FUTURE VS. PAST AT STAKE IN ESPN-SPECTRUM FIGHT
Condolences to sports fans who are customers of Spectrum, the cable provider that serves almost 15 million households in 41 states. If you are unlucky enough to live in one of Spectrum’s markets, you know why I’m offering my sympathies: Negotiations between Disney and Spectrum’s parent company, Charter Communications, have gone sour, and Disney has yanked its channels from Spectrum, including ESPN, the undisputed champion of the cableverse.
If you’re not a sports fan or don’t live in a Spectrum market, you may breathe a sigh of relief, but you still can’t afford to ignore this fight. Because it’s about how we’ll all access our sports, our programs and our other content in the future, and how much we’ll pay.
The accounting dispute between Disney and Spectrum centers on “carriage fees” that cable companies pay networks such as ESPN to air their channels. ESPN commands by far the richest fees, reportedly north of $7.50 per user, per month, because its negotiations have historically tended to go something like this:
Bob Iger, Disney CEO: In exchange for letting you carry ESPN and our many other fine channels, I would like all your money, and then some.
Anxious Cable CEO: I need money to run my cable network, though.
Iger: (thoughtfully, as if this just occurred to him) Alternatively, I could pull ESPN off your service during football season, I suppose. How long do you think it would take before mobs of angry subscribers descend on your offices, waving sticks and demanding refunds?
ACC: Would you like that in the form of a check, or knapsacks full of hundred-dollar bills?
Ironically, even as the viewership for “linear TV” (think of cable, satellite and broadcast ratings) declined, ESPN’s fees got richer, because live sports has weathered cord-cutting better than other kinds of programming. It’s the last thing Americans kind of all do together at the same time.
Of course, live events aren’t immune to the forces reshaping American culture. Sports audiences are rapidly aging, and viewership has declined by almost half since 2012. Some of this might be due to cord-cutting; according to Charter, some 25 million households have dropped cable in the past five years, even if that means losing ESPN.
Disney is trying to stay ahead of these shifts. The company now runs multiple major, if not particularly profitable, streaming services, and it is reportedly internally debating when — not if — it will move all ESPN programming to ESPN Plus.
Instead of caving, Charter appears to have settled in for a protracted war. Spectrum is allegedly encouraging frustrated subscribers to sign up for services such as YouTube TV, which carries ESPN. And the Charter CEO hopped on an investor call to lay out a detailed case for holding firm, complete with a slide show that included this incredible statement: “The video product is no longer a key driver of financial performance.”
Translation: Cable television is already a bad business. And if operating it means paying Disney even more money that will be funneled into building up a competing streaming service, Charter might as well pull the trigger itself and concentrate on the actually lucrative parts of its business, such as internet service.
So this is no longer only a fight between two companies over how much each one gets paid — though it absolutely is that. It’s also a fight between the past and the future. Charter is making Disney choose between a lucrative 20th-century business model that is still generating lots of ready cash and the speculative 21st-century ondemand future into which Disney has been pouring those profits.
All businesses sitting on a dwindling cash cow face a difficult choice: How much do you cannibalize the old business to chase something new?
Maybe Charter will blink, and Disney won’t have to choose just yet. But if Charter doesn’t, Disney’s choice will shape the entire market.
You can be sure that a lot of other cable companies will be watching the outcome closely. As, eventually, will the rest of us, whether on ESPN Plus or the good old cable box.