Disney pushed back in its battle against Charter on Friday, arguing the cable giant has refused to enter into a new carriage agreement that “reflects market-based terms.”
On Thursday, Disney removed all of its networks from Spectrum — including ESPN, FX, Disney Channel and ABC stations — leaving customers in the dark after the two parties failed to reach a deal.
In a statement, Disney said it offered “the most favorable terms on rates, distribution, packaging, advertising and more” and “proposed creative ways to make Disney’s direct-to-consumer services available to their Spectrum TV subscribers, including opportunities for new and flexible packages where those services become a focal point of what the consumer might choose.”
“Although Charter claims to value our direct-to-consumer services, they are demanding these services for free as they have stated publicly,” Disney added. “Charter is depriving consumers of that content because they are failing to ascribe any value in exchange for licensing those services.”
Disney argued that it offered Charter an extension to keep its networks up during negotiations, but that they “declined in the middle of programming that is important to their subscribers, including the US Open.”
“Charter’s actions are a disservice to consumers ahead of the kickoff for the college football season on ABC and ESPN’s networks. 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,” the statement concluded.
Disney said it continues to invest in original content that premieres exclusively on its linear networks, including live sports, news and appointment viewing programming, and makes “multi-billion-dollar investments” in exclusive content on its direct-to-consumer services that are incremental to its linear networks.
The response comes after Charter executives held a call with Wall Street investors and analysts on Friday.
Executives said that Disney offered a traditional long-term deal that insisted on “high penetration payment minimums despite its own a la carte offerings,” forced its channels into packages where they are currently not included, required additional large rate increases by “forcing DTC service inclusion and additional payment to existing linear customers,” and offered “little incentive” to sell DTC apps to broadband customers.
In return, Charter said it offered to accept Disney’s rate increases in exchange for bundling ad-supported streaming apps with packaged linear products and “lower penetration payment minimums” to provide packaging flexibility to customers. It also offered to market Disney’s streaming apps to its broadband customers and a shorter extension to its current contract to continue to discuss its proposal, but said Disney declined.
Charter executives said its “transformational proposal” to Disney provides a “glide path to manage its migration pace to a larger direct to consumer business, including the linchpin ESPN, stems linear subscription and advertising revenue losses, preserves linear TV cashflow and potentially the traditional TV ecosystem and reduces DTC churn.” Pairing the direct to consumer apps with a linear subscription could also drive more upgrades within the DTC apps, increase DTC ad revenue and provide a sustainable revenue stream for Disney that leverages Charter’s marketing and sales capabilities, executives added.
In return, the model would renew Charter’s incentive to grow linear video relationships, offer more packaging choice and flexibility to its customers, drive future package upgrades and provide new incentives to sell DTC subscriptions to its broadband customers.
Executives expressed optimism that there was still hope to reach a deal with Disney, noting that its discussions have been ongoing for months and have been “constructive.” But they also stressed that time is of the essence.
“We’re on the edge of a precipice. We’re either moving forward in the new collaborative video model or we’re moving on. This is not a typical carriage dispute. It’s significant for Charter and we think it’s even more significant for programmers and the broader video ecosystem,” Charter CEO Christopher Winfrey told analysts. “We propose the model to Disney that we believe creates better alignment for the industry and better products for customers, a model that can stabilize linear video and create a clear growth path for direct to consumer video with a more customer friendly and financially attractive end state for programmers.”
The carriage dispute comes as the multichannel video industry has lost 25 million customers over the last five years, or nearly 25% of its total base. In comparison, Charter’s customer base has only declined about 10% over the same period, executives said, which sits at 14.7 million video customers.
“The overarching problem with multi-channel video is its lack of affordability due to expensive programming and inability for distributors to offer lower price packages to suit the needs of customers. We have a large group of customers subscribing to video packages that do not include sports or other Disney content,” Winfrey added. “Disney wants us to pay license fees for customers that do not receive services, which leads to more price increases. We cannot get comfortable forcing that on customers.”
Charter says it’s paying roughly $2.2 billion to Disney in annual programming costs, not including the impact of advertising revenue for both parties, and only about 25% of its video subscribers regularly engage with Disney’s content.
If the impasse between the two parties is unable to be resolved, Charter says it would look to platforms like Xumo, Apple TV and Roku to create new packages for general entertainment with more flexibility and the ability for consumers to add on a la carte direct to consumer packages as they see fit.
Chief financial officer Jessica Fischer said Charter anticipates a loss to video related revenue as a result of the dispute, due to an expected decline in video customers and any potential credits or adjustments. It also expects reduced advertising revenue from the loss of content, significant reductions to programming expenses and higher costs to handle a large number of customer calls.
Shares of Disney fell 2.2% during Friday’s trading session, closing at $81.59 apiece.
