The media industry is facing yet another disruption this summer, as a carriage dispute between Walt Disney Co. and Charter Communications Inc. intensifies. This conflict has caused ESPN to go dark for college football and the U.S. Open, sparking concerns about the future of NFL coverage.
The ongoing drama has cast a shadow on media stocks, serving as a reminder of the vulnerable state of the current cable landscape in the face of the streaming revolution.
While Warner Bros. Discovery Inc. and Paramount Global Inc. are not directly involved in the Spectrum dispute, their shares have taken a hit due to Charter’s determined pushback against the status quo. Both Warner and Paramount have significant leverage in their businesses, making them more sensitive to potential industry-altering dynamics, especially since they heavily rely on cable programming.
Warner’s shares took a significant hit, plummeting 9.5% in midday trading and marking their largest one-day percentage decline since November 4, 2022. Similarly, Paramount’s stock experienced an 8.3% decline.
Disney’s shares also suffered, dropping 2.2% midday, while Charter’s shares were down 2.6%. Additionally, cable peer Comcast Corp.’s stocks dipped 2.3%.
Disagreements over distribution terms are not uncommon among media companies and cable providers. Often, these disputes result in content being yanked from platforms as a negotiating tactic to draw consumers into the conflict. However, Charter’s Chief Executive Chris Winfrey maintains that the feud with Disney is far from a typical carriage dispute.
During an investor call earlier on Friday, Winfrey stated, “We know there’s a better path. We also believe that Disney and Charter are uniquely capable of leading the way. So we’re on the edge of a precipice. We’re either moving forward with a new collaborative video model or we’re moving on.”
While distribution disagreements usually revolve around pricing, Charter executives argue that the current situation is more complex due to the company’s desire for a fundamental shift in its relationship with content providers in the streaming era.
Disney and Charter’s Dispute Over Streaming Services
According to Citi’s Michael Rollins, this dispute appears to be more significant than previous ones, as it revolves around larger issues such as the business model and the future of video distribution. Rollins believes that a prolonged dispute could potentially accelerate cord-cutting, although the impact of this remains uncertain.
Despite potential challenges, there is overall optimism in the market regarding cable companies shifting their focus to becoming broadband-first providers and gradually exiting the low-margin video business. However, this transition does pose some risks in terms of revenue and cash-flow generation for Charter, as the video business currently contributes to their overall cash flow.
Charter’s Chief Financial Officer, Jessica Fischer, has highlighted various financial considerations in relation to the dispute. It is expected that there will be a loss in video-related revenue due to the decline in video customers, potential credits or rate adjustments for customers affected by any outage, and reduced advertising revenues associated with the lost content.
On the positive side, Fischer anticipates significant reductions in programming expenses, as Charter will no longer need to pay Disney’s license fees, which were projected to exceed $2.2 billion for 2023. However, Charter does expect higher costs related to customer service due to the anticipated increase in call volume during the dispute.
