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Disney, Charter carriage dispute triggers US media stocks tumble

A carriage dispute between Disney and telecoms giant Charter Communications in the US has raised existential questions for the pay TV business model and prompted several media stocks to tumble on Friday.

Christopher Winfrey

The disagreement first came to light on Thursday night as Disney pulled its channels from Charter’s Spectrum service, including sports network ESPN and broadcaster ABC.

Spectrum serves 14.7 million customers in markets including LA and New York. The Disney-owned channels have gone dark just ahead of the start of the NFL season next weekend and at the halfway point of the US Open tennis tournament.

In place of regular programming, a message from Charter read: “We offered Disney a fair deal, yet they are demanding an excessive increase.

“The rising cost of programming is the single greatest factor in higher cable TV prices and we are fighting to hold the line on programming rates imposed on us by companies like Disney.”

Publicly traded Charter held a conference call on Friday morning with Wall Street analysts to explain its side of the story, with CEO Christopher Winfrey claiming that Disney had been unwilling to discuss new models and only sought to push for rate increases.

According to Charter, it pays around US$2.2bn in annual programming costs to Disney (excluding the impact of advertising revenue for both parties), despite the fact cable viewership is declining, and only 25% of its video subscribers “regularly engage” with Disney or ESPN content.

Simply renewing its carriage agreement with Disney for increased costs and with limited packaging flexibility “ignores the realities of the changing marketplace and will simply accelerate the decline of video subscription and advertising revenue,” said Charter.

It argued that programmers and distributors need to work together to establish a new model that makes economic sense for both sides and creates value for the customer so that they are not forced to pay for channels they don’t watch.

“Both companies need a glidepath to a new model – a shared vision, a good economic outcome and flexibility for consumers,” it said.

If it cannot find a new model, Charter claimed it was willing to walk away from the linear video model altogether, saying it had “already reached the point of economic indifference with the current model.”

Disney countered on Friday that it offered “favourable terms” and suggested “creative ways” to resolve the impasse. “Contrary to their claims, we have offered Charter the most favourable terms on rates, distribution, packaging, advertising and more,” it said.

Disney also said that it had proposed to extend negotiations so that it would not be forced to remove its networks from Spectrum, but Charter declined.

Disney’s stock was down 2.3% on Friday to US$81.78, while Charter shares fell 3.6% to US$422 per share.

News of the dispute caused a significant hit to other network-owning studio groups, with Warner Bros Discovery’s share price dropping by 12% to US$11.56 per share and Paramount Global’s stock price falling 9.5% to US$13.65 per share. NBCUniversal owner Comcast saw its share price dip 2.2% to US$45.73 per share.

“We’re on the edge of a precipice,” said Winfrey. “We’re either moving forward with a new collaborative video model, or we’re moving on.

“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.”

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