Charter, the second largest cable company in the United States, is involved in protracted carriage negotiations with Disney that have resulted in channels being blacked out, leaving millions of homes without the sports network ESPN at the start of the NFL season. Such blackout brinkmanship is not unusual in these negotiations, but it seems that this could be a turning point in subscriber relationships.

Charter Communications has offered what it presents as a sustainable model. Its chief executive has suggested that he is prepared to walk away from Disney if necessary. The company says: “We are either moving forward together with a collaborative business model, or we’re moving on.”

Charter, which provides cable television services to around 14 million subscribers under the Spectrum brand, has been losing traditional television customers to online video services for years, while companies like Disney have been using lucrative carriage fees to fund the launch of direct-to-consumer online services like Disney+.

Charter has lost 782,000 residential video subscribers in the last 12 months. Over the last five years, multichannel distributors have collectively lost 25 million subscribers in the United States.

Meanwhile, Charter has been gaining residential customers for internet access, with a total of 28.55 million producing revenue of over $22 billion a year. That is more than the $17 billion it receives for video, for which it pays programming costs of over $11 billion.

Companies like Disney have been moving programming from linear channels to direct-to-consumer subscription services and traditional audiences have been falling.

Disney has been talking about offering ESPN as a standalone online service but cannot afford to forego the revenue from being bundled in cable television subscriptions that contribute billions of dollars to sports rights holders.

Charter would like to offer online services bundled as part of its cable television package, but Disney is not keen. The whole point of going direct-to-consumer is essentially to bypass other distributors.

However, Disney+ has cost billions of dollars. It may eventually turn a profit, but it is questionable how far this will replace the revenue lost from traditional distributors.

“This is not a typical carriage dispute. It is significant for Charter, and we think it is even more significant for programmers and the broader video ecosystem,” Charter said in a statement.

“We have proposed a model to The Walt Disney Company that we believe creates better alignment for the industry and better products for customers. It is a model that could both stabilize linear video and create a clear growth path for direct-to-consumer video, with a more customer-friendly and financially attractive end-state for programmers.”

Charter says that renewing a traditional distribution deal in line with current offer from The Walt Disney Company would ignore the realities of today’s video business and accelerate its decline. It had expected to pay Disney more than $2.2 billion for the right to carry programming, not including the impact of advertising on either party. It has offered to pay this in exchange for flexibility in packaging programming, inclusion of advertising-supported apps with linear channels, and a commitment by Charter to market direct-to-consumer products to its customers that only take broadband.

Charter and Disney have both launched web sites to present their position to customers.

Charter says: “We offered Disney a fair deal, and yet they continue to demand an excessive increase.” It says Disney wants to limit its ability to provide greater choice in programming packages, meaning that customers may have to pay for channels they do not want.

Disney has responded saying that customers have choices, directing them to online services including Hulu+Live TV, in which it has a majority stake, and YouTube TV, or alternatively satellite providers DIRECTV and DISH or their online services.

Disney has also launched a deal for new subscribers to Disney+ at $1.99 a month for three months, compared to the normal price of $7.99 a month. A similar deal is available to subscribers in other countries, including the United Kingdom.

Disney has 146 million Disney+ subscribers worldwide, including 46 million in the United States and Canada. It has yet to turn a profit.

Disney DTC revenue 2023 Q2. Source: informitv / company reports

The direct-to-consumer division, which includes Disney+, ESPN+ and Hulu, reported a $512 million loss in its most recent quarter. The company has lost a total of $3.7 billion on direct-to-consumer services over twelve months.