With Disney’s current distribution deal for Altice USA’s New York-area footprint set to expire Saturday, don’t be surprised if the impasse between the top programmer and the No. 4 U.S. cable operator actually descends into a blackout, said MoffettNathanson analyst Michael Nathanson.
“Disney is not going to back down, and neither is Altice,” the media analyst told the Los Angeles Times.
Driving the impasse is the price Disney is demanding for ESPN—a point Altice itself drove home when it produced a TV ad, accusing Disney of running the cost of the national sports channel up with pricey program rights deals.
To put it in football terms, Disney is playing a must-win game, on the road, against a team with a stingy defense.
The conglomerate is paying the National Football League $1.9 billion a year for “Monday Night Football” rights. And its new contract with the National Basketball Association calls for ESPN to pay $1.4 billion a year—double its previous contract.
According to Nathanson, Disney must absorb $450 million in annualized costs from 2018-2021 just to cover the inflation of its sports rights deals.
In previous, more halcyon years, steady increases in licensing fees covered ESPN’s league fee increases. But with the per-subscriber fee for the channel approaching $8, and its subscriber base eroding, the wolf is at the door. Profit in Disney’s media networks sector is down 11% to $5.4 billion in the first nine months of Disney’s 2017 fiscal year.
“This is a big deal. Disney needs to get rate increases and more subscribers for ESPN,” Nathanson said.
Altice, of course, is facing pressure of its own. The cable operator lost 12,000 pay-TV customers in its New York-area “Optimum” system in the second quarter. Optimum now has around 2.6 million customers left in a system that previous owner Cablevision built into a powerful advanced advertising mechanism. Certainly, Altice doesn’t want runaway pricing to erode this base.
“Skyrocketing programming costs, particularly those charged by broadcasters and sports networks, are the greatest contributor to rising cable bills, and ESPN is already the most expensive basic cable channel in history,” Altice said in a statement.
A blackout, of course, wouldn’t just impact ESPN. It would also take popular Disney cable networks such as The Disney Channel off of the Optimum program guide. And it would remove powerful owned-and-operated ABC stations, such as New York’s WABC-TV.