How the Disney-Charter Deal Changes Everything — and Nothing

Disney and Charter Communications managed to pull back from the brink this week, after a standoff with world-shaking implications for streaming and cables coexistence in the current media landscape.

The two companies resolved a dispute that saw Charter threatening to exit the video business altogether, which could have ignited a wave of cable providers pushing back against not just Disney but all of the legacy media studios attempting to use linear TV content to improve their fortunes in streaming.

But heres the thing: It still might ignite such a wave. Charter just proved cable providers have significant leverage, if theyre willing to use it, over the studios even amid cables precipitous decline.

Disney and its peers are still heavily dependent on affiliate fees and other revenues from their linear networks to fund their (mis)adventures in streaming. Indeed, linear TV dollars will make up nearly a third of Disneys fiscal 2023 revenues, and almost half of Warner Bros. Discoverys, according to a MoffettNathanson analysis.

No wonder, then, that Charter walked away from the Disney standoff with multiple major wins. For one, the distributors Spectrum cable service will no longer be required to carry several of Disneys linear networks, which should save the company millions in affiliate fees each year, even with the cost of Disneys other networks rising.

Furthermore, Spectrum will now be able to offer a range of video packages at varying price points based upon different customer viewing preferences, which is to say a form of the increased cable-package flexibility providers and consumers have wanted for years. Presumably, non-sports fans will no longer be forced to pay for ESPN, for instance.

Finally, and most significantly, certain Spectrum TV packages will now include Disney SVOD services, namely the ad-supported version of Disney+, ESPN+ and the forthcoming direct-to-consumer ESPN offering.

For now, this arrangement gives Charter an advantage over its competitors. But it also sets a precedent for all providers future negotiations with studios, setting the stage for battles over cables relationship with streaming.

After all, this deal really hasnt changed the fundamental dynamics of that relationship. On one side are studios that need those affiliate fees to help fund their cash-strapped streaming business; on the other are providers being squeezed on both sides by the studios pivot to streaming and relentless consumer cord-cutting. Not exactly a recipe for peaceful symbiosis.

Meanwhile, the legacy media companies are only accelerating the migration of their cable assets to streaming. Disneys DTC ESPN offering is still a ways down the road, but Warner Bros. Discovery will bring a choice slate of linear CNN content to its SVOD, Max, this very month.

Its possible another carrier blowup could happen over CNN Max, as WBD is dubbing the offering. Pay TV operators likely wont appreciate the company using one of its prime cable offerings to boost its streamer, particularly if WBD tries to demand higher affiliate fees in the next round of negotiations.

Perhaps the solution will be as simple as each studio striking similar carriage deals for its SVODs, but this is, paradoxically, a huge game-changer in the way studios and cable providers do business that likely wont significantly alter the long-term trends at play.

Disneys arrangement with Charter will certainly benefit the Mouse House as well; selling Disney+ through Charters distribution network will bring in some incremental, likely low-churn, subscribers and accordant ad revenue. But it will come with a trade-off of lower subscription revenue from these users and cannibalize some number of Spectrum customers who will likely cancel their direct Disney+ subscriptions.

In other words, this is another potential incremental-revenue tool in streamers toolbelts but not the long-awaited solution to their profitability problems.

Meanwhile, bundling cable with SVODs isnt likely to reverse the tide of cord-cutting, particularly as more and more core linear TV content, including sports, becomes increasingly available on streaming. (Live sports coverage is also reportedly set to debut on Max imminently and for no additional cost to subscribers at first.)

How the Disney-Charter Deal Avoids the ESPN Problem

Indeed, top linear TV content such as news and sports seems to be the studios best bet to fuel further growth for their SVOD services. The ability to offer such content is one of the legacy companies few competitive advantages over Netflix in the streaming wars, particularly as they pull back on scripted TV spending and grapple with the ongoing strikes.

Through its Disney deal, Charter has found a way to make that dynamic work in its favor as well, or at least even out the balance of power. Still, despite everything this undoubtedly historic pact changes, in the big picture theres just as much it hasnt changed at all.