Disney and Charter Communications announced a “transformative” agreement on Monday, putting an end to a closely watched dispute over the future of cable TV with significant implications for the so-called streaming wars amid a historic double strike in Hollywood.
Charter had taken the unprecedented step of blacking out all Disney-owned channels for its cable customers, a previously unthinkable step considering the latter has one of the traditional Big Three broadcasting channels in ABC and the cable sports giant ESPN.
In the "wholesale agreement," Charter received its main request: free access to Disney’s streaming services for its customers. Charter cable customers will now have access to the ad-supported versions of Disney+ and ESPN+, according to the announcement. The financial terms of the agreement were not released.
Charter customers will also get free access to an upcoming direct-to-consumer version of ESPN, when it is released, one of the first indications that the much-speculated DTC version of ESPN is indeed in the works. No timeline was provided for the release of this new ESPN service.
Disney CEO Bob Iger and Charter CEO Chris Winfrey called the agreement “an innovative model for the future,” in a joint statement.
The deal between the two companies represents a concession from Disney, which for decades has been a dominant presence in cable TV, thanks to its flagship ESPN property. As linear television has declined amid a streaming arms race, sports emerged as one of the last predictable sources of ratings for live events, and ESPN has long commanded top dollar from cable subscribers (and providers including Charter), whether they watched it or not. Charter will now carry eight fewer Disney cable channels than it did in the past.
But with Disney moving much of its programming heft to its streaming unit, Disney+, as it battles Netflix for streaming superiority, and tentative sports streaming efforts with ESPN+, Charter had a message to Disney: Cut us in or we are prepared to do without you. The transformative nature of today’s agreement is that Disney actually said okay.
Disney recommits to linear TV
The deal between the two companies comes as questions around Disney’s cable business have swirled for months. Back in July, before the disagreement with Charter, Disney CEO Bob Iger said its cable holdings “may not be core” to the company. While that may eventually be true given the current trajectory of the business ever since the rise of streaming, cable television is still big business. A Citibank analyst note from last week estimated the failure to reach a deal might cost Disney between $1.1 billion and $2.3 billion, depending on how many of Charter’s customers left the cable company and resubscribed to either other providers that did carry its channels or directly to its streamers.
From the beginning, Charter seemed dead set on walking away from its $2.2 billion deal with Disney. Even revealing that number at the outset of the dispute was considered unusual, as it had previously been confidential. In late August, as their current contract was set to lapse, Charter held a dedicated investor call where Winfrey explained the rationale behind the company’s desire to overhaul its agreement with Disney. In a slide deck shared with investors, Charter said continuing with a traditional distribution agreement “ignores the realities of the changing marketplace and will simply accelerate the decline of video subscription and advertising revenue.”
At a Goldman Sachs–sponsored conference last week, Winfrey reiterated that Charter was willing to continue offering its cable subscription without Disney’s channels, such as ESPN, ABC, and National Geographic. “We had to say enough is enough, or else we’re gonna have to move on to a different model,” Winfrey said. At the time, he seemed unbothered about the prospect of not having live sports juggernaut and cable crown jewel ESPN. Charter was particularly concerned that Disney’s cable channels weren’t receiving as much funding or investment as its streamers were. According to Charter, Disney had placed some of its best content exclusively on its streamers, leaving cable with second-rate content. Doing so, according to Charter, was just further accelerating the demise of the already declining cable business.
Charter’s subscribers will also get access to the upcoming direct-to-consumer ESPN streamer. The presence of ESPN being made available to consumers outside of a traditional cable bundle had been much speculated about, including by Iger himself. On an earnings call in August, Iger said it was “not a matter of if, but when,” Disney would do so.
So the transformative nature of this deal is that it marks something of a compromise, or a truce in the streaming wars. Because Charter made clear to Disney that it was willing to walk away entirely from their partnership, Disney agreed to a hybrid cable and streaming bundle after all. The next step is to see what other cable TV providers start asking for.
