If there is one key takeaway from the Walt Disney Co.-Charter Spectrum carriage dispute, it’s that the pay TV business is undergoing a period of significant change, and the distributors and entertainment companies will need to get creative in order to get deals done.
The result in the Disney-Spectrum dispute marks a major shift in linear bundled offerings, with the basic tier of Disney+ being included for Spectrum Select TV subscribers at no extra charge to them (Spectrum is paying Disney a “wholesale” rate) and ESPN+ being added to a new tier of TV service more focused on sports fans.
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“I think if we’re learning anything in this moment, it is that we need to remain flexible, that these models are changing rapidly, that keeping up with technology and the consumer means we have to stay flexible and agile,” says Dana Walden, co-chairman of Disney Entertainment, in an interview with The Hollywood Reporter shortly after the deal was announced.
However, being flexible also means being willing to give up a few cards. In the case of the new deal, that means that some of Disney’s cable channels, including Freeform, FXX, Disney Junior and Nat Geo Wild, will no longer be offered on Spectrum.
“When we looked across the portfolio to try to identify where the greatest value in this deal was to us, we definitely made some trade-offs with the following thinking in place: The digital networks are for the most part targeted, and they super-serve an audience in the linear ecosystem, but they are also windowed onto what we are calling our primary channels [Disney Channel, FX, Nat Geo],” Walden says. “So you know the Nat Geo suite, ultimately that programming also airs on Nat Geo and then it is windowed over to Disney+, similarly with Disney Junior and Disney XD. And then FXX has been a valuable source of programming for Hulu, and so we don’t intend to change how we program that channel right now. It’s very much connected to our pipeline of general entertainment to Hulu.
“We had already looked at the environment and were windowing, we were both offering a hyper-targeted environment for only preschoolers or, on Freeform, for the adult female demographic, but we were also windowing to our streaming platforms,” Walden continues. “So for us what’s most important is that we’re maintaining channels where they are valuable to us in the distribution ecosystem, and then we’re making 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 bit in its more niche cable channels, whose eventually lands elsewhere in the Disney ecosystem.
“We protected our primary entertainment channels,” Walden says. “You know, they’re very important to our bottom line and our pipeline of family and general entertainment content to our DTC services.”
ESPN, meanwhile, is trying to figure out its own future. Disney CEO Bob Iger and ESPN chairman Jimmy Pitaro have spoken publicly about 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 us.”
To that end, the Spectrum deal will include the ESPN+ streaming service in its Select Plus TV offering, a more sports-centric tier that the cable company is rolling out over the coming months.
“Let’s create this opportunity to expand that ESPN platform so that ultimately when we do take our primary channels direct-to-consumer, we have the opportunity to upsell that offering to a much larger sports fan base,” Pitaro says. Of course, ESPN has benefited tremendously from the pay TV ecosystem, and while the company is thinking about streaming, it isn’t giving up the golden goose just yet.
“The first [priority] was protecting the traditional business model, one that’s been very, very good to us and continues to be good to us,” Pitaro adds. “And we were able to do that, we secured commitments that were very strong in terms of rates and minimum penetration.”
Expanding the reach of ESPN+ (it’s currently at 25.3 million subs) will have its tack-on benefits as well, Pitaro says.
“Just on a macro level, this idea of expanding ESPN+ — not flagship, but the current product — expanding ESPN+’s reach will help us continue to ease sports fans into this direct-to-consumer environment,” Pitaro says. “Another point is ad inventory, with expanded reach comes expanded ad inventory, and we have a fantastic sales team. There’s a lot of demand for sports content. And we’re confident that we’ll be able to sell that inventory.”
Pitaro adds that giving ESPN+ greater 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’ll tell you their number one priority is to expand their audience,” Pitaro says. “They’re constantly looking at ways to expand their audience. And so for us to be able to say to our ESPN+ partners today that we expect significantly expanded reach, that helps us in terms of our partner relationships and our ability to secure rights going forward.”
Expanding the pool of streaming customers was a priority for Walden’s team as well, and, indeed, for Disney as a whole.
“We need to keep growing our streaming business, that is a focal point of our strategy right now,” Walden says. “And this deal gives us the ability to have Disney+ basic distributed to Charter’s nine and a half million Select subscribers, which is great for us and enables us to grow subscribers, revenue, our advertising business, and it also lets us maintain our primary channels on the linear entertainment side, which are important to driving revenue.”
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