The Disney-Spectrum blackout is actually a good thing–really

When ESPN and other Disney channels went dark on Spectrum last Thursday, it seemed at first like any other carriage dispute.

Turns out it’s the opposite. Instead of just bickering over carriage fees, Charter (which operates the Spectrum brand) wants Disney to help salvage the cable bundle by giving customers more flexibility and access to popular streaming services. Disney would rather keep things as they are, with higher pay TV prices to help cover its losses in streaming.

Loath as I am to side with a cable company, Charter is right. The cable bundle in its current form is a bad deal for customers and unsustainable for the TV business, and restructuring it would benefit everyone in the long run. If Disney disagrees, Charter should just let the whole thing come crashing down.

Spectrum vs. Disney: The backstory

Before we get into the meat of the carriage dispute, consider a few data points:

• Last year, pay TV providers lost 5.8 million subscribers across cable, satellite, and live TV streaming services.
• Charter alone lost 719,000 residential TV customers in 2022 and is on a similar pace for 2023.
• Disney, meanwhile, grew its total cable and broadcast channel revenue by 1 percent last year and turned an $8.5 billion profit on those channels, also up 1 percent from 2021.

How did Disney increase its TV revenues and profits despite record cord-cutting? Simple: It routinely seeks rate hikes from pay TV providers, who don’t have much leverage if they want popular Disney-owned channels such as ESPN and ABC. Those providers might briefly protest, but in the end they raise carriage fees and pass the costs onto customers (many of whom advocate for their own price hikes by yelling at the wrong side).

This is a pretty important strategy for Disney, which continues to bleed money on streaming services such as Disney+, Hulu, and ESPN+. Those services lost the company $4 billion in 2022, and Disney doesn’t expect to turn a profit on them until next year.

Disney, in other words, needs the money from cable while it seeks a path to profitable streaming, so it will continue to push for rate hikes even as the cable audience shrinks. Like other TV networks, it committed to this death spiral years ago.

Charter says “enough”

Charter has finally caught on to its role as a patsy in the streaming wars. In a conference call with analysts last Friday, the company said it’s finished with business as usual and talked up a new vision for TV bundling. As Reuters reports, Charter wants to offer more flexible Spectrum TV plans, including more options without sports, while also providing Disney’s streaming services at no extra charge to Spectrum internet customers.

Such demands might have been laughable a few years ago, but now Charter feels it has nothing to lose. Its TV business is in free fall either way, and cable TV is far less profitable than home internet service. If Charter can’t make a deal with Disney, executives said they’re prepared to walk away from the entire TV business. The company is even handing out two-month discounts on FuboTV for customers that don’t want to wait for a Disney deal (though plenty of other options are also available.)

Maybe that’s just bluster, but it’s not unprecedented. Other internet providers have also looked at the numbers and decided TV service is no longer worth offering. Frontier and WOW have instead partnered with YouTube TV for customers who want a cable replacement, while CenturyLink and Wilkes Communications have pushed customers toward DirecTV. Charter would be doing the same thing, but on a much larger scale.

Time to rethink TV bundles

All of which a makes this carriage dispute much more interesting than usual. As The Hollywood Reporter notes, most TV providers have contractual clauses that afford them the same carriage deals as their competitors. If Charter succeeds in breaking up its own bundles, it could reshape the entire pay TV business.

I say it’s about time. While I’m happy taking an a la carte approach to streaming, lots of folks still want traditional TV channels—particularly for news and sports—and there’s room for a more flexible bundle that combines broadcast and cable channels with popular streaming services.

Picture it: Instead of paying $73 per month for a bloated channel package such as YouTube TV—and then having to get a bunch of other streaming services on top—what if you could get a smaller number of cable channels along with services like Netflix and Disney+? Something like that could be immensely popular if the price was reasonable, and it seems to be what Spectrum is trying to put together.

TV networks have historically fought tooth and nail against this outcome, but they should realize that a shake-up is in their own interest. The TV bundle in its current form is collapsing, yet profits in streaming remain elusive. Sure, companies like Disney can just raise prices, but customers can respond by cancelling at will.

A better bundle with traditional channels and streaming services would make life easier for TV fans, make churn less of an issue for the streamers, and help stabilize the pay TV business. It needn’t come at the expense of a la carte options, but it’d beat the bloated cable bundles that customers are increasingly rejecting.

If Disney can’t see that, and Charter bails with 14 million TV customers in tow, at least it’ll be fun to see what happens next.

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