By Dawn Chmielewski

(Reuters) -Walt Disney and Charter Communications said on Monday they have reached a deal that will see the media giant’s networks, including ESPN, return to the Spectrum cable service just hours before the start of NFL “Monday Night Football.”

News of the potential deal eased some fears that the traditional cable TV bundle, long a profit-engine for media

companies, could be nearing its end, sending shares up over 2% across the industry.

The agreement gives Charter new tools to combat so-called cord-cutting where viewers ditch pay-TV for Internet-delivered options, while furthering Disney’s goal of growing its video streaming business, executives said.

“Both our companies threw out the traditional playbook and focused on the consumer,” Disney Entertainment Co-Chairman Dana Walden said in an interview.

ESPN, FX and other Disney channels disappeared from Charter’s cable service on Aug. 31 after the companies failed to reach an agreement over channel fees and how to package them. It deprived nearly 15 million subscribers to Charter’s Spectrum TV service access to the U.S. Open tennis tournament, college football and other programming.

But what was a routine dispute in previous years became a referendum of sorts on the future of TV as the media business is squeezed by a decline in cable TV subscribers while newer subscription streaming services launched to combat Netflix struggle to reach profitability. 

Charter’s Winfrey described the pay-TV business as being “on the edge of a precipice” as the industry has lost 25 million customers over the last five years.

He sought greater flexibility in the packages it sells to customers, and the ability to offer the ad-supported version of Disney+ at no additional fee to Spectrum subscribers.

Maintaining cable TV revenue is also critically important to media companies like Disney, as they invest resources in streaming services that have yet to break even.

COMPROMISE

Under the new agreement, Charter will be able to offer subscribers to its most popular video package, Spectrum TV Select, access to the ad-supported version of the Disney+ service at no additional cost, one of its key demands in negotiations.

However, Charter will pay Disney a wholesale fee to do so, similar to an agreement Disney struck with Verizon in 2019, when the telecommunications giant offered its mobile phone customers a year’s free access to Disney+.

Charter also will provide the ESPN+ streaming service to customers who subscribe to its sports-focused Spectrum TV Select Plus plan at no additional charge. Once Disney’s flagship ESPN network is available as a streaming service, it also will be available to Spectrum subscribers.

ESPN will be distributed to 85% of Spectrum cable TV subscribers, a number that would drop to 80% when the sports network is offered as a streaming service, according to one person familiar with the matter.

As part of the agreement Charter also will begin offering to sell subscriptions to Disney’s ad-free streaming services, Disney+, Hulu, ESPN+ and Disney’s bundle, to its 30.6 million broadband customers.

“We believe that today’s deal reflects a trade-off from linear economics,” wrote Michael Morris, analyst with Guggenheim Securities Equity Research, using industry terminology for the traditional TV business.

“But positions both Disney and Charter to drive value amid the shift toward streaming in the digital future.”

Rich DiGeronimo, Charter’s president of product and technology, hailed the agreement with Disney, saying, “we do think (this) does provide the opportunity to stem video cord-cutting.”

Spectrum will no longer carry Baby TV, Disney Junior, Disney XD, Freefor, FXM, FXX, Nat Geo Wild or Nat Geo Mundo.

Walden said the programming from these cable channels, which target specific demographics, will ultimately reach viewers through Disney’s various streaming services.

Disney shares rose 1.7% while Charter was up 2.4%. Rival media companies Warner Bros Discovery and Paramount Global gained 2.3% and 2%, respectively.

(Reporting by Akash Sriram in Bengaluru; Editing by Maju Samuel, Marguerita Choy and Deepa Babington)

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