Michael Greeson | Senior Analyst | September 6, 2023
The amount of press attention the Charter v. Disney fiasco has generated is already staggering. What is usually a negotiation between content owners and distributors that occasionally disrupts into a public dispute is now front and center among not only the industry press but the popular press, as well.
What is at stake? Some say the future of TV, that this is a “tipping point” between yesterday’s MVPD model and the streaming future that lies ahead. While I’ve evolved to despise the words “tipping point” (an over-used/abused phrase), this otherwise periodic kerfuffle between buyer and seller could in fact be the moment in which the decline of pay TV evolved from Stage 3 to Stage 4; the point at which its acute illness became terminal; the moment its deterioration metastasized from slow-and-steady to on-its-last-breath.
Wayne Friedman of Media Post observed that Charter is taking “the high road” in these negotiations, conceding the pay-TV industry is dying a slow death and asking a key partner, Disney, to work together to ease the suffering as the industry evolves to a new model. The writing is on the wall, as both understand, but the two companies cannot agree on what it means.
As Charter sees it, the pay-TV industry has been in secular decline for a decade during which the rates content owners charge has skyrocketed with no concern for the realities MVPDs face on the ground (i.e., ever-higher consumer costs for pay-TV services, cord-cutting, etc.). This cruel cycle Charter believes must end now, or it will exit the MVPD business altogether. At the very least, Disney should break up the bundle of channels it forces operators to buy so they can select only the channels that make the most financial sense for them.
Disney is having none of this, instead sticking to its guns and demanding fees it believes worthy of its content. (Other MVPDs are paying the same fees, so why not you?) It has a right to charge what it wants for its products, of course, just as big-league sports have a right to charge Disney whatever it believes their content is worth.[1] As Charter emphasizes, however, Disney is making these demands at the same time it is pulling content from its linear channels for its streaming services, and preparing to launch an ESPN SVOD service within two years. Both diminish the value proposition of Charter’s cable TV service and hasten the exodus of paid customers, thus speeding the collapse of the MVPD model and inflicting unnecessary pain on operators.
Unlike Charter, Disney’s idea of a “new model” no longer depends on the participation of legacy MVPDs. Its future lies in building a comprehensive bundle of Disney apps—which by 2025 will include ESPN—that provides the most value to its customers, and that Disney can sell through a wide range of CTV app stores. When the use of super-bundles—packages of otherwise competitive apps sold at a discount relative to standalone prices—become more widespread, Disney can sell its 4-service bundle as a must-have in a multi-app offering, just as it does in multi-channel pay-TV offerings. Also, the deep-pocked tech-media companies behind the leading virtual MVPDs (Google with YouTube TV, Disney with Hulu + Live TV) are paying what they ask without hassle. If Charter subscribers jump ship because Disney channels are dropped, they can switch to virtual MVPDs that offer them. Between its own D2C bundles, inter-network bundles, and virtual pay-TV operators, anyone that wants to pay for Disney channels can get them.
Put yourself in Charter’s shoes. Would you want to lock into a long-term contract with a company working to accelerate the pace at which your business is declining? And if Charter follows through on its promise to drop pay-TV services, what does this mean for Comcast, DirecTV, and other legacy operators?
Now put yourself in Disney’s shoes. Would you give in to Charter’s demands and put your MVPD pricing model in jeopardy? And if Disney is fine with Comcast dropping out of pay TV, what does this mean for NBCU, Paramount, FOX, and other studios dependent on pay-TV revenue to help ease their transition to the “next model”?
Either way, some tough choices will have to be made. And it’s about time.
[1] Having the right to charge as much as you see fit doesn’t make it right to do so nor necessarily profitable in the long run, especially if the marketplace cannot support those levels, which is Charter’s contention.
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