Disney-Charter fight could be the start of the TV bundle breaking

The financial dispute between Disney and Charter highlights the growing tensions between content providers and cable and satellite operators as cord-cutting threatens to permanently unravel the cable TV business.

Why it matters: If this fight isn't resolved, the entire business model for the traditional cable TV industry could be on the verge of collapsing.

Driving the news: Disney channels, including ABC, ESPN and FX, have been blacked out since Thursday for Charter's Spectrum cable customers after the two failed to reach a new carriage agreement.

• During an investor call on Friday, Charter said it was expecting to pay Disney more than $2.2 billion for the right to carry its content for the year, but given how much the cable ecosystem is changing, renewing a traditional distribution deal in line with Disney's current offer "would ignore the realities of today's video business and accelerate its decline."

Charter argued that Disney's requests, which included things like "higher license fees" and "less packaging flexibility," continue to "ignore the realities of a shifting marketplace."

Disney argued that losing ESPN "is a major issue for consumers since it's one of the most popular channels." It said Charter's demand to distribute ESPN's streaming services for free "does not make economic sense."

What's happening: Disney on Monday began messaging to Spectrum customers that if they were frustrated with losing access to Disney programming, they could sign up for Disney's digital live-TV offering, Hulu with Live TV, as well as any other live-TV streaming services like DIRECTV Stream, YouTube TV, Sling and Fubo

• Disney has already begun to pull in its biggest personalities, such as ESPN's Stephen A. Smith, to echo its message directly to consumers.

The big picture: Rather than bash Disney for asking for too much money, Charter told its investors it needs to either rethink the cable bundle or get out of that business entirely.

• The cable giant essentially said that the Disney dispute is emblematic of the entire video ecosystem being "broken."
• "This is not a typical carriage dispute," Charter said. "It is significant for Charter, and we think it is even more significant for programmers and the broader video ecosystem."
• Charter is the country's second largest cable TV operator with nearly 15 million subscribers, second only to Comcast. Its footprint is heavily weighted toward the Los Angeles and New York City area markets.

Be smart: Channel blackouts have become more frequent in recent years, as TV companies push to charge more for their content than cable and satellite providers want to pay.

• Since 2015, TV networks have more than doubled the amount of money they've charged cable companies for distributing their programming, despite the fact that pay-TV subscriptions have declined by more than 40%, according to data from S&P Global and MoffettNathanson.

Between the lines: ESPN's bevy of live sports rights has made it the most expensive cable channel by far. But while sports still drive big viewership, they no longer hold the bundle together as well as they once did.

• ESPN has been preparing for the inevitable collapse of the cable bundle by building its own stand-alone streaming app, ESPN+. It also plans to break out ESPN into a separate streaming service.
• Disney is in the middle of looking for a strategic partner for ESPN to help with distribution of its forthcoming direct-to-consumer offering.

What's next: It's possible that the two sides could still come to an agreement. Sports Business Journal's John Ourand reports that Charter president and CEO Chris Winfrey and Disney CEO Bob Iger have been in contact over the weekend.