Disney, Charter End Dispute, Restoring ESPN, ABC to 15 Million Households; Deal allows Charter to provide Disney+ and ESPN+ streaming services to its pay-TV subscribers

Disney and Charter Communications have reached an agreement that will restore popular channels, including ESPN and ABC, to the cable operator's nearly 15 million subscribers, ending a blackout that lasted for more than a week .

The agreement comes just hours before ESPN's coverage of the first "Monday Night Football" game of the season—a highly anticipated matchup between the New York Jets and Buffalo Bills.

It also marks a seminal moment in the oft-fraught relationship between pay-TV providers and entertainment companies , which have been at loggerheads in recent years as the continued rise of streaming upended their respective businesses.

Under the terms of the deal announced Monday, Charter has agreed to pay Disney higher rates to carry its TV channels, in return for being able to provide the Disney+ and ESPN+ streaming services to its Spectrum pay-TV subscribers, which was a big point of contention during the standoff.

Specifically, the ad-supported version of Disney+ will be included in Spectrum's TV Select video packages, which are among the cable operator's most popular. The ad-supported ESPN+ will be available to Charter customers who subscribe to a tier that includes other sports channels such as regional sports networks.

In addition, when Disney releases its much-anticipated direct-to-consumer version of its ESPN cable channel—which is separate from ESPN+—Charter pay-TV customers will be able to get it as well.

"This deal sets the framework for what should be developed throughout the entire industry," said Charter Chief Executive Chris Winfrey in an interview. Winfrey added that Disney's willingness to meet Charter halfway gives the entertainment giant an opportunity to "transform the video business model."

Disney executives acknowledged that the agreement with Charter represented some concessions but said they felt the new price terms the company got for its TV channels—as well as the boost the deal is likely to give its streaming services' reach and advertising revenue—will make it worthwhile.

"We are prepared to make trade-offs to focus on those priorities," said Dana Walden, co-chairman of Disney Entertainment, in an interview.

As part of the agreement, some Disney TV channels previously carried by Charter have now been dropped, including Freeform, Disney XD and FXX, the companies said Monday.

The fight between Disney and Charter was being closely watched by the rest of the industry, because the dispute wasn't primarily about money. Instead, the standoff became a referendum on the future of television .

After Disney and Charter failed to agree to a carriage agreement by an Aug. 31 deadline—leading Disney channels to go dark for Spectrum customers—Winfrey said: "The video ecosystem is broken."

Winfrey expressed frustration about paying higher fees for Disney-owned channels while Disney was investing heavily into streaming services that compete directly with Charter's cable business. He said Charter was willing to pay Disney more for their channels, but only if in return it could give its customers complimentary access to the streaming services.

Disney initially balked. But with "Monday Night Football" looming and the prospect of some of the biggest markets including New York and Los Angeles being blacked out, a deal was hammered out.

"We were all hard at work over the weekend," ESPN Chairman Jimmy Pitaro said in an interview, adding that Disney wanted to protect the current pay-TV model which "has been very good to us."

Charter's Winfrey said: "We achieved all of our objectives."

While there are groundbreaking aspects to the Disney-Charter deal, it might not become a new model for the industry, Walden said.

"I don't consider this a blueprint," Walden said, because she said not every distributor has the same goals as Charter. "It's more an indication that we are in a time where distributors and consumers want flexibility, and thanks to our portfolio mix, we were able to offer that flexibility."

For Charter, the pact allows the cable operator to give its pay-TV customers access to popular content from Disney+, such as its Marvel and Star Wars original shows.

Analysts said Charter doesn't make much money selling pay-TV packages, while its broadband-internet business is very lucrative, which gave it plenty of leverage in its fight with Disney.

The pay-TV giant on Monday said it would market Disney+, Hulu and ESPN+ to its broadband-only customers. Charter will get a share of revenue as part of that effort, according to people familiar with the matter.

For Disney, the addition of nearly 10 million homes will provide Disney+ with a bigger potential audience to sell advertisers. Being part of a Charter offering could also help Disney+ decrease the rate of customer cancellations , said Alan Bergman, co-chairman of Disney Entertainment.

As indicated by its willingness to leave several of its channels out of the Charter deal, Disney is exploring how to slim down its own exposure to the TV business. Disney CEO Bob Iger in July said the company's legacy TV networks, including ABC and FX, "may not be core to Disney," though ESPN still is.

ESPN, meanwhile, is hunting for a strategic partner to aid its transition to streaming. The network has held talks with potential partners and investors. It is working to make a stand-alone version of its flagship TV channel available to cord-cutters in two to three years, The Wall Street Journal previously reported.

"Taking our ESPN flagship channels direct-to-consumer is not a matter of if, but when," Iger told investors last month.