No ESPN On Spectrum? Disney Beef Escalates As Thousands Lose Access To Channels

Key takeaways

• Charter Communications has pulled all Disney channels in an ongoing dispute
• The issue is over Charter wanting to give Disney’s ad-supported streaming services for free in its package
• Both stocks suffered losses during Monday trading as a result

Charter Communications customers, you’ll need to find somewhere else to watch your college football and tennis. The company is beefing big time with Disney over a distribution agreement where cable and streaming services collide head-on, with no end in sight for a deal to be reached.

The dispute comes as Disney already faces growing headaches from the writers and actors strike, investor and shareholder questions over a mixed bag of quarterly financials and declining share prices. Can the House of Mouse become the happiest place on Earth again? Let’s get into the details.

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What’s happening with Disney and Charter Communications?

Charter Communications has had enough of the Disney disagreement and has cut access to its Charter Spectrum cable package, including Disney-owned channels like ESPN, ABC and others, since Thursday last week. Around 15 million customers are thought to be affected by the blackout.

What’s the issue, exactly? Distribution – sort of. These types of snags happen between distributors and media companies all the time, usually about pricing, but this time it’s different. Charter Communications had agreed to Disney’s terms, but the issue is over Charter insisting the deal offers ad-supported versions of Disney’s streaming services, including Disney+, ESPN+ and Hulu, for free as part of the package. Disney declined.

Now the disagreement has reached a stalemate, with Charter’s customers missing out on not only the upcoming college football season and the U.S. Open, but also the cable networks FX, the Disney Channel, National Geographic and more.

Charter said it wasn’t up for paying for Disney’s traditional channels without having access to the streaming services, where it argues all of the best content now lives, as well. Disney said it’s tried to reopen negotiations with Charter, but the distributor refused. Charter was expected to pay around $2.2 billion to carry Disney networks this year.

Disney sent out a cheeky reminder in a blog post and on its social media channels that Charter’s customers could switch to Hulu + Live TV service, where subscribers could access ESPN and much more. Disney owns a majority stake in Hulu. “There’s no contract, no cable box, and no wait time to subscribe,” Disney said in the blog post.

Disney’s stance on the Hollywood strikes

The House of Mouse is fighting a war on multiple fronts as the Writers Guild and Screen Actors Guild strikes hit the four-month mark. As Hollywood grinds to a halt, with many major movies and TV shows delayed for years or canceled, the strike revolves around higher pay and limits on the use of AI in Hollywood to protect jobs.

There are no signs of wavering from the unions. The SAG-AFTRA union intends to hold a strike authorization vote against the video game industry, which would impact major video game studios like Electronic Arts, Epic Games and Warner Bros Games after their agreements with SAG-AFTRA expired last year.

Disney CEO Bob Iger already drew ire from the strikers in July when he remarked the unions “are not being realistic” with their demands and that they must “be realistic about the business environment, and what this business can deliver” after the pandemic. According to Moody’s
MCO
, the estimated cost of ending the strikes for the big studios is between $450 million and $600 million.

Not only has Disney had the ongoing Hollywood strikes to contend with, but its Disneyland Paris workers have also organized protests this summer over better pay and working conditions. After striking earlier this year, Orlando’s Walt Disney
DIS

DIS
World workers have already secured higher wages.

What were Disney’s latest earnings like?

A mixed bag of earnings reflects the ongoing maelstrom of transitioning to streaming, striking workers and share price worries. In August, Disney’s fiscal third quarter revealed continued subscriber losses, with a 7.4% decline from the quarter before to 146.1 million Disney+ subscribers.

Earnings per share arrived at $1.03, which was higher than analysts had expected, but revenue fell short of forecasts at $22.33 billion versus the $22.5 predicted. The company also recorded a rare quarterly net loss after Disney had a $2.65 billion impairment charge related to removing content from its streaming platforms and ending some third-party agreements.

The Disney parks were the quarterly report’s saving grace, with a 13% increase in revenue to $8.3 billion recorded. Domestic park performances, such as Walt Disney World in Orlando, saw a slowdown in attendance and hotel booking, but this was more than made up for by international parks’ attendance.

What was the market reaction?

The dispute with Charter Communications has hurt Disney’s stock, with the share price opening 2.7% lower on Monday before slightly recovering to close 2.44% lower. Disney’s share price has lost 8.2% since the start of the year as financial woes and several ongoing disputes have battered the stock. Trading at $81.64, Disney stock is now at its lowest price in a decade.

It’s a risky dispute for Charter, too. The company says it’s lost around 10% of customers in the last five years since the rise of streaming services, with a quarter of its customer base regularly engaging with Disney-related channels. If its customer base turns towards Hulu’s offering instead at Disney’s behest, Charter could face losing millions of customers.

As a result, the company’s share price fell 3.6% on Monday. Charter Communications stock is up 23.6% since the start of the year.

The bottom line

Honestly, we’re not sure how this one will pan out with the way streaming services are overtaking traditional cable channels. It could be that Disney decides to hold out and Charter caves, but it depends on how much Disney needs that $2.2 billion Charter was willing to pay for the year.

It’s another thorn in the side for the embattled House of Mouse as it faces strikes from all sides and the lowest stock price in a decade. Investors will be looking for the drama to be wrapped up quickly and for regular service to (literally) resume.

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