Disney Blackout Could Have Charter 'Moving On' From Traditional Video Distribution: CEO
With a blackout of Disney channels on its channel lineup last week, Charter Communications unveiled Friday what it had been pitching to the programmer -- a plan for what it said was a sustainable video model that marries linear video with direct-to-consumer (D2C) apps. Without buy-in to this model, Charter is "moving on" from the traditional video distribution model, Charter CEO Chris Winfrey said in a call Friday with analysts and media. "This is not a typical carriage dispute," he said.
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Under the Charter hybrid linear/D2C model, cable programmers' ad-supported apps get packaged with linear channels at some discounted or free price point. The cable company in turn would market the apps to its broadband-only subs. Winfrey said that approach would both stabilize traditional linear video and help grow D2C video. For Disney, that would mean less D2C churn and increased D2C ad revenue, said Chief Product and Technology Officer Rich DiGeronimo.
Winfrey said Charter will push this model with other programmers, and it started with Disney because ESPN hasn't yet gone fully D2C though it's clearly on that path. "We're on the edge of a precipice" that is the broken MVPD marketplace, Winfrey said. He used the metaphor frequently on the call.
Traditional and virtual MVPDs have lost nearly 25 million subscribers -- roughly 25% of the total -- in the past five years, Winfrey said. Charter's lower losses in that same span -- about 10% -- are due to its continuing to identify video as having strategic value and the company's flexibility in its pricing and packaging, said DiGeronimo. He said Disney's negotiation demands included Charter paying higher license fees plus license fees for video subs not getting Disney content. He said Disney also floated the idea of requiring distribution of and payment for its D2C apps to Charter linear video subs.
Absent the blackout, Charter would pay Disney $2.2 billion this year in programming fees, Charter Chief Financial Officer Jessica Fischer said.
"I would love" to include ESPN in Charter's video packaging approach that includes one without regional sports networks (see 2307170008), "but we knew that was a stretch too far" and didn't raise it in negotiations, Winfrey said. Charter anticipates it could lose some broadband subs over the blackout, but still aims to have higher subscriber adds in 2023 than 2022, he said.
Disney in a statement said it "has successful deals in place with pay TV providers of all types and sizes across the country, and the rates and terms we are seeking in this renewal are driven by the marketplace. We’re committed to reaching a mutually agreed upon resolution with Charter and we urge them to work with us to minimize the disruption to their customers.”
The blackout raised some subscriber hackles. "No better representation of what it feels like to be a sports fan right now than the fact that I pay ESPN *and* Charter an absurd amount of money specifically to watch sports, but because they can't agree how much of my money they should give to EACH OTHER, I can't watch sports," sports writer and novelist Will Leitch posted on X, formerly Twitter.
"Figuring out streaming relationship with high quality video owners can drive broadband value & make it stick[i]er," media consultant Patrick Crakes posted on X. "Broadband is high margin but increasingly competitive business so using video as marketing... probably has some value." He said that among Disney's cable networks, "Only one that really matters is ESPN thanks to migration of entertainment content to streaming ... If you look at higher usage subs (most valuable to Charter) ESPN will over index heavily. ...This maneuver risks Charter's relationship with their most valuable subs."
"This is not a typical blackout," with Charter seeming to be "genuinely willing to walk away from Disney, and even the entire linear video model, if necessary," MoffettNathanson wrote investors. "The stark reality is the media and distribution landscape has been building up to this moment for many years. Each media company owns some of the blame." It said Disney was in a no-win position: agree to some of Charter’s demands and potentially "face an industry-wide reduction in minimum carriage guarantees and a reduction in revenues generated from selling their DTC services to MVPD customers," or don't strike a deal and lose a chunk of the $2.2 billion in annual affiliate fees.