While the movie and television businesses are struggling to contain the impact of Hollywood’s labor strikes, the cable industry could be facing an even more existential threat as an equally tense standoff is taking place between two of its largest players.
As of September 1st, Disney has pulled all its channels from the Charter-Spectrum service, the second largest in the country, in response to Charter’s refusal to extend its existing agreement to carry Disney’s programming. Over fifteen million Spectrum subscribers are currently unable to access ABC, ESPN, FX, and the Disney Channel.
Among these channels, ESPN is by far the biggest draw as they are the exclusive broadcaster of a number of high-profile sporting events such as the U.S. Open tennis tournament and Monday Night Football. Historically, Disney has leveraged the popularity of its sports programs to force cable providers to carry all channels under the Disney umbrella.
The relationship between Charter and Disney has become so toxic that Charter has decided to call Disney’s bluff. Cable viewership has declined dramatically over the past several years, while Disney has been using funds from its lucrative deals with cable providers to invest in initiatives that draw audiences to its competing streaming services such as Hulu, ESPN+, and Disney+. Charter and other providers view these streaming platforms as existential threats, enabling “cord-cutters” to cancel their cable subscriptions permanently.
As with other cable providers, TV bundles are no longer the primary revenue source for Charter, having been eclipsed by selling broadband connectivity which has become a significantly more profitable business.
With the writing clearly on the wall, Charter has proposed to Disney two options: either provide all its streaming services to Charter cable customers or walk away from the partnership entirely. This presents a difficult choice for Disney, as Charter is offering to pay Disney approximately $2.2 billion but taking that deal would amount to Disney losing the opportunity to sell its own services to Charter’s fifteen million subscribers.
Disney is under intense financial pressure due to production shutdowns caused by Hollywood’s labor strike, massive losses flowing in from its streaming networks, and an underwhelming summer performance at the box office. Given these circumstances, Disney may opt to settle with Charter on its terms, taking the bird it has in its hand rather than go for the two that it sees in the bush.
See also: Charter’s CEO isn’t flinching in the $2.2 billion rumble with Disney and ESPN: ‘We had to say enough is enough, or else we’re gonna have to move on to a different model’ (Fortune / Yahoo Finance)