If there is one major conclusion to be drawn from the Walt Disney Co.-Charter Spectrum dispute, it is that the pay-TV industry is going through a period of significant change, and distributors and entertainment companies will have to be creative to get deals done.
The outcome of the Disney-Spectrum dispute marks a major shift in linear bundled offerings, including the base tier of Disney+ for Spectrum Select TV subscribers at no additional cost to them (Spectrum pays Disney a “wholesale” rate) and ESPN+ is joining a new tier of TV services aimed more at sports fans.
“I think if we’re learning anything right now, it’s that we have to stay flexible, that these models are changing quickly, that keeping up with technology and consumers means we have to stay flexible and agile,” said Dana Walden, co-chair of Disney Entertainment, in an interview with The Hollywood Reporter shortly after the deal was announced.
However, being flexible also means that you are willing to give up a few cards. In the case of the new deal, this means that some Disney cable channels, including Freeform, FXX, Disney Junior and Nat Geo Wild, will no longer be offered on Spectrum.
“As we looked through the portfolio to try to determine where the greatest value of this deal lay for us, we certainly made some tradeoffs with this idea in mind: the digital networks are, for the most part, purpose-driven, and they are super- serve audiences in the linear ecosystem, but they are also focused on what we call our primary channels (Disney Channel, FX, Nat Geo),” says Walden. “So you know the Nat Geo suite, eventually that programming will also air on Nat Geo and then it will be transferred to Disney+, similar to Disney Junior and Disney XD. And then FXX has been a valuable source of programming for Hulu, and so we don’t plan to change the way we program that channel now. It’s closely tied to our general entertainment pipeline to Hulu.
“We had already looked at the environment and were windowing, we were both offering a hyper-targeted environment that was just for preschoolers or, on Freeform, for the adult female demographic, but we were also windowing on our streaming platforms,” Walden continues. “So for us, the most important thing is that we maintain channels where they are valuable to us in the distribution ecosystem, and then we make sure that we have a solid pipeline of that programming to Hulu or Disney+.”
In other words, Disney is focusing on its core entertainment brands and its streaming ambitions, and is willing to give a little in its more niche cable channels, which already have content that will eventually end up elsewhere in the Disney ecosystem.
“We have protected our core entertainment channels,” Walden said. “You know, they’re very important to our bottom line and our pipeline of family and general entertainment content for our DTC services.”
ESPN, meanwhile, is trying to determine its own future. Disney CEO Bob Iger and ESPN Chairman Jimmy Pitaro have publicly discussed eventually bringing the flagship ESPN networks to streaming, and Pitaro reiterated in an interview Monday that “flagship direct-to-consumer on the ESPN side is the priority for is us.”
To that end, the Spectrum deal will include the ESPN+ streaming service in its Select Plus TV offering, a more sports-oriented tier that the cable company will roll out in the coming months.
“Let’s create this opportunity to expand that ESPN platform so that ultimately, as we take our primary channels direct to consumers, we have the ability to sell that offering to a much larger base of sports fans,” Pitaro said. “Of course, ESPN has benefited enormously from the pay TV ecosystem, and while the company is thinking about streaming, it’s not giving up on the golden goose just yet.
“The first (priority) was to protect the traditional business model, a model that has been very, very good for us and continues to be very good for us,” Pitaro added. “And we succeeded, we made commitments that were very strong in terms of rates and minimal penetration.”
Expanding the reach of ESPN+ (currently 25.3 million subscribers) will also have its benefits, Pitaro says.
“Just on a macro level, this idea of expanding ESPN+ – not the flagship, but the current product – to expand the reach of ESPN+ will help us continue to give sports fans access to this direct-to-consumer environment,” says Pitaro. “Another point is the advertising inventory. With greater reach comes greater ad inventory, and we have a fantastic sales team. Sports content is in high demand. And we are confident that we can sell that inventory.”
Pitaro adds that expanding ESPN+’s reach could help the company as it seeks new sports rights deals.
“If you were to speak to any league, any college conference, commissioner, they will tell you that expanding their audience is their number one priority,” Pitaro said. “They are constantly looking for ways to expand their audience. And if we can say to our ESPN+ partners today that we expect significantly greater reach, that will help us in terms of our partner relationships and our ability to secure rights in the future.”
Expanding the pool of streaming customers was also a priority for the Walden team, and even for Disney as a whole.
“We need to continue to grow our streaming business, which is a central focus of our strategy right now,” Walden said. “And this deal gives us the opportunity to distribute Disney+ Basic to Charter’s nine and a half million Select subscribers, which is great for us and allows us to grow our subscriber base, revenue and our advertising business, and it also allows us to maintain our primary channels. on the linear entertainment side, which are important for monetization.”