Disney, Charter rates dispute spills over to TVs as ESPN, ABC go dark

(Reuters) -Walt Disney and Charter Communications traded salvos over their unresolved distribution agreement after several channels including ESPN went dark on Thursday for customers of Charter's Spectrum cable service.

Disney pulled ESPN, ABC and other cable channels off Spectrum, which serves huge markets including New York and Los Angeles, in the middle of U.S. Open tennis coverage as well as other live sporting events including college football.

Charter flashed a message on screen that urged viewers to contact Disney. "We offered Disney a fair deal, yet they are demanding an excessive increase," it read.

"The rising cost of programming is the single greatest factor in higher cable TV prices and we are fighting to hold the line on programming rates imposed on us by companies like Disney."

The dispute is mainly over sports network ESPN, which does not have a streaming service and is a big cable attraction despite losing subscribers each year to cord-cutting.

Disney said on Friday it had offered Charter "the most favorable terms on rates, distribution, packaging, advertising and more".

"Charter has refused to enter into a new agreement with us that reflects market-based terms," Disney said in its statement.

The media giant added that it is ready to get back to the negotiation table to restore access to content.

Charter said on Friday ESPN was the "lynchpin" of its video business. The company's shares fell 2%, while Disney dropped 2.7%. Other media firms including Warner Bros Discovery and Paramount Global lost between 4% and 6%.

"We're very disappointed for our fans and viewers around the country that Spectrum and Charter could not resolve their dispute with Disney, resulting in a loss of ESPN coverage of Thursday night's matches," the United States Tennis Association said in a statement on Friday.

"We're very hopeful that this dispute can be resolved as quickly as possible."

Rosenblatt Securities said Disney might have "more to lose" than Charter. The institutional brokerage said Disney could lose billions in profits each year from its traditional TV business if an agreement was not reached.

"An extended fight with Charter might accelerate Disney's DTC (direct-to-consumer plans)." Analysts have said Disney has been reluctant to swiftly roll out a DTC plan for ESPN as it needs cash from its profit engine to fund money-losing streaming service, Disney+.

CEO Bob Iger said in July Disney wants to find a strategic partner for ESPN to form a joint venture or buy a stake to help take it directly to consumers.

"Charter and Disney are ideal partners to establish hybrid linear TV and direct-to-consumer model," Richard DiGeronimo, Charter's president for products and technology said on Friday.

The company, which serves more than 32 million customers in 41 states, has been paying about $2.2 billion in annual programming costs to the entertainment giant.

(Reporting by Chavi Mehta, Jaspreet Singh, Zaheer Kachwala and Akanksha Khushi in Bengaluru; Editing by Nivedita Bhattacharjee, Arun Koyyur and Maju Samuel)