What’s More Valuable To You? The Water Or The Pipe?

We’ve all got a little extra time on our hands this holiday weekend, enough to actually give the question we asked above a bit of thought.  Because it’s not all that cut-and-dry to answer and, from my experience, there’s little that qualifies as a wrong answer, so long as YOU have a justification for thinking as you do.

And for the top decision-maker at the second-largest cable company in the United States, he apparently feels so strongly about a decision he made this week, he not only chose to make it, he took to the press on a Friday before said holiday weekend to essentially explain to anyone listening–particularly the investment community–how and why he believes his decision to drop the Disney networks, including all of the ESPN channels just as the college football season is beginning in earnest, was justified in his mind:

We’re on the edge of a precipice. We’re either moving forward with a new collaborative video model, or we’re moving on,” Charter CEO Chris Winfrey said on a conference call with Wall Street analysts Friday morning. “This is not a typical carriage dispute. It’s significant for Charter, and we think it’s even more significant for programmers and the broader video ecosystem.”

It was a message reinforced by other executives, who warned that the entire pay TV system needs a reset, particularly with programmers like Disney continuing to pursue direct-to-consumer options. Perhaps most notably, Disney has indicated that it plans to take its flagship ESPN channel — the most valuable property in the pay TV bundle — DTC in the coming years. Charter argues that move would justify a substantial rethink of traditional carriage deals.

“When I talk about a glide path for Disney, it clears the way for ESPN to go direct-to-consumer in a way that’s friendly, and doesn’t completely cannibalize their larger linear video revenues that they have,” Winfrey said. “It also works for us because it creates a glide path for us to create new marketing channels for new types of video products.

“We respect the quality product that Disney produces and its management team. But the video ecosystem is broken,” Winfrey added.

Needless to say, his timing to exercise such a forward-thinking purview wasn’t one that was met with much patience by ardent fans, and I suspect tennis fans who missed out on yet another classic post-midnight thriller at the U.S. Open as Novak Djokovic rallied back to continue his advancing to a potentially record-breaking title probably joined them in protest.  I have one friend who spent quite a bit of time lecturing a low-level customer service rep for Spectrum because his marathon college football binge weekend was ruined when the Florida-Utah matchup became the standoff’s first significant casualty Thursday night, and made sure this representative knew exactly how POd he was.

But unlike the kind of emotion that typically drives these sorts of rights-fees negotiations, which are often timed to seminal calendar moments such as these that tend to exacerbate the kinds of reactions similar to my friend’s that have often resulted in MVPDs eventually caving, this time, Winfrey and his team cited actual research to support their claim, per Weprin:

“Approximately 25 percent of our total video customers are regularly engaged with Disney content, and about half of those customers are highly engaged with Disney content,” (company CFO Jessica) Fischer said. “We’re currently working with the most engaged of those viewers to find alternative video solutions while Disney content is not available in our packages. And if the lock becomes permanent, Charter will pivot to alternative video solutions.”

What would those solutions be?

“It’d be looking to our existing distribution platforms of Roku, Apple TV, and then eventually Xumo to be able to create new packages for general entertainment with more flexibility and the ability for consumers to add on a la carte direct-to-consumer packages as they see fit,” Winfrey said.

And the reality check is that Charter and its Spectrum systems have already been aggressively messaging how they are proposing that minority of customers solve their problem, and economically at that.  As any Dodgers fan who listens to their audio feed online knows all to well, a team whose games and shoulder programming are televised on a 24/7 channel dedicated exclusively to them have been running this spot as in-between innings cover for local radio spots all summer, and I know you’ll recognize the chorus immediately.

Here’s a handy scorecard for these ubiquitous shillers, per AURALCRAVE’s Carlo Affitigato:

The rappers singing the rap song in the 2023 Spectrum One commercial are Kevin Fredericks, Tony Baker, Tahir Moore, and Ron G, together as part of a band called Kev & The Kirkpatricks.  Kevin Fredericks, also known by his online pseudonym “KevOnStage,” is a comedian, actor, and social media influencer. He is known for creating and sharing humorous content on various platforms, particularly on YouTube and Instagram. You can discover more about him from his official website, where you’ll also find the book he recently wrote with his wife.

So any more casual sports fan was probably more familiar with the company’s priorities.  And the further reality check is that if ESPN, Disney and, for that matter, almost any content provider is as determined to make their content available through DTC. the one thing they lack in that equation is a reliable way to get it to them, particularly to those who are REALLY thirsty for it.  But Charter/Spectrum is apparently one step ahead.  And as our friend Rick Scott of TOO MUCH TV’s NEWSLETTER reported last night, folks like my friend may actually be even more motivated to keep their ARPU more consistent by taking themselves up on KevOnStage’s tuneful plea:

Charter reportedly is working to come up with a plan that would help unhappy sports fans subscribe to a different MVPD if they are unhappy with the loss of their favorite Disney networks.

Assuming that Charter holds to their position (and I am already seeing some veteran programmers argue this is a bluff), this could mean the end of the cable bundle as we know it. Charter will make similar demands on other media companies as their carriage agreements come up and other rival MVPDs will see this as their opportunity to extract their own more favorable deals.

If things haven’t resolved in the next couple of weeks, I don’t think it’s hyperbole to say this could change the cable and satellite TV business forever.

Among those veteran doubting Thomas programmers obviously include Disney executives who immediately launched into their own more typical campaigns of finger-pointing at the big, bad greedy MVPD, as Weprin further shared:

Disney, meanwhile, released a statement responding to Charter, claiming that “contrary to their claims, we have offered Charter the most favorable terms on rates, distribution, packaging, advertising and more,” and that “we have proposed creative ways to make Disney’s direct-to-consumer services available to their Spectrum TV subscribers, including opportunities for new and flexible packages where those services become a focal point of what the consumer might choose”.

All indications from the top honcho at Disney–whoever or whatever it may be at the moment–is that that day is inevitable.  But, per our friend Scott, there’s ample reason to believe it was just a tad too premature for Mr. AIger:

Charter provides nearly $200 million per month in carriage fees to Disney and there will also be an unknown number of millions lost in ad revenue given that the blackout will likely lead to a ratings dip for the SEC football games scheduled to air this weekend on ESPN.

And Lord knows, considering how well his movies and the profitability of his streaming gambits have been going, ol’ Bob needs a win, especially since we’re ten days away from the Apple event, and given his enthusiasm and presence the last time around, it’s not hard to think that his own personal exit strategy might have been a bit farther ahead even before this brouhaha unfolded.

So maybe the timing of this move, all things considered, wasn’t as dumb as my college football-loving friends might be thinking?

My friend who politely lectured his Spectrum rep has already activated his ESPN Plus privelages which he has access to as a Hulu subscriber, and he will no doubt be ecstatic that the MVPD is actively figuring out ways where his total cost may even come down a tad.  For him, it’s all about the water.

But you can’t get the water, or anyone else’s nourishment, without a pipe or another mechanism to get it to you.  Charter knows that.  And so do their competitors. And if Charter still supplies my friend the pipe for his “crack”, then they’re still ahead of the game.

That may not be the best news for the content providers, particularly as they are all looking at moribund third quarters and the likelihood of having to answer to an increasingly distraught public as the strikes affecting their production of new content will indeed extend beyond this holiday weekend and likely deeper into the fall, and toward the holidays.

And if things drag out that long, one suspects a lot more uses for a pipe will come to mind for those so frustrated. And they probably won’t involve water.

So here’s hoping cooler heads prevail before that.  Most of us don’t have the option of escaping into a virtual world the way some veteran programmers do.

Until next time…

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