Disney and DirecTV Negotiations

By Dawn Chmielewski and Lisa Richwine

LOS ANGELES (Reuters) – Walt Disney (NYSE: DIS) and satellite TV provider DirecTV are racing to renew their distribution agreement before the current pact expires on Sunday.

If they fail to reach a deal, DirecTV’s more than 11 million subscribers could lose access to Disney channels, including ABC and ESPN, just days before the National Football League kicks off its season on Thursday and midway through the U.S. Open tennis tournament.

DirecTV has expressed interest in changing its offerings to cater to consumer preferences in the streaming TV era. The company is urging Disney to allow the sale of smaller, lower-priced packages, including tiers without ESPN, targeting customers who do not watch sports.

“DirecTV believes that programmers need to collaborate with pay TV distributors to deliver entertainment options that align with consumer preference,” stated DirecTV Chief Content Officer Rob Thun in an open letter to consumers earlier this month.

Disney has proposed various scenarios, including a sports-centric option that would combine ESPN and ABC, according to a source familiar with the negotiations.

“We’re working hard to get it done. We want to get it done. We want to deliver for sports fans,” said ESPN Chairperson Jimmy Pitaro to Reuters.

“We do believe that we bring a lot of value. And hopefully, DirecTV recognizes the value that we bring and we can continue to serve our fans through their platform,” Pitaro added.

Disputes between programmers and distributors have persisted for decades, though they have evolved in the streaming age.

According to Leichtman Research Group, the top pay TV providers now have 67.7 million subscribers, down about 22 million since the second quarter of 2019, as customers shift to online streaming platforms. DirecTV accounts for roughly half of these net losses.

Entertainment firms are attempting to strike deals that keep profits flowing from traditional cable TV while simultaneously developing their streaming services. For instance, Disney permitted Charter Communications (NASDAQ: CHTR) to distribute Disney+, Hulu, and ESPN+ to its Spectrum TV subscribers, allowing Charter to benefit from the rise of streaming. In exchange, Charter agreed to higher rates for carrying Disney’s TV channels.

“The new template that Disney and Charter agreed to has reshaped the tone of some of these negotiations going forward,” said MoffettNathanson media analyst Robert Fishman.

Live sports remain a crucial programming element that keeps subscribers paying for television. However, sports are rapidly shifting away from cable bundles, with YouTube reportedly paying $2 billion annually for NFL Sunday Ticket rights, and Amazon (NASDAQ: AMZN) Prime Video committing $1.8 billion this year to stream NBA games starting in 2025.

Three major programmers are preparing to launch a new sports-streaming service, threatening the traditional pay TV model as Disney, Fox, and Warner Bros Discovery (NASDAQ: WBD) have announced their collaboration to combine a broad range of professional and collegiate sports programming into a single app, tentatively named Venu Sports. Executives believe this new venture is targeted at capturing younger viewers who do not subscribe to pay TV.

However, Pitaro acknowledged in a deposition that he informed Disney’s board that the new sports streaming service, code-named “Raptor,” would likely draw about 67% of its subscribers from pay TV. Despite this cannibalization, Disney believes Venu will ultimately expand the audience paying for sports, as suggested by a source familiar with the company’s rationale.

The ongoing dispute over rights associated with Venu Sports adds complexity to Disney’s current negotiations with DirecTV. Rival sports streaming service FuboTV (NYSE: FUBO) has filed a lawsuit, alleging anticompetitive behavior by the media companies that control 60% of live sports broadcast rights in the U.S.

Fubo claims it was unable to provide a sports-focused service because it was forced to carry non-sports networks that its customers rarely watch. The company filed suit when the media partners behind Venu granted rights to live sports that were not offered to other distributors.

A federal district court judge has ruled that Fubo is likely to succeed in proving its antitrust claims at trial, temporarily blocking the launch of Venu. The media companies, initially hoping to launch Venu in August ahead of the NFL season, have appealed the ruling made on Aug. 23. They are requesting the U.S. Court of Appeals expedite the process, noting that they’ve invested approximately $74 million in a start-up that has been hindered from reaching the market.