Addressing Thursday night’s carriage impasse with Disney, Charter Communications executives told Wall Street investors on a conference call today that their linear video business is “at the edge of a precipice.”
Charter CEO Chris Winfrey said any resolution to the outage, which left almost 15 million customers in the dark at the start of football season, would need to happen quickly. Otherwise, he said, Charter will look to preserve broadband relationships with customers who drop video service, with them likely cutting or shaving the pay-TV cord. That would mean that “the likelihood that we’re going to be willing to foist those high costs on average and even lesser-viewed populations of Disney content goes down” over time, he said. “And so, our likelihood of being willing to do a deal decreases over time as those downgrades to video occur. And our likelihood of heading into a ‘moving on’ scenario with a completely different video product structure goes up significantly.”
Winfrey, who succeeded cable industry stalwart Tom Rutledge as CEO last December, said it’s the largest swath of programming to go dark on Spectrum since he joined Charter as CFO in 2010. In all, 18 networks as well as eight ABC stations are now unavailable on Spectrum, which is the No. 2 cable operator in the U.S. with 14.7 million customers. The outage is coinciding with the start of college football and soon the NFL season, two of the few bright spots in an otherwise bleak pay-TV landscape. Charter estimated that it pays $2.2 billion a year to Disney to license its programming. It has not yet determined how it will offer credits to customers affected by the dispute.
Starting the call with a lengthy presentation supported by a slide deck (title: “The Future of Multichannel Video: Moving Forward, Or Moving On”), Charter described an industrywide 25% drop in subscriber losses over the past five years. The decline has left all stakeholders in the bundle at a “crossroads,” the company said.
Given that urgency, Charter President of Product and Technology Rich DiGeronimo said the company had proposed a “hybrid” model to Disney, one that would combine streaming and linear service. (Execs declined to address any financial terms.) Disney has separately been taking steps toward offering a stand-alone streaming version of ESPN outside of the pay-TV bundle, putting out a call for outside investment and distribution partners to help make that happen.
Instead of buying into the “transformative partnership we offered,” DiGeronimo said, Disney “reverted to the tired playbook, trying to squeeze every last dollar out of the linear customer, with no regard to the going concern of their video cash flow engine.”
DiGeronimo said another point of irritation has been the way Disney has increasingly blurred the line between what it offers on linear networks and streaming services Hulu and Disney+. Asked if the company’s stance on Disney is a preview of how Charter plans to deal with other renewals with the likes of Fox, Paramount, NBCUniversal and others in the coming quarters, Winfrey quickly replied, “Yes.”
“We’re at the edge of a precipice that Disney itself predicted,” CFO Jessica Fischer, perhaps alluding to comments from Disney CEO Bob Iger before he returned to the company’s executive suite last fall. Iger earlier this summer declared that linear networks “may not be core” to the company.