How the Disney-Charter feud over cable fees could burst the sports-rights bubble

• Disney and Charter’s public contract battle could hasten the shift of sports rights to Big Tech.
• Distributors are making it harder for legacy media companies like Disney to bid for valuable sports content.
• Companies like Amazon and Apple have been able to pay high prices that legacy media can’t.

The highly public contract battle between Disney and Charter Communications could have ramifications for sports rights — and the exorbitant prices they’ve demanded to provide TV’s most valuable content.

Charter, one of the largest cable companies with nearly 15 million subscribers in 41 states, wants to allow its customers to opt out of cable packages that include pricey sports networks.

Sports are critical to increasing viewership for Disney and its peers, and thus the payments they can extract from cable companies, which is why media companies have continued to pay top dollar for sports rights even as prices have risen.

According to S&P Global Market Intelligence, total US TV and streaming media sports rights are expected to exceed $30 billion by 2025, nearly doubling over the previous decade.

As their linear businesses decline, media companies such as Disney have been struggling to transition to a profitable streaming future. One method is to divert valuable content away from linear and into streaming. Most sports are available on streaming from Comcast’s NBCUniversal and Paramount, and Warner Bros. Discovery is adding sports to its streamer Max. Fox and Disney’s ESPN are expected to follow suit in 2025.

The media companies that have been most aggressive in this regard are caught in a Catch-22 situation. They want to give sports leagues as much distribution as possible so that they can compete for sports rights. However, airing sports outside of the cable bundle encourages sports fans to increase their cord-cutting, reducing their value to distributors like Charter.

Charter and other distributors are fighting back, refusing to charge their customers more for a linear offering that is losing the most desirable content. Charter wants to be able to offer them free Disney streaming services, including a planned streaming version of ESPN, in its recent proposal, which has resulted in an impasse with Disney.

According to experts who spoke to Insider about what it means for legacy media companies and their ability to compete for sports rights, the feud has been brewing for a long time as linear viewership has been declining.

“Historically, I felt media companies had the advantage with content,” said Naveen Sarma, senior director of US Media & Telecom at S&P Global Ratings. “The cable companies had no choice but to cave. The media companies appeared to get much of what they desired. We’ve been wondering why the cable companies haven’t taken a stand for several years.”

If Charter wins, Disney could lose a significant amount of money from customers who pay a monthly fee starting at $15 for a Disney Plus-Hulu-ESPN bundle. That’s the revenue it’s counting on to meet its stated goal of turning a profit in its streaming business by 2024. And if Disney holds firm and Charter walks away, as it has threatened to do if it does not get the terms it desires, Charter will take with it the $2.2 billion in annual revenue that Disney claims it pays to carry its channels.

It is not only Disney. Charter is likely to make the same demands as other sports rights broadcasters. WBD, whose Max starts at $16 per month for the lowest-priced tier, has a lot to lose as well. WBD CEO David Zaslav hinted in November that the company didn’t “need” the NBA, but has since backed down, saying he hoped WBD would continue to offer NBA games in the long term. According to UBS, Disney and Fox are the most reliant on sports, with sports accounting for 45% of their viewing in the fourth quarter of last year.

If distributors are successful in flexing their muscles, media companies will no longer be able to pass on the costs of those major sports leagues to distributors and their viewers.

“If broadcast and cable networks are unsure of their distribution future,” LightShed Partners wrote in a note dated September 5, “they will not be able to pay increasing fees for sports rights.” In fact, they may require lower sports rights fees to survive.”

Big Tech is one group of bidders who does not face this issue. Amazon, Apple, and YouTube have been aggressively bidding on sports rights and may make additional moves into the space if legacy media cannot afford the higher prices. However, the loss of that competition may cause prices to fall, according to LightShed.

Marty Conway, a Georgetown University professor of sports management and former Major League Baseball executive, told Insider that leagues have no interest in giving up fees or audience reach. He sees the NFL, NBA, and MLS continuing to squeeze out large fee increases through deals with Amazon and Apple that give them access to new markets and data that traditional media companies do not have.

“Tech companies aren’t going to just replicate the pay-TV model,” Conway said. “Some tech and streaming companies can be global and create custom packages for leagues.” There’s a lot of information here that the linear guys don’t have.”