Charter CEO Chris Winfrey apologized to the cable giant’s 14.7 million subscribers on Thursday for the programming disruptions they continue to face due to an ongoing carriage dispute with Disney.
“We all have a sense of urgency to resolve it quickly because our customers are stuck in the middle,” he said during an investor conference hosted by Goldman Sachs on Thursday. “These are not just our customers, these are Disney customers as well and so we have a responsibility to try to solve it quickly.”
“If I had anything material to highlight, I would,” he added when asked about an update on negotiations. “So that should tell you something in terms of how we’re doing.”
A week ago, Disney made the decision to pull its portfolio of television networks from Spectrum in the middle of the U.S. Open. In response, Disney urged frustrated customers to switch to alternative options, including Hulu + Live TV, YouTube TV, Fubo, DirecTV Stream and Sling.
Winfrey warned that as its video customers who value sports content migrate to alternative sources, the incentive to get a deal done “goes down.”
“The average customer who remains is not going to be the sports viewer and therefore you’re going to be thrusting upon them cost and value that they don’t actually value,” he continued. “I think it’s all of our interests to try to make a decision really very quickly. Where are we going to go? And if we’re moving on, that’s OK. I think we can do that in a way that might actually create more value for consumers and it will be good for us. I don’t think it’s good for the rest of the video ecosystem… my entire career has been in cable, I can’t say that’s what I’m necessarily chasing. But if it’s in the best interests of Charter shareholders and the best interest of our consumers that’s certainly where we’re going to go.”
During the conference, Winfrey reiterated the company’s argument that it is being forced to delivery packages and programming channels to its customers that they don’t want and can’t afford and that they are not getting flexibility to make their offerings more satisfying to customers. He added that the “very rich linear fees” going to programmers are being funneled into streaming services that are unavailable unless customers pay twice.
“When you take a look back and say, is that really fair is that sustainable, we’ve always thought about the video business as being an asset to our broadband connectivity business. And I think it’s on the verge of flipping and where it’s becoming a liability,” he continued. “The way we think about it is anything that we put on a bill, we have to be proud of the product that we deliver and the price that customers are asked to pay for …. and it has to stick and customers need to feel like they chose it and that they’re willing to pay for it because their valued and we’ve crossed that point.”
He argued that legacy media giants should not be treating their direct to consumer businesses should not be treated as a completely separate business from their linear networks.
“If you have linear programming, you have to take a look at the two together, you have a consolidated set of cash flows and you got to think about it,” he said. “The idea that you could solve for direct to consumer profitability, which doesn’t exist today by letting your linear program house burn to the ground, which is where all your cash flow comes from, that’s what they feel like they’ve committed to do and that’s not a good outcome.”
In a presentation to investors last week, Charter said it offered to accept Disney’s rate increases in exchange for bundling its ad-supported streaming apps with packaged linear products and “lower penetration payment minimums” to provide packaging flexibility to customers. It also offered to market Disney’s streaming apps to its broadband customers and a shorter extension to its current contract to continue to discuss its proposal, but said Disney declined.
“There’s a better path and we think we can help create that,” he emphasized Thursday. “At the end of the day, it’s going to be Disney who decides.”
Charter estimates that about 25% of its customers engage with Disney content, with about half of those “highly engaged,” and that it pays $2.2 billion in annual programming costs to the company.
If Charter ultimately decided to ditch Disney, Winfrey said the company could create a smaller package of general entertainment content with a “much better price” that “would stick” and “could actually grow from that point.” He added that the company could continue to sell sports via “a reseller virtual MVPD relationship with any of those that are out there that could be economically beneficial to us.”
“That’s an environment where we could actually be proud of what we’re doing. So I think that’s a pretty good picture. It’s certainly great for the consumer. It might even be pretty good for us as well over time,” he added.
Disney has pushed back against Charter, arguing that it has refused to enter into a new carriage agreement that “reflects market-based terms.” The company has said that it “offered the most favorable terms on rates, distribution, packaging, advertising and more” and “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.”
“Although Charter claims to value our direct-to-consumer services, they are demanding these services for free as they have stated publicly,” the company added.
Disney says that 71% of Charter subscribers tune into its networks or stations in the average month and that they’ve consumed more than 3.3 billion hours of content, citing Nielsen data.
In a new statement released on Thursday, the company said that Charter rejected multiple offers to extend negotiations before it took its networks off of Spectrun and that the company “seem determined to functionally exit the video business with Disney Entertainment and deny millions of paying subscribers access to our content in the process.”
“As the US Open reaches the men’s and women’s finals, and fans gear up for a weekend of college football and the opening of the NFL season, it’s unfortunate that Charter decided to abandon their consumers by denying them access to our great programming,” Disney said. “While they have stated their “indifference” to the needs of millions of paying customers, we will not lose sight of what is most important – investing in the highest-quality stories, news and sports for our audience. The question for Charter is clear: Do you care about your subscribers and what they’re telling you they want – or not? Disney stands ready to resolve this dispute and do what’s in the best interest of Charter’s customers.”
Shares of Disney, which are trading at around $80 apiece, have fallen 4.9% in the past five days and 9.7% year to date. Meanwhile, Charter stock, which is trading at around $416 apiece, has fallen 5.2% in the past five days but is up 21.9% year to date.