Business partners finally push back on Disney after years of Mickey Mouse getting away with sweetheart deals

Seeing weaknesses in the Disney empire, many of Disney's business partners
are now pushing back against Mickey Mouse to roll back many of Disney's
previous sweetheart deals
This year has seen the first real major signs of weakness from the Walt Disney Company, not only from less consumers buying its products and services and Wall Street investors losing faith in the company, which has pushed down the value of Disney shares, but now even Disney's business partners, whom Disney has been able to get the upper hand in contracts and agreements for years, perceive Mickey Mouse as being weak, as they are now hitting back hard on the Mouse when the chips are down for Disney.

This past month, the first major national cable operator up for renewal contract talks with Disney, Altice's Optimum cable service (which serves nearly 2.6 million subscribers in New Jersey, Connecticut and Pennsylvania), has fired the first shot against Disney's media networks by balking at Disney's contract renewal demands to substantially increase its subscriber carriage fees for distribution rights to its various cable and network TV channels, most notably for ESPN, ABC TV, and the various other Disney channels.


Disney, in turn, responded very uncharacteristically by publicly threatening to pull all its channels from the Altice cable line-up. This very public move was an unprecedented move for Disney because in the past it had previously only relied on its considerable leverage and industry clout behind the scenes, rather than very publicly threatening cable providers to yank its channels, to get its way for carriage fee contracts.

Altice USA CEO, Dexter Goei and Altice founder, Patrick Drahi, handed Disney
its hat during their cable TV renewal contracts, according to insiders
By all appearances, Disney no longer seems to have the kind of clout it used to enjoy to get its way in negotiations with its business partners anymore.

For years, Disney had been able to get its way with all the cable providers by demanding substantial rate hikes whenever contract renewals came up because it used to be thought as industry dogma that big-ticket live sporting events broadcasted on ESPN would be the saving grace in the pay-TV industry that was immune to the phenomenon of cord-cutting.

However, that has been proven to be completely untrue as even cord-cutting has significantly eroded ESPN's profitability with substantial subscriber losses and steep ratings declines just within the last decade.

Thus, ESPN could not be leveraged in the same way that Disney previously used it as a bargaining chip in the past to get cable providers to accept an outrageous rate hike without even so much as a fight.


All Disney media properties—including ESPN—have been on the ratings and subscriber slide of late consistent with the phenomenon of cord-cutting, losing millions of subscribers and seeing ratings precipitously fall at an alarming rate with the advent of new online streaming video services.

Consumers have many more options, other than the traditional cable subsctiption
bundle, these days to justify paying hundreds of dollars a month for pay TV for
many channels they don't even watch
These days, nothing seems to be able to stop viewers from jumping off their old, clunky and very expensive cable-bundle subscriptions to opt for cheaper and more consumer-friendly online streaming service choices that have emerged within the last decade, such as Sling TV, Netflix, AppleTV, Amazon, Chromecast, Playstation Vue, DirectTV Now, YouTube, Hulu, and the like.

Thus, it seems in the face of overwhelming and indisputable evidence of declining subscriber numbers and failing ratings for all Disney media properties, Disney has no business in demanding a substantial rate hike from cable operators to carry their cable and media network channels because they simply can't back up their unreasonable demands with any proven ratings to show they can add any true value to any cable line-up that Disney media properties used to in the far distant past.



After all, the costs of giving into these kind of unreasonable demands of significantly raising carriage fees will only be passed onto the consumer with significantly higher cable bills, which in turn will, most assuredly, drive away many more subscribers from their cable subscriptions to find more affordable and consumer-friendly entertainment options elsewhere.

It's not in the interests of cable providers to help Disney with rate hikes in its cable
TV businesses when Disney plans to become a direct competitor in online streaming 
video services starting next year with the rollout of ESPN and Disney OTT services
For cable operators these days, any needless rate hike in cable services would most assuredly result in a loss of significant market shares to their up and coming online streaming competitors.

Not only that, but cable providers are already really irked at Disney's own recent decision to become one of those competing online streaming over-the-top services when ESPN goes direct to consumers next year and other Disney content goes online in 2019 using its recently acquired BAMTech techonologies.

Clearly with Disney's own future decision to become a direct competitor to the cable companies, why should the cable providers help maintain profits and revenues at the Walt Disney Company in the meantime while Disney itself is plotting to undermine their declining cable bundle subscription business model? These days for content providers like Disney, you're either with the cable subscription bundle, or you're against it.


All the cable companies have no choice but to push back hard against Disney in their renewal talks because Disney has proven to be a future liability rather than an asset to the cable companies' business interests.


Thus, cable providers like Optimum have no choice, but to do what's right by their customers in trying to keep a tight lid on costs to try to retain their already shrinking customer base.

When people tune into ESPN these days, it's difficult to tell if they are watching
sports or an editorializing, evangelistic political news channel like MSNBC
Because of these immense financial pressures placed on the traditional media and cable companies, it would be in everyone's interests (i.e., Disney and the cable providers) to try to do whatever they can to retain their already shrinking subscriber base to maintain whatever remaining stability they have left of their sagging business model by controlling costs of cable bills to their consumers.

So why would Disney ever think they deserve a big pay raise, such as doubling their fees, when they have been performing so poorly on the ratings front?

A declining business like ESPN certainly has less clout in demanding significantly higher carriage fees from cable subscribers, whom largely have been shown to not even watch the channel in their channel lineup, according to various industry sources, such as A.C. Nielson.



In fact, cable providers want the option to exclude expensive sports channels like ESPN from certain cable packages to help reduce costs and give more service options to their customers.


Clearly, the reason for Disney's unreasonable move now is because of greed and a major business miscalculation on Disney's part in paying for huge sports broadcasting rights fees to the professional sports leagues up front.

But that burden is not cable providers' nor the consumers' responsibility to bear. It's Disney's responsibility because they simply made really bad business deals in negotiating broadcasting right with the sports leagues.


Thus, a needless rate hike at this time is a losing argument for Disney because demanding a doubling of their rates from cable subscribers, when less and less people want their products and services, seems completely unreasonable and absurd. After all, why would anyone pay more for getting less from a failing media company who itself is massively laying off its own staff and drastically cutting its own costs to help preserve its own bottom line?

All Disney media properties have been seeing significant ratings declines in recentt
years, prompting massive layoffs and drastic cost-cutting measures at ESPN, ABC TV,
and Disney Channels
Clearly, Optimum has the upper hand in these negotiations because they are fighting on the side of their customers to prevent any needless rate hike which would ultimately hurt their own business interests in the long and short runs.

Thus, it came as no surprise that Disney flinched twice during heated negotiations with Altice and finally threw in the towel in their unreasonable demands to significantly hike prices to New York's cable subscribers.

First, Disney flinched by extending the deadline from Saturday, when the previous deal expired, to Sunday afternoon because of the excuse that it supposedly coincided with the Jewish holiday of Yom Kippur.

Give us a break! Everyone already knew Yom Kippur coincided with the original deadline, and this was a concession that only Disney could have given as Optimum really had no say to make the decision to extend the deadline from its end of the contract. Not only that, Disney's CEO and Chairman, Bob Iger, is Jewish to boot.

Disney thus extended the deadline without any concessions or incentives from Optimum: Advantage Optimum.


Then Disney very predictably came to a tentative deal with Altice right before the deadline was to hit at 5:00 p.m. on Sunday to avert a blackout of all Disney-owned channels from Altice cable outlets.

The proof of ESPN's declining clout in pay TV is in the pudding
Clearly, all the concessions in the agreement came from Disney's end, and not from Optimum, because Optimum already demonstrated it was willing to take the hit of a complete blackout from Disney without so much as a blink of an eye.

There's no doubt a lot was riding on the outcome of this particular dispute, which represents the first major renewal deal for Disney's media networks with the cable providers in nearly three years, and the first since ESPN's fortunes began faltering.

An Altice USA spokeswoman said it best in a prepared statement against Disney: “Despite the fact that viewership of their programming by Optimum customers has been declining in the double digits for years, ESPN and its owner are demanding double the rates for ABC for the same content they offer today, exorbitant fee increases for ESPN, and are trying to force customers who don’t receive ESPN to have to pay for it.”

From all appearances, Disney was handed its hat by Altice in its first major test. Next up: Verizon, Spectrum (formerly known as Time-Warner Cable), AT&T, and Comcast.


Because Disney made the very big mistake of chosing to make its dispute so public, Wall Street will also take notice of Disney's precarious predicament beginning on Monday as the stock markets open again.

This is the first of many cable TV renewal contract negotiations coming up where Disney will face an uphill battle to maintain its cable revenues by hiking carriage fees to offset massive subscriber losses, and it doesn't look like a fight that Disney will likely win.

Disneyland finally sees push back from the City of Anaheim

The massive Mickey & Friends Parking Structure cost the Anaheim taxpayers
$108.2 million to build, but the city then turns around and leases the public structure 
to Disneyland for only $1 a year, who then charges visitors at least $20 per car to park
This, however, is not the only front where Disney is facing significant push back from its previously acquiescent business partners.

Last week, the Los Angeles Times ran a three-part series entitled, Anaheim's Subsidy Kingdom, on the changing political climate at city hall in Disneyland's hometown of Anaheim, California, where city leaders are now on the precipice of pushing back on the Disneyland theme parks after decades of giving away billions of public tax dollars and freebies to Mickey Mouse on the backs of Anaheim's taxpayers.

The story is nothing new since the shocking election results of overturning the Disney-friendly city council shook the political landscape of Orange County back in November of 2016, but it comes at a pivotal time when it appears that the newly elected city leaders are ready to slap significant new taxes onto the resort after giving away the city's coffers to Mickey Mouse for decades.


Here again, Disneyland has a losing argument to fight against the City of Anaheim. All the corporate welfare given to Disney by the city (e.g., the Mickey & Friends Parking Structure which cost hundreds of millions of dollars to the city to build and is rented to Disney for only $1 a year, the city's refusal to tax Disneyland's admission tickets, etc.) has in the past been put on the backs of city taxpayers, and they don't see a lot back from the Resort.

Widespread poverty in Anaheim, particularly in the Resort District, makes
neighborhoods vulnerable to gang activity and crime, such as in the east Disneyland
gang injunction zone of Haster and Wakefield, home of the notorious Boys From the
Hood street gang next to Disneyland's Toy Story parking lot
While Disney claims they create jobs for the city, the average income for residents in the the City of Anaheim is around $61,000 and is significantly lagging behind other major cities in Southern California. The reason that is so is because the average annual salary of a worker at Disneyland or the Anaheim Resort District is more than half that, which drags down the average earnings of Anaheim residents.

Thus, Disneyland is not doing its part in giving back to the community it resides in, and may be actually be contributing to poverty and the urban blight associated with widespread poverty in the City of Anaheim by driving down wages of Resort employees who reside within the city.

After all, Disneyland is the biggest employer in the area, and all it is contributing to the demographic make-up of the city is a very large number of menial burger-flipping workers. Unfortunately for the city, the contribution of some 15,000 to 20,000 minimum wage workers within the Resort District is not the kind of upscale demographics in residents that a city in the relatively affluent Orange County covets or is even use to.


Thus, with all the uphill business challenges for Disney in the near and long-term future, without enjoying the perks of so many sweetheart business deals from its previously acquiescent partners and being entrenched in so many businesses on the decline in the age of digital disruption (e.g., studio entertainment, cable TV, media networks, etc.), the argument that Disney's financial future is bright no longer can be made with potential Wall Street investors.

Sources:

Comments

Post a Comment