The ongoing fight between Charter Communications and Disney over cable carriage fees threatens to upend the linear television business with dire potential implications for Fox News.
Subscribers to Charter, the nation's second-largest cable provider, lost access to Disney-owned channels like ABC and ESPN last week after negotiations over a new deal stalled. Disney is reportedly seeking higher fees from Charter, while Charter counters that such fee increases are untenable with cord-cutting accelerating and wants to move toward a hybrid model that involves options for cheaper packages that don't include costly channels, as well as more expensive options that could include access to ad-supported streaming services.
If Charter prevails (or if it exits the cable business altogether, as it has threatened to do if it can’t reshape its model) that would have major ramifications for the industry — and in particular for Fox, which would see its business strategy overturned at a time when it was counting on increased cable carriage revenues to bolster its battered bottom line.
Fox currently faces a precarious situation. Its industry-leading ratings collapsed after the network cut ties with Tucker Carlson, the network’s biggest star, in April. They still remain depressed months later. Its parent company’s profits last quarter were wiped out by the massive defamation settlement it paid out to Dominion Voting Systems. And a similar suit seeking $2.7 billion is still making its way through the courts.
Fox’s path back to hefty profits rested on its ability to command high carriage fees, the payments TV networks receive from providers to distribute the network. The company has long reaped a windfall by charging cable and satellite companies substantially more than its competitors. Providers pay an average of $2 per subscriber for Fox, behind only industry-leading ESPN, while CNN receives $1.06 and MSNBC $0.36.
Fox executives were counting on boosting those already-high returns this year, reportedly seeking up to $3 per subscriber as they renegotiate the majority of their contracts. “We will be able to continue to drive the sort of industry-leading pricing both in a pay universe and a free universe and that pricing will certainly continue to ameliorate or balance any reduction in subscriber erosion, and subscribers across the universe,” Fox Corp. CEO Lachlan Murdoch predicted in an earnings call last month.
But those plans depend on the traditional model for cable television remaining intact — and that’s now in question. “Imagine if Charter or one of its rivals insisted that its customers not be forced to pay for Fox News Channel, which is the linchpin of Fox’s finances,” Variety’s Brian Steinberg wrote in a piece on potential fallout from Charter’s demands of Disney.