As TV’s Great Rebundling Begins, So Does The Great Culling

After years of busting the cable bundle and strip-mining cable and broadcast networks for premium shows, the TV industry has been gingerly reversing course, figuring out how to reassemble its parts in future-forward ways that consumers will embrace.

That’s come to be called the Great Rebundling, now moving forward on several fronts. Less obvious, but now suddenly looming, is a related phenomenon: the Great Culling.

Dozens of low-viewership cable channels that once stuffed your set-top box are facing an existential moment. Will they survive the transition to streaming? Maybe not, as the industry decides who stays in the lifeboat, what happens to their shows, and what it means for everyone.

The landmark deal announced this month between No. 2 cable provider Charter and No. 1 Hollywood media company Disney is a template for the culling to come. Yes, Disney got to raise rates for its core channels such as ESPN, and, yes, Charter gets to carry (and sell) the Disney streaming services Disney+ and ESPN+.

But tucked into the official announcement was news that eight of Disney’s cable channels won’t be on Charter anymore: Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild and Nat Geo Mundo. That will save Charter an estimated $300 million to $350 million a year in carriage fees, according to analyst estimates.

“Charter is dropping long-tail cable networks while still preserving the most popular linear programming and getting access to more attractive (streaming) content,” UBS analyst John Hodulik said.

With the exception of tween-/teen-focused Freeform, the cashiered channels are mostly spinoffs of more sought-after Disney channels such as FX, National Geographic, and Disney Kids.

It’s true the endangered channels aren’t dead yet. Indeed, at least some are still profitable. But removing close to 15 million Charter households from their viewer base will whack not only carriage fees but also ad revenues.

The problem gets dramatically worse if (and more likely when) other cable providers strike similar deals with Disney when renewing their carriage contracts. That seems likely as the cable industry tries to right-size its relationship with Hollywood media companies, while finally grabbing a piece of the streaming opportunity.

Indeed, Charter CEO Chris Winfrey called the Disney deal “the framework for what should be developed throughout the entire industry.”

Presuming that’s the case, The Leftouts are effectively dead channels walking, if not right away, soon enough. The Charter deal won’t force their closure, but certainly reduces the funding available for new programming, marketing, and much else.

And the Disney Leftouts won’t be alone in the Great Culling as cable companies seek similar arrangements with other media companies.

The Great Culling represents a reversal of a decades-old Hollywood strategy built around the cable era: carve off additional channels from your must-have networks. When negotiations come along, force cable providers to take the new, less-sought-after channels or they won’t get the most important channels either.

That worked as long as the media companies had leverage, which they did for years thanks to crowbars such as the NFL. This time, Winfrey convincingly said he was willing to dump the entire cable bundle without a different deal. Eventually, Disney caved.

The resulting deal likely will set off a cavalcade of similar changes, analysts suggest, Most vulnerable, for now, are standalone services such as Freeform, NBCU’s Oxygen, or Paramount
PARA
Global’s Logo.

Wells Fargo
WFC
analyst Steven Cahall wrote in a Sept. 13 note that the most likely culling targets “generate low affiliate fees/viewership and where the content is available on streaming.”

Cahall suggested more than two-dozen cable channels are “at risk,” including Fox Deportes, CNN International, Syfy, CNBC World, Nick Jr., and various BET and MTV spinoff channels.

Comcast
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has been quietly killing off cable channels here and there for years. It is both the biggest cable TV provider, and possessor of NBCUniversal’s skein of cable channels. So perhaps more than most of its competitors, Comcast has been motivated to trim where it can.

Remember, vaguely, the Esquire network? It was mostly a beloved magazine brand looking for a reason to exist in video. It never found that reason. In 2017, Comcast emptied that closet of stylish but pricey clothes. As I wrote back then, it was an extremely early harbinger of what now looms over the rest of the industry.

Cahall suggested that Comcast channels such as CNBC World, Universal Kids, Olympic Channel, and E! are also among the most at-risk networks for a cull. Comcast, by the way, might not be the most vulnerable media company either, Cahall wrote.

Paramount, built by Sumner Redstone in the 1990s around a batch of big-name cable networks such as MTV, Comedy Central, and VH-1, “is the worst positioned for a future skinny bundle era,” Cahall said. Warner Bros. Discovery also has “sizable exposure.”

Even if the two strikes strangling Hollywood now are soon resolved, it could be a very ugly 2024 for several corners of all the big media companies as the Great Culling begins to accelerate, and reshape Hollywood.