Give Peace a Chance?

The fact that the sudden deal this week between Charter and Disney came as a surprise even as “Monday Night Football” loomed tells us everything we need to know about the inhospitable state of the media industry right now.

Like the 13 days that Kennedy and Khrushchev faced off over Cuba in 1962, the 10 days of mousy darkness on Charter thankfully ended without real bloodshed. You might say that two nuclear powers went to the brink, simultaneously blinked, and ended up in the pink. But the deal also feels like the start of a new era of mutually assured destruction, masquerading as good-faith cooperation. Neither the content nor the distribution side of the business has an easy path forward, with direct-to-
consumer offerings straddling old-school notions of bundling and aggregation with the lizard-brain desires of corporations to fully own the customer. Disney and other streamers see certain advantages in that direct billing relationship with consumers. But at least for now, that doesn’t trump the need to keep those sweet affiliate fees rolling in the door, especially when DTC profits remain elusive for most.

Early analysis this week suggested that Disney – staring down the loss of $2.2 billion in affiliate fees and millions in advertising as 14 million fewer homes watched ESPN and ABC in big media markets like New York City and Los Angeles – buckled under the pressure, giving Charter what it wanted. But it’s more complicated than that. Disney obviously needed a deal to preserve its revenue, but we don’t know on what terms it agreed to let Charter essentially use Disney+, ESPN+ , and the coming ESPN live streaming service as a subscriber retention bonus. According to Needham & Co, some 3 million Disney+ and 500,000 ESPN+ subscribers are also Charter video customers who will no longer need to pay Disney directly. Instead, the firm estimates Charter will pay Disney as much as $5/mo for the right to offer Disney+ free to video subs on its premium tiers. While Disney would presumably lose $3/mo as DTC subs paying $8/mo directly switch to the “free” Charter plan, The Mouse also presumingly just gained 11 million new subscribers who will get its streaming services through Charter (and remember, Disney gets all the ad revenue generated from those eyeballs). All told, Needham estimates that the Charter carriage deal will add $420 million to Disney’s 2024 revenue – and that’s despite Charter booting Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo off its systems. While the loss of carriage for secondary nets is never fun, Disney still has 420 million reasons to remain upbeat.

Charter, meanwhile, managed to get a firm foothold in the streaming universe just as it’s about to launch its Xumo joint venture with Comcast, which no doubt will use Disney+ and ESPN+ as major aggregation jewels. Yes, the Disney deal will help hold down churn, which is already lower at Charter than its MVPD peers because of the company’s aggressive retention tactics. But more importantly, Charter can use the Disney deal as a template for other major studios with cable assets, including Warner Bros. Discovery and Paramount Global. Both of those content companies can expect to lose at least some carriage when their deals come due. If Freeform and Disney Jr. can go, so can MTV Classic, Nick at Nite, Discovery Kids, or Motor Trend if Charter wants to play hardball once again. Wells Fargo this week suggested that at least half of WBD’s 27 nets are at risk when the company comes up for carriage renewal in 2025, and it asserted that Paramount “is the worst positioned in a future skinny bundle era.” Even so, things could be worse, and all of this assumes that WBD and Paramount are willing to offer up Max and Paramount+ for free to Charter’s customers despite enduring potentially more channel drops than did Disney. Expect much wrangling over the price of that concession, although Charter may not have as much leverage as it did with Disney, which couldn’t afford to take the hit on Monday Night Football in the middle of a dual writers-actors strike that has shut down scripted production and made live sports even more vital to everyone’s bottom line.

Next? Get ready for every MVPD with any ambition left in video to use the Charter-Disney deal as a negotiation template during all upcoming talks. That means that WBD, Paramount, and every other content provider will face enormous pressure to match Disney’s willingness to give up a bit of its DTC customer ownership to preserve a new, more modern form of the bundle. Take it from Charter CFO Jessica Fischer, who told a Bank of America investors conference this week that the Disney deal “was about taking the valuable content that had been leaking out of the system and putting it back in our packages.” The nomenclature is important here. She’s saying that “the system” is the traditional distribution of contentthrough MVPD distributors, not the DTC ambitions of content owners that typically worked through third-party distributors before streaming came along. But Fischer also sees the deal as a “glide path that gets us to the new direct-to-consumer environment.” In other words, distributors know the world is going DTC, but many would like to avoid becoming nothing but dumb pipes carrying video bits. They want a piece of the action. They want inclusion.

None of this means the customer ownership genie will go back into the bottle. The studios now have more first-party data than ever about their viewers and shows, and that’s more important than who handles billing. But Charter strategically chose ESPN as its first-mover in a new partnership scheme that could stave off what had looked like a retreat of traditional aggregators. Fischer insisted this week that “everybody wins” in the Charter-Disney deal. That may be true on some level. But with all the major streamers now pushing higher-ARPU ad tiers, it’s unlikely any of them want to cede back too much customer control to the distributors. To some degree, they have no choice. But when the strikes are over, business models have evolved, endless layoffs and cost cutting have subsided, and things start to generally calm down, don’t be surprised if some of these negotiations get even tougher going forward. Now that Charter and Disney have shown the way when it comes to workable models, the biggest fights of the future may simply be over pricing and terms, not structure. And that’s definitely progress from where we were as an industry a few weeks ago.

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