The epic battle between Disney and cable giant Charter that was supposed to bring chaos to both companies ended peacefully this week, just in time for the start of Monday Night Football on ABC and ESPN. The nightmare scenarios that some wags worried would push the already-crumbling linear ecosystem even further into the abyss didn’t come to pass: Most of Disney’s biggest channels will still be offered to Charter customers, Charter didn’t pull out of the video business, and Disney hasn’t been forced to devalue all of its streaming apps by giving them away to Charter customers. But the final pact still represents a fundamental shift in the relationship between program providers and program distributors — and one that could end up being a net positive for the many millions of consumers who still pay for linear TV.
By now, the details of the agreement have been widely reported, but if you’re not up to speed on what went down, Ryan Faughnder over at the Los Angeles Times’ Wide Shot newsletter wrote up a great summary of the particulars earlier in the week. I’d also suggest checking out Ben Thompson’s dissection of the winners and losers, in no small part because I agree with his take that this really was a win-win-win deal for Disney, Charter, and the folks out there in TV land who keep both companies funded with our ever-increasing subscription dollars. That’s because Charter finally got a big video provider like Disney to ’fess up and admit that, for the last five years or so, it’s been double-dipping by making people still in the cable ecosystem pay more to access less and less original content on linear TV, even as it stuck out its hand and demanded more dollars from audiences to watch the content they used to get on cable via its new streaming services. We saw this play out when Disney decided many (though not all) of the best shows made by FX would only be available on … Hulu. Anyone who wanted the full John Landgraf experience needed to pay twice.
This new agreement doesn’t totally solve this problem. While Charter customers will now get Disney+ and, in some cases, ESPN+ included with their monthly bills, Hulu — and those FX-on-Hulu shows — aren’t part of the deal (for now). But Charter chipped away at the wall that content companies have built between their linear and digital offerings, and it’s not hard to see a world in a few years where, when you sign up for a $100 cable package, you get access to all the major streamers that also have TV networks. And yet, while Disney didn’t immediately embrace this idea, it does have benefits for the company, as Thompson points out. Cable customers historically cancel service much more slowly than streaming viewers, in part because it’s such a pain in the butt to do so. Now, however, about 10 million Charter customers will become Disney+ subscribers by default, and they’re locked in for years. About 90 percent of them are expected to be new customers as well. And Disney isn’t giving Disney+ access to Charter for free: Charter will “pay” (though subscriber fees) for D+, but just at a much lower rate than what you or I would have to shell out. Despite all the drama, one source I spoke with suggested the overall money flowing to Disney through this deal won’t take a hit and could actually increase. (Disney and Charter don’t comment on such matters, and given the deep spin from both sides, it could be years before we know the real picture via quarterly reports.)
Don’t get me wrong: Disney didn’t get what it wanted, which was more money for the status quo. But Charter didn’t get its stated objective, either, to include all of Disney’s streaming apps in its bundles for no extra charge. Where customers could win is that this deal will make it easier for audiences to get access to cheaper bundles of streaming services through cable providers, while those who don’t want to subsidize sports (via ESPN) will be able to pay less for bundles that don’t include it. I’m sure eventually companies will find a way to make us all pay a lot more, but for now, this looks like some progress toward a more perfect streaming model.
One of the key players in making this deal happen was Dana Walden, who in February was promoted to co-chair (with Alan Bergman) of Disney Entertainment, making her one of Bob Iger’s chief lieutenants. I spoke with her briefly this week about some of the major elements of the agreement and what it means for the future of pay TV. Here’s an edited version of our conversation.
The day you announced the new agreement with Charter, you were quoted saying you didn’t consider this agreement a template for future deals. But other cable and virtual cable providers are obviously going to want to use this as a jumping-off point for renegotiations. And there are some things in here that might actually end up providing a benefit to Disney, like locking in a big number of new Disney+ subscribers for multiple years, albeit at a discounted rate.
Yes, we are supercharging Disney+ Basic — our ad tier — which is great for revenue, subscriber growth, and our advertising business. Additionally, having those subs locked in means there will be significantly less churn. I guess I reject the notion of a template because that seems rigid. What we are learning is that with our portfolio of channels and streaming services, we have the ability to be flexible and to come to the table in any negotiation with a variety of options for how we can find value. To say, “The model is now this” won’t hold true when we’re sitting across from a satellite provider or when we’re negotiating with a cable-only operator.
It is in our best interest to be flexible and experiment with various models. In our direct-to-consumer retail strategy, we use a mix of models: ad-supported tiers and premium tiers; you can buy a single Disney+ subscription, or bundle it with Hulu; we have wholesale arrangements. I’m just trying to demonstrate the value of exploring many models. But this is all new territory, and so what works for Charter may not be what works for our negotiation with the next distributor.
It does seem likely other providers will now want what Charter got, i.e., a way of including Disney+ and ESPN in their bundles, though.
Potentially, yes. I do anticipate that this deal will open new conversations. I just can’t commit to you that we’ll make this exact deal. If the value proposition is there, we’re prepared to discuss an exchange in value.
So this deal was negotiated against the backdrop of many industry observers writing off linear TV as a viable business, or questioning its future — including your boss. But this agreement shows that at least in the medium-term, you and Charter both see value in linear. What’s your take on where linear TV goes next?
There will always be an audience that is interested in live programming, local news, and national news, and those forms of programming are connected to broadcast networks and linear channels. And there is an audience that is interested in a lean-back experience, where shows and films can be eventized, the way Freeform programs for Halloween and Christmas. What happens to the full linear entertainment ecosystem? I think it’s really too soon to tell.
A big chunk of Charter subscribers will now get access to Disney+, and another group will also be given ESPN+. What about those folks who want Hulu? Will it be easy for them to upgrade?
Charter will be distributing all of our streaming services to their broadband subscribers on an à la carte basis. Then, when the combined app launches, for those select subscribers — the expanded basic Charter subscriber — when you are in Disney+ Basic, you’ll have the opportunity to add Hulu.
Okay, so if they’re using the Disney+ app, the one-app experience you’re planning will let you them unlock Hulu within the Disney+ app. And they’ll get the bundle discounted rate that you offer to all customers, even those who aren’t with Charter?
Correct. We’ve already announced this, but it’ll be more comparable [to Disney Duo]. We believe there’s a benefit to providing consumers opportunities to bundle our services — in this case Disney+ and Hulu — while also making it easier for them to access that content in a single destination.
When this deal was announced, there was a lot of attention paid to the fact that Freeform wasn’t going to be included in Charter’s slimmed-down packages. It’s the biggest network of yours being cut. Am I wrong to wonder about the future of that channel as a stand-alone service versus just a brand that sometimes shows up on Hulu?
Freeform still brings great value to many consumers. For the most part, the consumption of Freeform originals is happening disproportionately on Hulu. But its holiday programming blocks — “31 Nights of Halloween,” “25 Days of Christmas” — deliver strong and consistent audiences on Freeform during those windows. So it’s a very symbiotic relationship in our ecosystem with our streaming services. It just is about how people want to watch.