(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
Recently, I’ve tried to tamp down the hyperbole in my headlines. As the editor of my own articles, if my headlines are deliberately incendiary, I can’t say, “Hey, don’t blame me, I don’t write the headlines!” because I do!
Partly this is a reaction to what I’m reading. I’ve noticed a lot of pretty egregious headline “inflation” over the last decade if you will. But instead of costs rising, it’s the tone/exaggeration/extremeness/hyperbole. Instead of a headline saying, “Cable bundles continue to decline year-over-year”, we get words like “death”, “fall off a cliff”, and “precipitous”. And sometimes worse. (Here’s the obligatory “You Can blame social media” footnote.)
The big story of the last few weeks—Charter blacking out Disney’s channels in their recent carriage negotiation—fits this mold perfectly. Since Charter dropped Disney’s channels, the headlines over the negotiation verged on extreme. They made it seem like the entire entertainment ecosystem hinged on this one negotiation; however it turned out, it would be bad, bad, bad. Doom comes for us all.
And yet, because of my publishing cycle—I try to alternate my “most important” story column with my bi-weekly Ankler columns—I haven’t written about the Charter-Disney showdown yet, which started 31-Aug and ended less than two weeks later on 11-Sep (just in time for the first Monday Night Football game). While it seemed like a battle that could last as long as the WGA strike, here we are with a deal that’s pretty fair for both sides, after just a scant two weeks.
The lesson? Sometimes waiting a bit provides us much better perspective than rushing to conclusions (and predictions). And the hyperbolic headlines—designed to go viral on social media—may not help either. (The US Army uses the euphemism “tactical pause” for waiting, and in this case I’m glad I took a tactical pause before opining.)
The only downside, if I’m being real, is that that virality does matter. It does attract new readers, even if I don’t think it helps in the near term. So if you appreciate this newsletter, which takes a measured pace of the news and tries to avoid exaggerated headlines, please subscribe. (I’d add, if you’re a major company that pays for one subscription and shares it with dozens of employees—while cracking down on password sharing yourself, haha—consider signing up for a few extra subscriptions to pay your way. I’ll appreciate it.)
Most Important Story of the Week – Charter versus Disney
A few weeks back, as a hurricane bore down on Los Angeles, I flipped on KTLA—Los Angeles’ CW station, now owned by Nexstar Media Group—to get latest storm updates. And sure enough, the channel was blacked out due to a carriage dispute with DirecTV/AT&T Uverse that generated very little news coverage. So I wrote myself a note to cover that topic in a future column. (Fun fact: that carriage dispute ended on Sunday!)
It turns out carriage disputes are on an upswing, after a two-year, likely-pandemic-related pause:
Into this environment stepped the biggest carriage dispute in recent times: Charter dropping Disney’s big name channels, like ESPN and Disney Channel. Of course, the Charter-Disney carriage dispute matters a lot more than Nexstar broadcast stations. Charter serves 15 million households in a few huge markets, and ESPN is the most in-demand cable channel. As many others noted, a lot of the terms in this negotiation will serve as a template for future renewal negotiations between cable channel owners and MVPDs negotiations. (And maybe virtual MVPDs too)
After Charter and Disney announced their deal, they went from one minute at each other’s throats to each calling it a great deal. They tried to sell this as a win-win. Others pointed out that with the decline of cable, it might actually be a deal that hurts both.
So let’s try to figure out where we are on the “Who Won?” spectrum.
Deal Terms
Let’s run down the deal terms first, partly because I like to keep things straight in my head, and partly because with the pace of news coverage we can lose sight of what actually happened here.
Charter gets…
- The right to keep distributing ESPN, Disney Channel and other cable channels.
- The ability to drop smaller cable channels like Freeform, DisneyXD, Disney Junior, FXM, FXX and some other NatGeo channels.
- The ability to distribute Disney+, ESPN+ and future ESPN direct-to-consumer offerings to its customers while paying “retail” prices.
Disney gets…
- Increased cable fees for ESPN, Disney Channel, NatGeo and FX.
- Additional subscribers for Disney+ and ESPN+ ad-tiers.
- Continued $2 billion in programming payments from Charter.
- Additional marketing from Charter for Disney streaming services.
The Case for a Win/Win
At the start of the showdown, I really couldn’t fathom how Charter could walk away from their linear TV business entirely. That was just too much revenue to lose. I couldn’t see how Disney could let $2 billion in revenue go either. Of course, Charter had a really good reason to make a stand here: it doesn’t make much sense for Disney to demand increased fees as the cable bundle keeps shrinking.
Meanwhile, all the best (non-sports) content was getting made by and for streaming…a business they don’t participate in! And is actively hurting their cable TV business!
The case that this deal is a “win-win” is that both sides basically made a deal that allows them to declare victory. Disney keeps most of its revenue, but Charter gets to distribute some streaming content. Comcast has been leading the way as a “bundler”, selling subscriptions to other streamers, and Charter’s move here seems like a move in that direction too. This also helps pave the way for Charter to stop “double paying” for content at some point if they’re distributing Disney+. (Some of the shows that air on Disney Channel, for example, go right to Disney+. So in a way customers pay for them twice.)
Disney, meanwhile, got a lot of things it probably wanted. Having cable distributors sell Disney streaming services is a smart play—it could immediately boost Disney+ subscribers—but if Disney had given that without this blackout, I could see Wall Street seeing that as an admission that subscriber growth had stalled. Not to mention, Disney can now use Charter’s built-in audience to sell their ESPN direct-to-consumer option whenever that truly launches. That feels like guaranteed subscribers. Plus, you know, the money.
But…
The Case for a Lose/Lose
One term I’ve noticed bandied about recently is that cable is a “bad” business, and whenever we use “bad”, it’s always important to define what “bad” actually means. Because, you know, as of 2010, cable was a TERRIFIC business. What changed? Well, cord-cutting is shrinking the business, and yes, industries that are shrinking are “bad”.
Indeed, the case for this deal being a “lose-lose” hinges on the decline of the cable bundle. If the cable bundle keeps striking or starts shrinking faster, then this deal is just rearranging chairs on the Death Star. As I pointed out last week in The Ankler, yes, cord-cutting does look to be up in 2023:
Axios had another great visualization of this in their Charter-Disney coverage, and I love to shout out great visualizations:
In other words, if this deal accelerates cord-cutting, then the money I just talked about that Disney gets from Charter may disappear too fast to make up for the move to streaming. Not to mention, from Charter’s perspective, while broadband distribution is their future, losing cable TV revenue is no small thing either.
So really, the question is…
Key Question: Will This Deal Accelerate Cord Cutting?
The rest of this article is for paid subscribers of the Entertainment Strategy Guy, so
- My prediction on if this deal will accelerate cord-cutting or not…
- A check-in on the 2023 theatrical domestic box office forecasts bouncing all around…
- A quick take on CAA’s new owner…
- A quick take on the Disney/Comcast/Hulu decision to negotiate early…
- Why I don’t think we’ll ever get updates on Ryan Murphy’s new deal with Disney…
- And more…
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