Disney and Charter: A New Carriage Agreement Points to Improved Content Strategies

We believe Charter CHTR and Disney have come to a reasonable agreement to restore most Disney television channels to Charter customers. Disney is taking its first step in more closely tying its streaming strategy to the traditional television business. We expect other media firms will follow suit in the coming months to slow the decline of the traditional television customer base, which still delivers the majority of profits across the media industry.

Charter will no longer carry several second-tier entertainment channels, like Disney XD and FXX, but the Disney+ ad-supported plan will be added to Charter’s most popular television packages. ESPN+ will be provided to Charter customers taking more expensive television packages who will also get the full ESPN streaming service when it launches. These shifts address one of Charter’s main issues and a concern that we’ve held about streaming strategies generally: placing programs already on traditional networks inside streaming services along with exclusive steaming content. The traditional television bundle will become at least somewhat more attractive relative to streaming alternatives with these changes.

We believe staying engaged in the television business is also a positive for Charter and the media firms. Many smaller cable companies, which usually pay more for programming, have been gradually exiting the television business for several years. Only about 15% of Cable One’s broadband customers subscribe to its television offering, for example. That percentage is above 40% at Charter, which likely delivers increased customer loyalty. With nearly 20% share of traditional television customers in the U.S., Charter should be able to negotiate on customers’ behalf to improve the television experience. Charter has also used its position to move the media firms in a healthier direction. Content owners like Disney have been locked in a prisoner’s dilemma, where self-interest damages the collective whole.