What began as routine haggling over the rates satellite TV provider DirecTV would pay to distribute Walt Disney’s television networks is turning into a referendum on the future of bundled programming, executives and experts said.
DirecTV’s current public battle with Disney has led to 11 million DirecTV customers losing access to ESPN in the middle of the U.S. Open tennis tournament and a week before the New York Jets are scheduled to meet the San Francisco 49ers on “Monday Night Football.” The dispute is taking place against the backdrop of a competing plan by big media companies Disney, Fox and Warner Bros Discovery to launch a streaming video joint venture devoted to sports, called Venu Sports.
The service, which had been scheduled to debut in August, would combine the breadth of the media companies’ live sports programming. The launch was temporarily blocked by a court injunction as part of a lawsuit filed by sports streaming rival FuboTV accusing the media companies of anticompetitive behavior.
DirecTV is demanding Disney give it the flexibility to offer smaller packages, some without pricey sports channels to slash the cost it has to pay Disney and how much consumers need to pay for its TV packages.
“This is not a run-of-the-mill dispute. This is not the kind where people are haggling over percentage points on the rates,” DirecTV Chief Financial Officer Ray Carpenter said on Tuesday in an analyst briefing. “This is really about changing the model in a way that gives everyone confidence that the industry can survive.”
Justin Connolly, Disney’s president of platform distribution, told Reuters in an interview late last week that the media company has proposed multiple options to DirecTV, including one sports-centric package that would combine ESPN and the ABC broadcast network.
“The content we deliver to them is incredibly relevant to their subscriber base,” Connolly said. “DirecTV grew up around the notion of high-quality video, with a sports-leading edge to it. Ninety percent of their subscribers engage with our content on a monthly basis. We want to continue to serve those customers.”
Connolly has said Disney is not opposed to providing pay TV consumers different options and packages. But it also wants broad distribution for its content.
Distributors like DirecTV and programmers such as Disney have bickered for decades over rates as the cost of television packages have soared.
What has helped prop up the TV industry is the decades-old practice of “bundling,” or requiring pay TV distributors to pay for and carry less-viewed networks, such as Freeform, to gain access to the prized programming of ESPN. Contractual terms also specify how broadly a distributor makes this content available to its subscribers.
Sports have historically provided a bulwark against the decline of the pay TV industry, continuing to attract viewers even as cable and satellite TV distributors shed subscribers.
But as viewers migrate to streaming, sports has followed. Marquee events, such as the just-ended Olympics, have moved to streaming, along with professional sporting contests from the National Football League and the National Basketball Association.
Venu threatens to further accelerate the decline of pay TV.
“A successful launch of Venu could have spelled the death blow to the traditional linear pay TV bundle,” wrote MoffettNathanson’s Craig Moffett, using the industry term for traditional TV broadcasts where programs are scheduled.
In court documents, Venu’s media partners acknowledged the sports streaming service could siphon two-thirds of its customers from cable and satellite TV.
The nation’s largest pay TV company, Charter Communications, won some concessions last year from Disney. It negotiated for a skinnier package of programming and gained rights to distribute Disney+, Hulu and ESPN+ to its Spectrum TV customers who want access to streamed content.
DirecTV, though, is purely in the business of delivering video into consumers’ homes.
“We need something that is going to work for the long-term sustainability of our video customers,” Carpenter said. “So, the resolve is there.”