Disney vs Charter: a dispute that leaves future of cable TV in doubt

Christopher Winfrey is a veteran of US cable television, a business that over the last four decades has created some of the entertainment industry’s most colourful billionaires and biggest companies. 

But this week Winfrey, chief executive of Charter Communications, has openly discussed abandoning the traditional cable TV model in favour of a smaller business capable of surviving the streaming era. 

“My entire career has been in cable,” he told a Goldman Sachs conference on Thursday. “I can’t say that’s what I’m necessarily chasing. But if it’s in the best interests of Charter shareholders and the best interest of our consumers, you know, that’s certainly where we’re going to go.” 

The prompt for Winfrey’s soul-searching is a high-profile dispute with Walt Disney, which at the end of August pulled its TV channels from Connecticut-based Charter’s cable services after the two failed to agree a new contract.

The impasse has left about 15mn US households without access to Disney channels, including sports network ESPN. Outraged Charter customers have been unable to watch the US Open, college football games or the start of the National Football League season. 

Such disputes — typically over the fees that cable companies pay to carry programming — are not uncommon, but analysts say this one is different. “This is not a typical blackout,” said analysts at MoffettNathanson, a research group. “Charter seems genuinely willing to walk away from Disney, and even the entire [traditional TV] model, if necessary.”

Like other US cable companies, Charter has been losing TV customers to streaming services for several years — a damaging trend at the centre of its stand-off with Disney.

Winfrey has accused Disney of using the transmission fees paid by cable companies such as Charter to fund the very streaming services that threaten their business models. “Is that really fair and is that sustainable?” he asked on Thursday. 

Bob Iger, Disney’s chief executive, said this year that even ESPN — for decades the company’s profit engine — will become a standalone streaming service at some point. “It’s not long-term but it’s not tomorrow either,” he said in July.

Disney has also reportedly talked to Amazon and Verizon about partnerships in a revamped ESPN, which is under financial pressure from the increasing cost of broadcasting live sports. This year Disney is expected to pay $10.8bn for the right to air a series of sports, including college sports as well as the NFL, the NBA and tennis. 

Sports, along with news, remain core to the traditional TV package that cable companies rely on. Taking ESPN directly to consumers would be a blow to cable companies such as Charter. Winfrey also believes it is a bad strategy for the likes of Disney, which still make money from cable while many streaming services remain unprofitable.

“The idea that you could solve for [streaming] profitability, which doesn’t exist today, by letting your [traditional TV] programming burn to the ground, which is where all your cash flow comes from . . . that’s not a good outcome,” he said.

Charter wants any future ESPN streaming service to be offered for free to its cable subscribers, an idea that Disney has rebuffed, analysts say. It has made a similar plea for other Disney streaming services, including Disney+, to be offered to its cable customers.

Disney does not expect its streaming business to become profitable until 2024. Some rival streamers, including Paramount Plus and NBCUniversal’s Peacock, are also lossmaking. And even when these streamers do turn a profit, analysts are sceptical they will ever make the kind of money generated in the heyday of the cable era.

“Streaming will soon be a profitable business, but it will never be as insanely profitable as the cable business was,” says Alan Wolk, co-founder and lead analyst at TVRev, a research firm. “They were getting tens of billions in carriage and retransmission fees, and there is no way to recreate that” in the streaming era. 

It is not clear how much longer the Disney-Charter tussle will last. Winfrey said he has a “sense of urgency” to resolve the dispute but could not predict when it would end. Disney said that it “stands ready to resolve this dispute and do what’s in the best interest of Charter’s customers”.

Pressure is mounting on Charter and Disney to reach a resolution. North Carolina governor Roy Cooper issued a scathing letter to the heads of both companies this week, saying that his constituents were “frustrated and angry that their football viewing holiday weekend was ruined” because of the blackout. 

Two of the state’s flagship public universities, the University of North Carolina and North Carolina State, belong to a regional league whose games are among those now unavailable to Charter subscribers. 

“Fans are obviously willing to pay their fair share, yet they are concerned about the fight over corporate profits threatening valued traditions like the return of football season,” Cooper added.

The blackout has caused frustration at the US Open in New York, where the dispute left players unable to follow matches on television as the tournament headed into its second week. ESPN executives were forced to distribute private logins to a Walt Disney app to some players and journalists so they could watch the games.

For Coco Gauff, the US teenager who advanced to the women’s finals this weekend, the blackout meant missing one of the defining upsets of the tournament, Jelena Ostapenko’s defeat of number-one ranked Iga Świątek on Sunday. Gauff was scheduled to play the winner in the quarterfinals.

“I was shocked, to be honest, because, well . . . we can’t watch ESPN in our hotel”, Gauff said.