The Unbundling Of The Cable Bundle Has Begun

The recent carriage fee agreement between Disney and DirecTV is the latest example of the cable bundle changing. The smaller rated and niche cable networks are now less likely to be bundled along with such “must have” channels as ESPN. Also being added to the cable programming lineup is the availability of an ad supported tier of streaming video, oftentimes at no additional cost.

After a 13-day blackout, the Disney-DirecTV renewal negotiations were resolved. Under the new agreement there will be “market-based terms” on fees. In addition, DirecTV subscribers will have genre-based smaller bundles available such as sports, kids, family, and entertainment.

Also, Disney’s streaming services, Disney+, Hulu and ESPN+ will be available in selected packages. DirecTV subscribers will also be able to access ESPN’s standalone streaming service at no additional cost when it becomes available expected sometime next year.

These carriage fee renewals are coming at a time when the cable industry continues to lose subscribers at a record pace. The penetration of U.S. households with a cable television subscription had reached 90% in 2011 and has since fallen to just over half total homes.

The falloff has resulted in significant loss in revenue for the industry. Carriage fees have been an important and reliable source of revenue for cable networks. In the past, carriage fees had always increased with every renewal negotiation and, unlike advertising revenue, were protected from market volatility. That has changed.

MORE FOR YOU
Apple’s Update Decision—Bad News Confirmed For Millions Of iPhone Users
BlackRock Reveals It’s Quietly Preparing For A $35 Trillion Federal Reserve Dollar Crisis With Bitcoin—Predicted To Spark A Sudden Price Boom
Harris Gets Big Bump Over Trump In Election Betting Markets—One Week After First Presidential Debate

In first quarter 2024, distribution dollars of the six largest publicly owned network providers had declined year-over-year by -2.4%. This marked the seventh straight quarter with a year-over-year drop-off. Furthermore, during the 2024 upfront primetime cable TV ad commitments declined by -4.8% totaling just over $9 billion.

In August, Warner Bros. Discovery, owner of such popular ad supported channels as TNT, CNN and HGTV took a $9.1 billion financial write-down on the valuation of their cable properties. Shortly afterwards, Paramount Global, the parent company of MTV, Comedy Central and Nickelodeon among other cable networks, took a $6 billion write-down on its linear cable television unit. The write-down was announced in the midst of acquisition talks with Skydance Media. Furthermore, AMC Networks recently took a $97 million write-down for BBC America.

Last year’s carriage fee dispute between Disney and Charter Communications ended with a new negotiations template that addressed the evolving video landscape. For years, cable TV owners bundled their networks, cable subscribers were forced to pay for channels many of their customers had no interest in watching and oftentimes didn’t even know where the network was located on the dial.

At their peak, cable subscribers had access to and paid for 200+ channels (well below the boast cable TV pioneer John Malone’s made in 1992 of a 500-channel universe) and watched fewer than 10% of them.

The emergence of alternative video sources and the escalating cost of cable subscriptions resulted in cord cutting. Resulting in media companies prioritizing content on their new streaming platforms instead of their long established cable properties.

In the past, when cable owners were negotiating carriage fees one strategy would be their networks original programming such as Breaking Bad, Monk or The Closer are not available anywhere else adding value. That scenario is no longer applicable, nowadays most top-tier cable networks are televising fewer and fewer original content relying on licensed shows and theatrically released movies for content. This change in strategy has led to lower audiences and ad revenue for cable networks. A decade ago, the USA network had routinely averaged three million primetime viewers, that has since dropped to about one-quarter of that total.

Instead of investing in their cable networks, media companies are subsidizing their premium content on streaming platforms from the dwindling revenue of their cable properties. In last year’s carriage fee negotiations, Charter Spectrum argued that Disney wanted them to pay a premium rate for Disney’s cable content, but was not receiving premium content in return.

The Disney-Charter Communications dispute was resolved after a 12-day blackout, with an innovative resolution. Disney’s most popular networks such as ESPN and FX were retained while smaller less popular networks such as Freeform, FXX and Disney, Jr were dropped. Just as important, Charter Spectrum subscribers gained access to the ad supported tier of Disney+ and ESPN+ as well as getting access to ESPN’s upcoming standalone streaming service.

Charter Spectrum’s carriage fee negotiating tactic continued in 2024. In May, Charter had concluded a multiyear carriage fee negotiation with Paramount Global. The result allowed Spectrum TV Select users access to the ad supported tiers of streamers Paramount+ Essential and BET+ Essential. Charter Spectrum will continue to carry CBS owned local stations and all Paramount owned cable networks. Unlike the Disney negotiations there were no channel blackouts. No financial information was made available.

Earlier this month, Charter Communications and AMC Networks renewed an early multiyear carriage fee agreement. AMC Networks owns cable channels AMC, BBC America, IFC, Sundance TV and We TV. Additionally, AMC owns direct-to-consumer services AMC+, Acorn TV, Shudder and ALLBLK. As part of the agreement AMC+ will become available, with no extra fee, for Spectrum TV Select customers.

Also, in September, Charter Communications and Warner Bros. Discovery renewed an early multiyear carriage fee agreement. The agreement will continue to make available WBD’s bullpen of linear cable channels available on Charter Spectrum’s channel lineup including TNT, CNN, Food Network, HGTV, TLC, Discovery, TBS, Adult Swim and Investigation Discovery.

The agreement will make available a tier of Max and Discovery+ to Spectrum TV Select subscribers at no additional cost. Since Max content includes programming from HBO, it marks the first time the premium pay cable network will be part of a basic cable package and not as a standalone service with separate pricing.

Earlier in the year, Charter Communications reached an agreement with TelevisaUnivision enabling access of the ad supported tier from ViX, a direct-to-consumer streaming service, to Spectrum TV Select subscribers at no extra cost

Hence, some Charter Spectrum TV Select subscribers can have access to several ad supported tiers of streaming providers including; Disney+, ESPN+, Max, Discovery+, Paramount+, AMC+, BET+ and/or ViX.

In their second quarter 2024 earnings report released in late July, Charter Communications said they had lost 393,000 residential pay-TV subscribers, resulting in a loss in video revenue of -7.7%. The drop-off was also an increase from the decline of 189,000 subscribers one year prior.

Charter also announced a decline in residential and small business broadband subscribers of 154,000 and now number 30.4 million.

In the quarter the one growth area for Charter was mobile which has 8.8 million lines. According to CNBC, the mobile unit was launched in 2018, has benefited from promos, increased usage and a reliable Wi-Fi network.