Analysis: Disney, Charter deal reshapes media landscape -executives

Liberty Broadband

14/09/2023 20:37

By Dawn Chmielewski
       Sept 14 (Reuters) - Thirty-one years ago, cable TV
pioneer John Malone predicted customers would have as many as
500 channels in their living rooms.
    Charter, the cable company in which Malone’s Liberty
Broadband  LBRDA.O  is a major investor, began downscaling that
vision this week.
The agreement on Monday to settle an epic battle between Walt
Disney  DIS.N  and Charter Communications  CHTR.O  over
distribution rights is ushering the end of the lucrative,
decades-old pay-television bundle and creating a template for
future deals that includes streaming services, nine current and
former senior media executives who have worked on these
agreements told Reuters this week.
The Disney/Charter pact gave the nation’s second-largest cable
company by subscribers the rights to distribute streaming video
services that were formed as a hedge against the end of the
traditional cable TV business. Disney also agreed to drop eight
of its less-viewed networks, signaling the end of bloated cable
TV bundles.
    Analysts say this will save customers money so they do not
have to separately pay for the same content on cable and
streaming services.
    “The media companies were blatantly double-dipping,” said
MoffettNathanson cable industry analyst Craig Moffett. “Going
forward, you’re not going to be able to simultaneously charge
the same customer twice for the same content.”
     
    THE NEXT EVOLUTION OF CABLE TV
    A 1992 U.S. law requiring cable TV distributors carry local
broadcast signals supercharged the television industry.
Broadcasters could negotiate fees that included adding new cable
TV channels.
    Cable TV evolved from its earliest days of delivering
broadcast signals to rural residents into a bustling mall for
programming with about 225 cable networks in the U.S. today,
according to S&P Global Market Intelligence.
But cable subscribers started dropping off as internet video
streaming services like those Netflix launched gained
popularity. Pay TV households dropped from 95.9 million in 2012
to 72 million today, according to Leichtman Research Group. That
precipitous decline has set the stage for contentious
re-negotiations of these deals.
    Cable distributors like Charter accused big media companies
of putting some of their best shows on subscription streaming
video services like Disney+ and Paramount+, and using cable fees
to subsidize the cost of creating this exclusive programming.
Frustrated by paying media companies higher fees for less,
Charter proposed a new type of cable TV bundle that combines
Disney’s most popular cable TV channels, such as ESPN and FX,
with access to ad-supported versions of its streaming services,
Disney+ and ESPN+, which certain Charter’s Spectrum customers
will receive for free. Spectrum’s customers will also receive
ESPN when the sports network begins offering its flagship
channel as a streaming service.
    The new type of bundle deal combining traditional channels
with streaming services provides a way forward for the media
business. LightShed media analyst Rich Greenfield estimated
Charter will pay Disney a wholesale rate of $3 a month, per
subscriber, to give 9.5 million of Charter's Signature Select
customers access to Disney+ at no additional cost to the
consumer. That potentially enhances the streaming service’s
value to advertisers, even as the cable company ensures its
subscribers can watch content created for streaming.
    “The end result is a more expensive bundle, but a more
valuable multichannel video package,” wrote Greenfield.
    Pity the cable TV channels that few people watch, said one
TV station group executive. The owners of these channels “are
probably having a lot of heartburn,” as they anticipate “those
will get chucked overboard” in the next round of negotiations.
    “We’re at an interesting inflection point where the
traditional bundle is falling apart and the question is, what’s
going to replace it?” said Jonathan Miller, a veteran media
executive and chief executive officer of Integrated Media Co., a
special purpose media investment company. “It’s pretty clear
that only the largest networks will survive as part of bundles.”
    Warner Bros Discovery, for example, operates 30 general
entertainment, lifestyle and news networks in the U.S.,
including the American Heroes Channel and the Science channel.
Paramount Global has created numerous spin-offs of its main
cable channels, with Nickelodeon siring five programming
offspring, Nick Jr., Nick at Nite, TeenNick, Nicktoons and Nick
Music.
    As these companies enter into renewal talks in the coming
months and years, the new deal template could give media owners
an excuse to drop losers in the lineup, executives said.
    “All these dogs and cats networks take a certain amount of
capacity on the physical plant,” said Moffett. “Most operators
at this point would say that capacity is far better allocated to
higher broadband speeds rather than filler video.”

(Reporting by Dawn Chmielewski in Los Angeles; Editing by
Kenneth Li in New York and Josie Kao)
((mailto:Dawn.Chmielewski@thomsonreuters.com;))