Disney (DIS) stock fell as much as 2.6% on Friday after the company pulled its owned and operated channels, including sports network ESPN and ABC, off Charter Spectrum (CHTR) cable systems late Thursday as the pair's contract dispute reached a stalemate.
Charter, which boasts 14.7 million subscribers and is the second-largest cable provider in the US, was airing both the US Open and the first big college football game of the season through ESPN when the programs went dark.
The conflict stems from Charter alleging Disney has insisted on higher rates and limited flexibility, arguing the media giant's proposal would lead to "unsustainable price hikes" for consumers and would force users to pay for channels they might not want or can't afford.
"[Disney] wants to require customers to pay twice to get content apps with the linear video they have already paid for," the telecommunications giant said. "This is not a typical carriage dispute. It is significant for Charter, and we think it is even more significant for programmers and the broader video ecosystem."
In a separate presentation on Friday, Charter said it proposed a model "that creates a better value for consumers and the industry" but that Disney declined the proposal, which led to the media giant pulling its video channels from Charter on Thursday.
Following the blackout, the US Open said it was "very disappointed" the dispute could not be resolved as angry fans unable to view the matches expressed their frustrations.
ESPN typically has the highest carriage fees, or fees pay-TV providers pay to network owners to carry their channels. According to an estimate from SNL Kagan, ESPN charges pay-TV operators $8-$9 per subscriber.
"Right now Disney faces the loss of 14.7 million Charter pay TV subscribers, 20% of ESPN's current linear subscriber base of 74m," Tim Nollen, Macquarie analyst, wrote in a new note to clients on Friday. "That would equate to ~$5 billion in linear revenue losses on a full-year basis, or 6% of overall revenue."
The analyst, who downgraded Disney shares shares in May, said TV disruption was a large factor in that decision. However, he does expect the two sides "to resolve their disagreement in some form before long as the stakes are too high for both."
In a fiery response Friday afternoon, Disney Entertainment said Charter refused to enter into a new agreement that reflects market-based terms, writing in part: "Contrary to their claims, we have offered Charter the most favorable terms on rates, distribution, packaging, advertising and more."
"Charter is depriving consumers of that content because they are failing to ascribe any value in exchange for licensing those services," the company added. "We offered Charter an extension in the negotiations to keep our networks up and they declined in the middle of programming that is important to their subscribers, including the US Open."
The company, which said it wants to revolve the issues as soon as possible, said Charter's actions "are a disservice to consumers" ahead of the much-anticipated college football season on ABC and ESPN’s networks.
In addition to ESPN, other Disney Entertainment channels affected included the Disney Channel, Freeform, National Geographic, and local news stations on the ABC network.
Carriage fee issues have mounted in recent years amid the steep declines in linear television viewership as more subscribers cut the cord and opt for streaming services.
According to the latest data from Nielsen released last month, linear TV viewership fell below 50% in July for the first time. Broadcast and cable each hit a new low of 20% and 29.6% of total TV usage, respectively, to combine for a linear television total of 49.6%.
"Linear TV [is] past the point of no return," Nollen wrote in a note at the time, adding the revenue line for cable and satellite operators is "probably permanently negative" as pricing fails to drive upside while TV advertising growth stalls.