Hey, I got ESPN back on my cable! But the changes are still coming.

My wife and I live in Madison, and have Charter/Spectrum for both Internet and cable, mostly so we can watch Brewers games and other live sports. It also meant that we had been missing ESPN, ESPN2 and related "regular ESPN" channels since September 1, due to a dispute between the Disney Corporation and Charter over proper compensation between the two.

Up until today. On the morning of a day when ESPN was to get (or lose) one of their larger audiences of the year, we got ourselves a deal!

The blackout fight between cable giant Charter Communications and Disney is over.

Hours ahead of “Monday Night Football,” which airs on Disney’s ESPN, the companies reached a deal that would allow millions of Charter cable customers to watch the game.

Terms of the deal are said to include a discounted wholesale price for subscribers for Disney streaming services, and an increase in marketplace, or subscriber fees, paid to Disney, CNBC’s David Faber reported, citing sources.

But how did we get in this dispute in the first place, and what does it mean for both cable companies and cable channels in an environment where we consume TV in a much different way than we did a decade ago?

That's where I want to direct you to a summary by Ben Thompson at Stratechery, in an article called "The Rise and Fall of ESPN’s Leverage". UW-Madison graduate Thompson wites most of his items about the tech economy (well, when he's not writing about the Bucks), and he notes that in its early years, ESPN couldn't get enough advertising dollars from its programs to make ends meet. So it developed a model where much of its revenue came from charging cable companies to carry their channel.

Thompson quotes the 2011 book Those Guys Have All the Fun, which went deep on the history of ESPN, and how the Worldwide Leader operated in the studio, as well as the boardroom. An early ESPN exec described the setup as follows:

This was, like, ’83; at that time we had boxing one night and skiing, tennis, and a whole bunch of other stuff on the schedule. We were talking one day about the fact that there was a lot of college basketball becoming available. I said, “You know, we could get basketball six nights a week. Our weekly ratings in prime would really go up.” But Roger [Werner] said, “That’s true, we could probably get a better rating. But they’re only numbers. We’re now in the business of subscriber fees. So what we want is as diverse programming as possible. Even if a program like skiing or auto racing gets a lower rating, there are people who will never watch a basketball game. So we should now think a little bit differently.” This was totally contrary to what I had grown up with in the business — rating, rating, rating. Get the highest ratings we can get. But Roger was right. We didn’t want all our ratings from one thing, because it’s only those hundred people who watch the skiing event that’ll yell like hell if the cable operators ever do decide to drop ESPN. His belief that sacrificing a little bit of ratings to have greater variety was going to create more rabid fans of ESPN was absolutely right.

Werner was right: ESPN could raise its affiliate fees, and cable operators that tried to drop them in protest were overrun with complaints, quickly adding the channel back. By 1986 ESPN was charging around 27 cents per subscriber, and then they signed a deal with the NFL, adding a 9 cent surcharge to their fees; cable operators could choose to not show the game (and avoid the surcharge), but within weeks nearly every cable operator realized their customers would not tolerate not having access to the NFL.

And this system built upon itself for more than 30 years, making ESPN a network that could command major dollars from cable companies. Because cable TV as a product to sell to consumers wouldn't have a lot of value without having channels like ESPN in the lineup.

Then when ESPN started getting the rights to broadcast major professional spors on its airwaves, it grabbed more eyeballs, which it used to justify higher asking from cable companies.

….ESPN paid $153 million over three years for those NFL rights; the first broadcast reached 45 million homes, earning the network an incremental $4.05 million/month, just about enough to cover the NFL rights. What was more important is that the NFL attracted new subscribers which paid ESPN’s full fees, which amounted to over $12 million a month. Moreover, ESPN also got rights from the NFL for unlimited access to highlights: that fueled studio shows like NFL Primetime and SportsCenter that cost very little to produce, yet both attracted large audiences (for advertising), and made the NFL and other sports even more popular. The flywheel was fully engaged.

And that worked for decades, but as streaming and Internet-based TV viewing has become more common in recent years, the cable broadcasting-centric way of doing business has broken down. And it's the "watch TV via cable" part that has especialy diminished, making TV services a loser for cable companies.

Of course for a long time it was very profitable to carry both [cable channels and Internet], along with voice: cable companies offered “triple play” bundles that included TV, Internet, and telephony. Over time the telephony part dropped off, as people used mobile phones exclusively; cable carriers have since moved into the mobile carrier space as well, fueled by profits from TV and broadband Internet. What made the Internet part the most valuable, though, is that the cable companies didn’t need to pay for content: everything was just a packet.

That, though, was also the problem: some of those packets reformed themselves as Netflix video streams, which ate into time spent watching TV. Worse, Netflix’s stock was rising and rising as it acquired ever more customers, much to the chagrin of Hollywood, which felt entitled to those multiples given they were the ones producing the most compelling content. That resulted in the fateful decision to start their own streaming services, impoverishing the TV bundle…

Right after ESPN went dark on their stations, Charter gave a presentation to its investors, and Thompson pointed out a part where the cable company indicated it might look to disconnect from some cable channels, including a final panel noting that "the video product is no longer a key driver of financial performance."

Now that people are cutting the cord and getting their broadcast content directly from providers like Hulu or YouTube TV, it lessens the ability for cable companies to charge those higher fees from ESPN and other channels onto consumers.

Thompson's article also included another slide from Charter's presentation which describes this downward spiral, especially when it comes to sports programming. Now that people can use what Charter describes as SVOD (streaming services), it's a lot easier to get the channels you want without having to get a cable package, and sports channels are no longer a “need-to-have” for cable companies.

So now it becomes a question of whether cable companies like Spectrum are able to negotiate better prices with stations like ESPN, or whether Spectrum still needs channels like ESPN to keep having customers subscribe to their TV packages, and will pay up. Or if both go lose-lose, ESPN stays off of Charter, and we go into an entirely new paradigm.

Thompson mentions that the current situation may lead to a new type of "bundle", where streamers might use cable companies as their means of access. And it makes sense, because you need the Internet to get the streamers, so why not have an upgraded Internet speed that allows you to maximize Netflix, Hulu, and sports apps?

Which comes back to today's agreement. I was surprised Disney was able to get more money from Charter….until I looked at the press release describing the agreement. In addition to the ability to order Disney-owned streaming channels through a Charter cable package, I note that Charter is now set up to be a place you can get bundles of other streaming services through.

Charter will also use its significant distribution capabilities to offer Disney’s direct-to-consumer services to all its customers – in particular its large broadband-only customer base – for purchase at retail rates. These include Disney+, Hulu and ESPN+, as well as The Disney Bundle.

And in what seems to be a significant concession by the Mouse, Spectrum is going to be allowed to drop quite a few channels from its lineup.

Effective immediately, Spectrum TV will provide its customers widespread access to a more curated lineup of 19 networks from The Walt Disney Company. Spectrum will continue to carry the ABC Owned Television Stations, Disney Channel, FX and the Nat Geo Channel, in addition to the full suite of ESPN networks. Networks that will no longer be included in Spectrum TV video packages are Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild and Nat Geo Mundo.

Love the “more curated” euphemism. Ah, Corporate-speak.

You figured this was where it was heading, right? Where streaming would be absorbed into cable in some fashion, and that the companies that controlled the streaming outlets would get more money for doing so, while also shunting off some of the sales/accounting duties onto the cable company (since consumers would pay the cable company and not the streaming).

Now let's see if cable companies actually become the place where we start to buy our streaming services. And to see if this adds competition and possibly lower prices for these services, or if it cuts off competition, and raises prices for everybody. But despite getting ESPN back on our cable box, it's likely not the last time we will see a dispute like the Charter/Disney one, and a lot of us are going to have to prepare to roll with whatever new formats and availability of service may exist.