Until recently, Spectrum accounted for 20 percent of Disney’s linear-television reach. The Charter video provider now represents exactly zero percent of the reach for eight Disney cable channels: Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo.
Their dropped carriage on a major player (only Comcast is larger, and it’s slight) may be a death sentence for the channels. And Disney could just be first at the gallows.
Carriage (cable) and retransmission (broadcast) deals, in which an MVPD (Multichannel Video Programming Distributor) or virtual MVPD (vMVPD) pay a channel provider for the rights to include their networks in a customer’s video package, do not all come up for renewal at once. Spectrum v. Disney may have set precedent like a court case; going forward, why would any cable company continue to pay Disney for those seemingly disposable eight channels?
Steven Cahall, the lead equity analyst at bank Wells Fargo, believes that 75 percent of the Disney cable channels will “disappear” (with 25 percent remaining in big bundles), he wrote in a Wednesday note to clients (and obtained by IndieWire). He sees Disney’s overall operating income taking a 6 percent hit; that’s more than $1 billion annually, which ain’t mouse crumbs.
It could be even worse for other channel providers. By “negotiating publicly” with Disney, Cahall wrote, Charter “has put other programmers on notice that it’s seeking to evolve the way linear distribution is done.”
They’re noticing alright. They’d be blind — and foolish — not to.
Per research company SNL Kagan, Warner Bros. Discovery has the most linear networks with 27; Paramount Global (26) is a close second. Cahall believes about half of WBD’s cable channels (examples: Cooking Channel, Destination America, and Science) could soon be dropped. Sixty percent (examples: BET Gospel, BET Jams, MTV Classic, MTV Live, Nick Jr., and Nicktoons, etc.) of Paramount’s are at risk, he wrote.
Warner Bros. Discovery could be exposed to a 7 percent earnings hit, or about $840 million annually. Paramount, which Cahall called “the worst positioned in a future skinny bundle era,” is staring down the barrel of a whopping 19 percent ($500 million) impact to annual operating income.
Both WBD and Paramount say those fears are overblown. At Thursday’s Bank of America Securities 2023 Media, Communications & Entertainment Conference, Warner Bros. Discovery CFO Gunnar Wiedenfels touted his company’s “very, very strong and amicable relationships” with MVPDs and vMVPDs.
“We’re not breaking the bank (for them),” Wiedenfels insisted. “I am 100 percent convinced that we are delivering significantly more value to our affiliates in terms of viewership, which in the end is driving their revenue, than our relative share of our programming expenses. And I think there’s a very significant gap.”
Wiedenfels and his boss David Zaslav have been talking up the relative value proposition of their cable bundle since the Discovery days. Nothing has changed, really, Wiedenfels said — but don’t take his word for it, look at how many carriage deals they’ve successfully executed since merging with WarnerMedia in April 2022. Actually, you probably haven’t even read about them happening; that’s how smooth and under-the-radar it’s been, Wiedenfels said.
One of those deals was with Charter, which is still carrying WBD’s cable channels. Charter is the second-largest cable provider in the U.S. — only Comcast is (slightly) larger. Comcast’s size at least somewhat protects its NBCUniversal and its 14 linear networks. Wells Fargo estimates an annual earnings impact of 4 percent from future cable-channel erasure, Cahall wrote. Not bad — not like rival Paramount.
Cool your jets, Cahall, the company behind “Top Gun” cautioned.
A source with knowledge of Paramount’s thinking told IndieWire that this whole channel-count thing is being overhyped this week. To them, it doesn’t really matter to them how the distribution money comes in, so long as it comes in. Bob Bakish & co. have been preparing for this for years, the person told us, through advanced advertising with distributors, co-marketing relationships for Pluto TV and Paramount+, and bringing Showtime to more homes via integration into Paramount+.
One person with knowledge of Disney’s plans told IndieWire that the cable channels dropped by Spectrum will still exist and that Disney will still program for the channels. They’re just no longer “primary channels,” the person said. Last month, Disney chief executive Bob Iger made it fairly clear that none of the company’s linear channels are particularly crucial to its future; he’s exploring partnerships and straight-up sales for some of them.
Our source referred to Freeform as the most meaningful casualty of the Charter negotiations; not so much in terms of originals, but for its popular stunt programming like 31 Nights of Halloween and 25 Days of Christmas. Freeform was formerly known as ABC Family; it was rebranded in 2016 and caters to young women.
Should Freeform the channel forever go away, the brand will likely continue on. Disney already has the perfect place for it: Freeform content like “Cruel Summer,” “Good Trouble,” and “Grown-ish” is watched more on Hulu than on the cable channel itself. (Disney is expected to buy out Comcast’s one-third stake in Hulu at the end of this month, giving the company complete ownership.)
And should Disney Junior cease to exist, its content can live on through Disney+. That’s where this dad (and so many parents) already finds “Doc McStuffins,” “Mickey Mouse Clubhouse,” “Sofia the First,” and “SuperKitties” anyway. Of course, Charter knew all of this, and now here we are.
