If you’re not a sports fan or don’t live in a Spectrum market, you may breathe a sigh of relief, but you still can’t afford to ignore this fight. Because it’s about how all of us will access all sorts of video content in the future, and how much we’ll pay for it.
At its most basic level, the fight between Disney and Spectrum centers on “carriage fees” that cable companies pay networks such as ESPN to air their channels. ESPN commands by far the richest fees, reportedly in the range of $9 per user per month because its negotiations have historically tended to go something like this:
Bob Iger, Disney CEO: In exchange for letting you carry ESPN and our many other fine channels, I would like all your money, and then some.
Anxious Cable CEO: I need money to run my cable system, though.
Iger: (thoughtfully, as if this just occurred to him) Alternatively, I could pull ESPN off your service during football season, I suppose. How long do you think it would take before mobs of angry subscribers descend on your offices, waving sticks and demanding refunds?
ACC: Would you like that in the form of a check, or knapsacks full of hundred-dollar bills?
Ironically, even as the viewership for “linear TV” (think: cable, satellite and broadcast) declined, ESPN’s fees got richer, because live sports has weathered cord-cutting better than other kinds of programming. It’s just about the last thing many Americans all do together at the same time. And avid sports fans want to watch their games now, not when they’re rerun on streaming platforms, even if that means paying for a cable subscription.
Now, live events aren’t immune to the forces reshaping American culture. Sports audiences are rapidly aging and, even for a premier sport such as professional basketball, viewership has declined has declined massively since 2012. Some of this might be due to cord-cutting; according to Charter, the multichannel video industry has lost 25 million households in the past five years, so clearly, many people are willing to drop cable even if that means losing ESPN. And the high price of ESPN, which gets passed on to consumers, in turn makes cord-cutting more attractive.
Disney is trying to stay ahead of these shifts. The company now runs multiple major, if not particularly profitable, streaming services, and it is reportedly internally debating when — not if — it will move all ESPN programming to ESPN Plus. Iger has publicly mused about selling off the company’s linear TV assets, which include not just cable channels such as ESPN but also ABC.
Yet Disney’s obviously not the only company that has been thinking hard about how to position itself in a changing ecosystem. Recently, when Disney demanded another eye-watering hike in its carriage fees, Charter said it would pay only if Disney threw in the exclusive content it currently reserves for Hulu and Disney Plus, and allowed the company to offer non-sports fans more packages that don’t include ESPN. Disney tried to resolve this impasse by removing its content and letting Spectrum subscribers do the arguing.
Instead of caving, Charter appears to have settled in for a protracted war. Spectrum is allegedly encouraging frustrated subscribers to sign up for services such as YouTube TV, which carries ESPN. And the Charter CEO hopped on an investor call to lay out a detailed case for holding firm, complete with a slideshow that included this incredible statement: “The video product is no longer a key driver of financial performance.”
Translation: Cable television is already a bad business. And if operating it means paying Disney even more money that will be funneled into building up a competing streaming service, Charter might as well pull the trigger itself and concentrate on the more promising parts of its business, such as providing broadband.
So this is no longer only a fight between two companies over how much each one gets paid — though it absolutely is that. It’s also a fight between the past and the future. Charter is making Disney choose between a lucrative 20th-century business model that is still generating lots of ready cash and the speculative 21st-century on-demand future into which Disney has been pouring those profits.
All businesses sitting on a dwindling cash cow face a difficult choice: How much do you cannibalize the old business to chase something new? Even as it aggressively built up Disney Plus and Hulu, Disney has erred on the side of protecting its ESPN carriage fees, reserving its prime content for linear television even as it made plans for an inevitable streaming transition. Charter is making that compromise untenable.
Maybe Charter will blink, and Disney won’t have to choose just yet. But if Charter doesn’t, Disney’s choice will shape the entire market. If Disney chooses its carriage fees, then the old model might have longer legs than expected. If it chooses streaming, then the transition will happen even faster, as a lot of sports fans lose their last reason not to cut the cord, and Spectrum has even less reason to invest in its video product.
You can be sure that a lot of other cable companies will be watching the outcome closely. As, eventually, will the rest of us, whether through a streaming platform — or the good old cable box.
