A contract dispute between Disney (DIS) and Charter (CHTR) continued on Tuesday after the media giant pulled its owned and operated channels including ESPN and ABC off Charter Spectrum cable systems late last week.
Disney urged Spectrum subscribers to opt for Hulu + Live TV to circumvent blackouts after viewers were unable to watch the US Open and a slew of high-profile college football games over the weekend through ESPN and its affiliate channels. In addition to ESPN, other Disney Entertainment channels affected include the Disney Channel, Freeform, National Geographic, and local news stations on the ABC network.
"Despite the ongoing dispute, consumers have many other choices—such as Hulu + Live TV—that allow them to enjoy the great programming for which Disney Entertainment is known," the company said in a blog post on Tuesday.
Disney added it "deeply values its relationship with its viewers" and is hopeful a resolution with Charter can be reached "as quickly as possible."
How we got here
The companies had reached a stalemate over whether Disney should give Charter subscribers free access to its ad-supported streaming services as part of Charter's cable package. Charter also alleged Disney has insisted on higher rates and limited flexibility for consumers.
"[Disney] wants to require customers to pay twice to get content apps with the linear video they have already paid for," the telecommunications giant said on Friday. "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."
In a fiery response Friday afternoon, Disney Entertainment said Charter refused to enter into a new agreement that reflects market-based terms, writing in part: "Contrary to their claims, we have offered Charter the most favorable terms on rates, distribution, packaging, advertising and more."
Carriage fee issues have mounted in recent years amid the steep declines in linear television viewership as more subscribers cut the cord and opt for streaming services.
According to the latest data from Nielsen released last month, linear TV viewership fell below 50% in July for the first time.
'Devastating impact' on traditional media
Analysts weighed in on the longer-term implications if Charter and Disney don't reach a deal.
"If this posture were to be extrapolated across all other major video distributors, we believe it would have a devastating impact on the profits and losses of the entire traditional media & entertainment group," Bank of America analyst Jessica Reif Ehrlich wrote on Tuesday.
"The result would lead to a significant decline in highly profitable linear subscribers that would be only partially recouped by likely fewer and less profitable direct-to-consumer subs," she continued. That would amplify longer-term leverage concerns for media companies like Paramount Global (PARA), Warner Bros. Discovery (WBD), and Fox (FOX), which carry significant debt loads.
Wells Fargo analyst Steve Cahall said last week that Charter's dispute with Disney represents "a line in the sand intended to change the norms of network distribution."
It's a high-stakes battle for both sides. Cahall estimated Charter would lose about 1.8 million subscribers in the case of a permanent blackout of Disney's channels. That suggests a hit of approximately $3.7 billion in Charter's annualized revenue, or roughly 7% of consensus full-year 2024 revenue.
Cahall said costs would primarily be offset by declining programing expenses, adding, "[We] actually see this as a far bigger deal for media than Charter. We estimate just 5% of CHTR's EBITDA is video, while plenty of media/broadcast stocks get nearly 100% of EBITDA from linear networks/stations."
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at [email protected].
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