5 Reasons Why Disney Pulled the Plug on Cablevision

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by: Diane Mermigas

Although the shifting economics of TV are treacherous, there are five reasons why Walt Disney (NYSE:DIS) felt empowered to yank its New York WABC-TV signal and live Oscars telecast during stalled negotiations with Cablevision (NYSE:CVC), and why it could do it again in a looming retransmission-fee tussle with the much bigger Time Warner Cable (TWC).

  1. Disney had nothing to lose and everything to gain. The $40 million in annual retransmission fees Disney sought from the cable operator represent the first time it is being paid separately to provide its flagship station signal. Cablevision already pays $200 million annually to carry the ABC network. Even if Disney only receives between 55 cents and 65 cents per subscriber (instead of the $1 per sub it demanded), it is a new source of revenue for its struggling broadcast operations.
  2. Disney is now empowered to use hardball tactics with other distributors who know it will pull the plug. Disney must negotiate a new retransmission agreement by August with Time Warner Cable, which has about 14 million basic cable subscribers. Time Warner Cable recently signed a new retransmission pact with Fox, reportedly agreeing to pay 75 cents per subscriber by 2015.
  3. Disney’s Oscars advertising revenues were assured. Cablevision’s 3 million east coast subscribers are a fraction of the 41.3 million national viewers for Sunday’s Oscars telecast (or 26.5 percent of all US TV homes), according to Nielsen. ABC’s advertising sales for the Academy Awards reportedly did not include minimum ratings guarantees. So, regardless of the national ratings — with or without Cablevision coverage — ABC keeps all of the revenues.
  4. Disney’s live Oscars telecast was the only game in town. ABC received less money for a 30-second spot than it has in recent years and lost some traditional Oscar sponsors such as General Motors and L’Oreal Paris. It expected to make about $68 million in ad revenues, or 16 percent less than last year, according to TNS Media Intelligence. But ABC was the only traditional or online media licensed to telecast the entire live awards show.
  5. Disney is a multinational media conglomerate with bigger fish to fry. Disney’s savvy CEO Bob Iger is capitalizing on radical digital change and determined to grow core business revenues, even if it means upsetting conventions. The weekend premiere of its 3D Alice in Wonderland broke box office records with $210 million in receipts. Still, theater owners are upset about Disney’s plans for the early DVD release of Alice within 12 weeks, instead of the customary 17 weeks, of the film’s box office debut.

Of course, the ultimate risk is that consumers fed up with such heavy-handed shenanigans by Disney, Cablevision and their peers will black-out traditional media in favor of streaming online video, social networks and other new options.

In the case of the Oscars, some viewers may have discovered they are satisfied catching real-time glimpses of Red Carpet fashions and interviews on the Web, along with real-time blogging on winners from the awards ceremony, about which they can Tweet and post on social networks. That personalized experience could prove a more pleasurable alternative to enduring three hours and 37 minutes of live Oscars, 18 percent of which is advertising and promotions.

Recession-weary consumers have questioned the value of cable TV subscriptions that cost upwards of $50 per month, when they can opt instead for less costly Internet-connected options. The Oscar brouhaha appears to have pushed some over the edge. Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) reported increased sales of converter boxes, and DirecTV (DTV) said there was a spike in requests for new services over the weekend. Cable customers canceling their service over the Disney rift could cost Cablevision up to $2,000 in video subscription profits over the average four-year contract, Bernstein Research analyst Craig Moffett told The Wall Street Journal.

Maybe Mickey’s not in charge after all.

Disclosure: No positions