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Charter redraws battle lines during dispute with Disney

The cable TV provider was willing to pay Disney more fees for its linear channels — but it wanted something more in return.

The cable TV provider was willing to pay Disney more fees for its linear channels — but it wanted something more in return.

For years, cable and satellite television companies have bled customers as cheaper streaming options launched by various media enterprises, including three of the four big broadcast networks, lured viewers away with cheaper, Internet-based options.

If it seemed the big media companies had all the leverage, Charter Communications wants you to think twice.

Friday morning, executives held a rare public meeting with shareholders and other key stakeholders, less than 24 hours after its Spectrum TV service was forced to pull dozens of broadcast and cable channels owned by the Walt Disney Company.

During the meeting, Charter officials acknowledged the channels — which include ESPN, FX, National Geographic, the Disney Channel, Freeform and some Disney-owned ABC stations — were dropped because its contract with Disney to carry them expired on Thursday, with no new deal in place.

That situation has become increasingly common in the pay television world, with cable and satellite companies holding the line against demands for higher programming-related fees, even if it means customers lose access to one or more channels for a brief (or, in some cases, long) period of time.

But on Friday, Charter CEO Chris Winfrey said the issue with Disney is “not a typical carriage dispute,” because the company was willing to pay higher fees for Disney’s channels — it just wanted a little bit more for its customers in exchange.

Specifically, Winfrey said Charter offered to pay Disney’s “market rates” for its linear channels, as long as the company was also willing to toss in free access to the ad-supported versions of its streaming apps Disney Plus and ESPN Plus. In exchange, Charter said it would agree to market all of Disney’s apps — which also includes Hulu — to its Spectrum Internet customers who don’t also have Spectrum TV.

Charter said its strategy was a win-win for both companies: Cable customers didn’t have to pay for two or more subscriptions simply to access the same programming on Disney’s streaming apps that are also available on Disney’s broadcast and cable channels, and Disney would see a bump in subscribers for its ad-supported streaming services — which would, in theory, allow Disney to generate more revenue from advertisements run in those services.

A sound technician with ESPN helps produce a telecast of a football game. (Photo by Maize & Blue Nation via Wikimedia Commons, Graphic by The Desk)
A sound technician with ESPN helps produce a telecast of a football game. (Photo by Maize & Blue Nation via Wikimedia Commons, Graphic by The Desk)

“The idea that somebody has publicly said, repeatedly, that it is going to go direct-to-consumer, and you’re signing up for that kind of long-term deal, that is untenable,” Winfrey said, speaking to a demand from broadcasters for higher programming fees for their channels while simultaneously building out their own streaming ambitions for the post-cable world.

Winfrey and others said that post-cable world is coming up fast: While Spectrum TV has around 15 million customers, Spectrum’s TV business aligns with broader industry trends: Cable TV is getting more expensive, and customers are leaving for cheaper streaming options.

Realizing this, Charter has taken several steps to offset a decline in its TV business. It forged a partnership with fellow telecom Comcast to develop a streaming technology platform called Xumo, which includes a free, ad-supported TV app and a smart TV operating system that powers Spectrum and Xfinity set-top boxes for TV and Internet-only customers. Charter has also focused more of its marketing efforts on broadband-only packages, as well as its upstart wireless service, Spectrum Mobile.

For those who do still want TV service through Spectrum, Charter said it would soon offer two new packages that meet the needs of its customers at more-attractive price points. The first package, called Spectrum Select Signature, includes local broadcast and general entertainment channels and some major sports networks like ESPN and Fox Sports, but without regional sports channels that can drive up the cost of service. Another plan, called Spectrum Select Plus, offers regional sports networks at a higher price, for customers who are willing to pay for them.

The new package is intended to offer greater flexibility to customers who value Spectrum TV, and the company’s proposed deal with Disney was designed with the same strategy in mind, according to Rich DiGeronimo, Charter’s president of product and technology.

But Disney does not appear to be having it. “[They] reverted to the tired playbook, trying to squeeze every last dollar out of the linear customer, with no regard to the going concern of their video cash flow engine,” DiGeronimo said during a conference call on Friday.

Disney does not appear equally interested in re-writing the rulebook for cable television.

“Although Charter claims to value our direct-to-consumer services, they are demanding these services for free as they have stated publicly,” a spokesperson for Disney said in a statement. “Charter is depriving consumers of that content because they are failing to ascribe any value in exchange for licensing those services. Our linear channels and direct-to-consumer services are not one and the same, per Charter’s assertions, but rather complementary products.”

The spokesperson asserted Disney was continuing to “invest in original content that premieres exclusively on our linear networks, including live sports, news and appointment viewing programming,” while at the same time making “multi-billion-dollar investments in exclusive content, which is incremental to our linear networks.”

Disney said it offered Charter a brief extension of its prior contract, which would have kept its channels on Spectrum TV while negotiations continued, but “they declined in the middle of programming that is important to their subscribers, including the US Open.” (A spokesperson for Charter dispute Disney’s claim that it offered an extension — “Disney knows this is not the case, but we’ll leave it at that, so we can go back to more-productive conversations for the benefit of our mutual customers,” the spokesperson said in an email to The Desk.)

“Charter’s actions are a disservice to consumers ahead of the kickoff for the college football season on ABC and ESPN’s networks,” the Disney spokesperson said. “We value our relationship with Charter and we are ready to get back to the negotiation table to restore access to our unrivaled content to their customers as quickly as possible.”

One reason why Disney may value its relationship with Charter has to do with what so many carriage disputes revolve around: Money. According to officials at Charter, Spectrum TV provides Disney with $2.2 billion in programming-related payments on an annual basis. Without Disney’s channels on Spectrum TV, that revenue will certainly decrease this year, and for however long the dispute goes on.

And it won’t just impact Disney: When asked if Charter plans to offer the same deal to Comcast’s NBC Universal, Paramount Global and other media enterprises who distribute linear channels through Spectrum TV while also building out their own streaming platforms, Winfrey said, “simply put, yes.”

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About the Author:

Matthew Keys

Matthew Keys is the publisher of The Desk and reports on the business and policy matters involving the broadcast television, streaming video and radio industries. He previously worked for Thomson Reuters, Disney-ABC, Tribune Broadcasting and McNaughton Newspapers. Matthew is based in Northern California, has won numerous awards in the field of journalism, and is a member of IRE (Investigative Reporters and Editors).