Charter vs. Disney: Is this the end of the bundle as we know it?

The carriage dispute between Charter and Walt Disney Co.
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threatens to upend business for both companies and dramatically reshape both the pay-TV and streaming ecosystems, and it could also spill over to affect content distributors and millions of consumers. The result will likely be far less spending on content from media and entertainment companies, including on sports and original programming.

If Charter exits the TV business altogether, millions of homes are likely to abandon the pay-TV bundle, potentially speeding its decline as other, smaller TV providers follow suit, analysts said.

“If Charter can drop ESPN, then any network (broadcast station or cable network) can be dropped,” analysts at LightShed Partners said in a note Tuesday. “Nobody is safe and the leverage will have permanently shifted to the distributor not because content is no longer king, but because too much content no longer requires the big video bundle and because the video bundle no longer is economically viable for distributors.”

Indeed, the pandemic-era boom that streaming services enjoyed is unlikely to return. Netflix Inc.
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recently introduced an ad-supported tier while cracking down on password sharing. Disney also announced higher prices last month.

“The collateral damage could be wide-ranging from sports leagues with rights coming up for renewal, local TV station affiliates seeking material step-ups and creative talent tied to the programming investments made by linear networks,” MoffettNathanson analysts Michael Nathanson and Craig Moffett said in a report Friday.

Cable TV system needed a reset

Billions of dollars and hours of must-see-TV time are at stake. The conflict boils down to two issues: How much the carrier will pay per channel, and what percentage of a distributor’s footprint will be required to have the channel in their package.

The showdown was inevitable, with murmurings the cable TV model was fundamentally broken and with programmers like Disney continuing to pursue direct-to-consumer options. For example, Disney has indicated it plans to take ESPN, its most valuable property in the pay-TV bundle, direct to consumers in the coming years.

The conflict “marks the beginning of the end of the media-carriage bundle extortion on [multichannel video programming distributor services], and does not bode well for other networks that are perceived to have far less clout than Disney,” Raymond James analyst Frank G. Louthan IV said in a note on Friday.

Oppenheimer analysts went so far as to deem the dispute a “tipping point” for legacy TV and a defining moment for Charter, the country’s second-largest cable TV provider with 14.7 million subscribers. Media providers like Disney are transitioning to over-the-top (OTT) TV — streaming content via the internet — but are still expecting cable providers such as Charter to keep paying the same amount for legacy TV, the analysts said.

“The linear TV business model is broken. The only thing that can save it somewhat longer term is by combining and bundling with OTT services,” the Oppenheimer analysts said.

The impasse has Disney executives urging Charter subscribers to ditch the cable giant for Hulu with Live TV, which offers EPSN, ABC, Disney+ and other channels. Disney owns two-thirds of Hulu.

“Disney deeply values its relationship with its viewers and is hopeful Charter is ready to have more conversations that will restore access to its content to Spectrum customers as quickly as possible,” Disney executives wrote in a blog post late Monday. “However, if you are one of these frustrated customers, it can be infuriating to not be able to access the content you want. Luckily, consumers have more choices today than ever before to immediately access the programming they want without a cable subscription.”

Charter has remained firm that it is prepared to abandon its video business.

“We’re on the edge of a precipice. We’re either moving forward with a new collaborative video model, or we’re moving on,” Charter CEO Chris Winfrey said on a conference call with Wall Street analysts Friday morning. “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.”