A battle Walt Disney (NYSE:DIS) can't afford to lose continues to heat up. The media giant is threatening to pull ESPN, Disney Channel, ABC, and its other networks from the country's fourth-largest cable provider if Altice USA (NYSE:ATUS) doesn't pony up to meet its demands by the end of this week.
Altice has been telling its Optimum cable subscribers that Disney is asking for hundreds of millions of dollars in new fees in order to retain its carriage rights come Oct. 1. Altice doesn't want to pay, and it's betting that its subscribers don't want to pay. The face-off is real, and it's hard to fathom a win-win-win scenario where Disney, Altice, and its cable subscribers all come out ahead.
Playing to win
Details that are likely being leaked from Altice's camp aren't pretty. Bloomberg is reporting that Disney wants Altice to pay more than $100 a year, over $8.30 a month, for ESPN. The monthly average for ESPN is $7.54 a month.
Asking for more money may seem odd. ESPN ratings are falling. The world's largest sports channel recently went through layoffs. Network personalities and athletes are also taking vocal political stances, something that may seem honorable in theory but will likely alienate subscribers who see things differently. When you're the cable world's most expensive property, taking either side in a political debate -- even if it's the popular one -- can be costly.
Disney's push for higher rates is likely tied to reports that it's requiring the recently public Altice to carry two of its college sports channels and make ESPN's namesake network more widely available. It's a brazen move that would've had a good chance of working several years ago, but we live in a different time now. Millennials are cutting the cord, and cheaper over-the-top pay services are giving consumers the skinny content bundles that they've always wanted. Making folks pay more for ESPN may leave them wondering if they can pay less by sidestepping the sports giant completely.
Disney can see the writing on the wall. It's rolling out a dedicated ESPN streaming service next year. Pricing of that offering will be the key. If it expects all Altice subscribers to pay $100 a year for ESPN, one can only imagine how much more it will expect out of diehard sports fans willing to seek out the platform on a stand-alone basis.
For now, this battle is going down to the wire. Neither side wants to blink first. Altice USA is losing subscribers, as its pay TV accounts have declined from 3.596 million to 3.463 million over the past year. Defections will accelerate if its rates spike higher. Disney, on the other hand, can't afford to mark down its services. It would set a horrible example for future negotiations. There's no win-win-win scenario here, but a grim lose-lose-lose outcome is a real possibility.