Everything Old is New Again: Rebuilding the TV Business in Streaming
The business of Hollywood is in turmoil. All of the recent stories coming out of that sector of the entertainment industry boil down to two questions: Where is the money coming from? Where is it going? That’s at the heart of the dual Writers Guild of America (WGA) and Screen Actors Guild and American Federation of Television and Radio Artists (SAG-AFTRA) strikes. In chasing Netflix, the major studios have blown up a business model that at least partially worked, replacing it with one that’s confusing, even for the people at the top.
In the largest story last week, Disney found all of its linear networks cut off to Charter Spectrum customers. The cuts cover ABC, ESPN, FX, Freeform, and more on the second largest cable TV provider in the United States. The reason? It’s all about carriage fees. What are carriage fees? These are the fees that network owners like Disney charge cable TV distributors to run their networks.
Disney and Charter Communications are in the middle of negotiations, with Disney seemingly wanting an increase in carriage fees. (Disney says it merely offered an extension on the current contract.) An increase makes some sense for Disney, as linear TV is shrinking. Two weeks ago, Nielsen reported that broadcast and cable TV were seeing sharper declines year-over-year as streaming grows. Disney CEO Robert Iger noted back in July that there was the potential for the company to divest itself of its linear business, which includes ABC.
From a purely business perspective, the logic is solid: if the numbers are going down, then you want to make more per user. That’s likely what Disney floated to Charter Communications. The issue Disney has is one of timing: ESPN was running the U.S. Open when Charter cut it off and there are college football games going on as well. Live sports is a strong part of ESPN’s business, and at the moment, Charter customers are going without any of it.
Disney has had similar disputes in the past. The company’s networks disappeared on Dish Network and Sling TV last year, and dropped off of YouTube TV in 2021; in both cases, Disney eventually hammered out a deal. (Interestingly, YouTube TV has been floated by Charter customers as a potential fix during this current dispute.) HBO went entirely dark on Dish Network for three years over carriage fee disputes.
Making Money From Owning The Pipes
For companies like Disney the question remains: why would we give you a good deal when we can reach customers directly or through other means? While many viewers haven’t cut the cord, a number of them have. As an example, I personally watched the 2022 Winter Olympics on Peacock; on linear TV, I’m stuck at the whims of whatever event NBC is showing, but on streaming, I can watch any event at my leisure. It’s just better all around.
Network owners like Disney pondering this question is an existential problem for Charter, who told The Hollywood Reporter that it was willing to move away from video distribution altogether. “We’re on the edge of a precipice. We’re either moving forward with a new collaborative video model, or we’re moving on,” Charter CEO Chris Winfrey said on a conference call. “This is not a typical carriage dispute. It’s significant for Charter, and we think it’s even more significant for programmers and the broader video ecosystem.”
Sources told THR that Charter and Disney have talked about a “transformative” deal that could offer the latter company a way to reach consumers directly without torpedoing its linear business. Still, those talks have seemingly stalled, even as ESPN pursues new business models, bigger partnerships, and potentially a strong direct-to-consumer push in the future.
“When I talk about a glide path for Disney, it clears the way for ESPN to go direct-to-consumer in a way that’s friendly, and doesn’t completely cannibalize their larger linear video revenues that they have,” Winfrey said. “It also works for us because it creates a glide path for us to create new marketing channels for new types of video products. We respect the quality product that Disney produces and its management team. But the video ecosystem is broken.”
Charter is preparing for the loss of Disney programming to be permanent. Other cable providers are also weighing similar problems. Small regional providers like WOW and Frontier Cable have already moved to offering YouTube TV rather than traditional cable television. Verizon likewise offers YouTube TV directly as an option, if Fios users would rather go that route rather than its traditional cable service.
Rebuilding Pay TV In Streaming
On the other side of the conflict, companies like Disney, Warner Bros. Discovery, and Paramount are quickly rebuilding the older pay TV model, but in a direct-to-consumer streaming context. It’s not like subscription-based streaming isn’t making money, but it’s much harder to figure out who gets a piece of the pie.
Under the old ad-based model, you charge sponsors for views per ad based on how popular a show or programming block was. With streaming subscriptions, how do you determine who gets a cut of the subscription fee? Do you divide the $15 per month by everything that user watched that month? They might watch the latest season of Stranger Things, yes, but they’re also probably watching six seasons of Blown Away or Nailed It in the same month. And the former is far, far more expensive than the latter.
The subscription model also means companies keep everything in-house, holding viewership close to the chest rather than sharing those numbers with creatives. With ad-based models, the numbers need to be more public, because ad companies and networks need to agree on ad rates. Metric transparency for streamers is one of the demands that the WGA and SAG-AFTRA share, as this affects residual pay.
Slowly, the major companies are rebuilding the old ad model once again. Netflix, Disney+, and Max all have ad-supported tiers now, offering a lighter subscription fees at the cost of advertisements. (Netflix is actually turning to Nielsen to measure viewership for its ad tier.)
There’s also been a major growth in free ad-supported streaming television (FAST), which is basically the old linear TV model pushed through streaming. Services like Roku, Pluto TV, Tubi, and Amazon Freevee offer hundreds of free, themed channels that users can watch without a subscription. Warner Bros. Discovery has promised its own FAST service — rumored to be called WBTV — and some of its shows will be on Roku and Tubi as it spins up its own service.
“I see FAST as a replacement for the old syndication business,” Chicken Soup for the Soul Entertainment CEO Bill Rouhana told CNBC. “To also syndicate your content through FAST channels, that’s probably wisest. It could create strategic value in addition to just cash. In a world where churn is a fact, having the ability to show those lost subscribers content again and get money while doing it can only be good.” Rouhana’s company runs its own FAST offering, Redbox Free Live TV, and several ad-supported streaming services, including Redbox and Crackle.
Warner Bros. Discovery boss David Zaslav has also floated another method of recapturing the old pay TV model with streaming: bundling. While some bundles already exist like Disney’s Disney+/Hulu/ESPN+ package, Zaslav believes that intra-company bundles will eventually happen.
“For me, it seems very clear that if we were to package this great product that we have with others, if you were to wake up tomorrow and in each market the number one, two or three products, if we were marketed with two or three, for specific price, it would be great for consumers, it would probably reduce churn,” Zaslav said at an investor conference earlier this year, according to THR. “If we don’t do it to ourselves, I think it’ll be done to us.”
Will we see a Max/Paramount+/Peacock bundle in our future? Anything is possible. What’s clear is that, with bundling and ad-supported viewing, an entire industry has walked backwards while trying to look like it’s moving forward. We’ve cut the cord, only to collectively find our way back to the same model, because at the end of the day, that model somewhat worked. Everything old is new again.
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