business.
“Charter’s argument is that if we continue down this path, there’s no money left,” Bazinet said. “So you should keep the camel’s nose under the tent and let’s get some economics out of streaming apps.”
Disney, on the other hand, isn’t interested in sharing in the profits of a streaming service it deems critical to its future.
Charter appears willing to continue offering cable service without Disney’s own channels, essentially slowly exiting the cable business. In this case, Charter could simply wind up its cable business, offering fewer and fewer channels, thereby losing customers, until it eventually shuts down the business entirely. If that happens, Bazinet argues, Charter will focus on its internet and mobile businesses — part of a larger trend in the industry of an ongoing separation between content producers such as Disney and content providers such as Disney. spectrum. They were once close partners, but their relationship has changed as cable TV reaches fewer homes and content providers increasingly put exclusive movies and TV shows on their proprietary streaming platforms. Be nervous.
Even if Charter and Disney strike a deal, however, the cable business could see massive changes. That’s partly because Charter says it will only agree to a deal that upends the status quo. In fact, the whole point of its pitch to Disney was that the two together could lead to change in the industry.
Bazinet called the controversy “the end of a beginning,” as he sees it as the first of many such developments that will shake up the industry. “If a large distributor like Charter comes to that conclusion, you have to imagine many other smaller cable distributors coming to the same conclusion,” he said. “So this might just be the tip of the iceberg.”
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