1.7 million viewers across 200 affiliates is only 8,500 viewers per affiliate. Throw an episode of Friends and Seinfeld on and they can do those numbers.
ABC sells ads based on all 200 affiliates. If a bunch of them no longer show Kimmel they are refunding ad buys while still paying full price to produce his show. Disney obviously has the means to eat those losses, but they won't want to.
You also might end up losing some top tier guests. Why go on a show that doesn't reach a good chunk of the country?
I bet the big affiliates have quiet a bit of power.
They even gave him a chance to fix it and he refused.
https://www.hollywoodreporter.com/tv/tv-news/how-jimmy-kimmel-benched-by-disney-dana-walden-1236374959/
Didn't he say that on Fox News? That is cable, and the government doesn't have any say over it. They own the OTA channels like ABC, NBC, CBS, and regular Fox. They do regulate those. Sorry man.