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"dalek" writes:

Minutes before the Florida-Utah college football game on August 31, Disney pulled their channels from Charter Spectrum's lineup [usatoday.com] over a carriage fee dispute. Disney's timing was intentional in blacking out their channels right before the start of football season, expecting fans would be angry that networks like ESPN were unavailable, and would pressure Charter into agreeing to higher fees. Although carriage fee disputes are quite common, this one seemed different, especially when Charter CEO Christopher Winfrey promptly scheduled a conference call with investors [nytimes.com] and permanently discontinue carrying Disney-owned networks [cincinnati.com].

Winfrey said that the current business model of pay TV is "broken" [cnbc.com], insisting that any resolution to the blackout address what Charter saw as more fundamental issues. ESPN receives the highest subscriber fees of any channel by a wide margin, and hoping to address the rising costs of cable, Charter indicated it would begin offering a cheaper option for TV without sports channels [sportsbusinessjournal.com]. Charter also objected that streaming platforms are not yet profitable, saying that higher subscriber fees were subsidizing the cost of developing streaming services [reuters.com], but those streaming services contained premium programming that wasn't available with a cable subscription [latimes.com]. In other words, Charter said it was unfair for cable subscribers to pay the costs for Hulu and Disney+ without getting access to the programming on those services.

Subscriber fees for networks like ESPN are particularly high because of multi-billion dollar contracts they've entered into with sports leagues [forbes.com] with the expectation that revenue from subscriber fees would continue to increase. Although it doesn't directly involve Disney, the bankruptcy of Diamond Sports Group [forbes.com] and its impact on sports like baseball [yahoo.com] show the failures of this business model. In 2015, the St. Louis Cardinals signed a 22-year contract worth over a billion dollars for Fox Sports Midwest to broadcast most of their games [forbes.com]. When many Fox properties were purchased by Disney, their regional sports networks were auctioned off to Sinclair to satisfy antitrust regulators [justice.gov]. Contracts like the $1 billion agreement with the Cardinals were negotiated on the basis that these networks would bring in enough subscriber fee and advertising revenue to remain profitable.

As cord-cutting accelerated, revenue for regional sports networks rapidly dried up [forbes.com], increasing costs for their remaining subscribers and driving the networks into bankruptcy. Contracts like the $1 billion agreement with the Cardinals may be terminated early [ksdk.com], and Diamond Sports Group is in an even more precarious situation [espn.com] in their efforts emerge from bankruptcy now that Comcast has dropped their channels [espn.com]. The situation isn't as dire for networks like ESPN, but declining revenue has already led to several rounds of major layoffs [forbes.com]. Charter was also concerned by Disney's plans to offer ESPN direct-to-consumers [forbes.com] instead of as part of a larger cable subscription, insisting that content providers and distributors need to collaborate for the business model to be viable [nytimes.com].

Charter and Disney ended their dispute on September 11, agreeing that streaming services like Disney+, Hulu, and ESPN+ would be made available to some Spectrum subscribers [latimes.com] and that ESPN's direct-to-consumer channels could also be purchased as an add-on. Disney couldn't afford to permanently lose the estimated $4 billion in revenue from Charter's TV subscribers [fortune.com], especially since they are already on the hook for lengthy and very expensive contracts to carry live sports. However, some Disney-owned channels like Freeform were permanently removed from Charter's lineup, which was notable because content providers often insist that distributors like Charter agree to carry all of their channels. Although this didn't resolve many of the underlying issues like the lack of profitability of streaming platforms, the decline of cable TV, or the massive contracts for the rights to carry sports, it set a precedent of bundling streaming services with cable TV packages. A recent article on SN discussed Comcast bundling streaming services with its cable offering [arstechnica.com], and the reason for this is the precedent set during the dispute between Charter and Disney last year.

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