DirecTV and Disney: A Shift in the TV Landscape

By Dawn Chmielewski

(Reuters) – 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 major 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. However, its 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.

This is not a run-of-the-mill dispute. This is really about changing the model in a way that gives everyone confidence that the industry can survive.

— DirecTV Chief Financial Officer Ray Carpenter

DirecTV has sought changes in its offerings to cater to consumer tastes in the streaming TV era as part of a new multi-billion dollar licensing agreement. It pressed Disney to allow it to sell smaller, lower-priced packages, including tiers without ESPN for customers who do not watch sports.

“DirecTV continues to misrepresent the facts around our ongoing negotiations,” according to a statement issued by Dana Walden and Alan Bergman, co-chairmen, Disney Entertainment, and Jimmy Pitaro, chairman, ESPN.

“Our priority is to reach a market deal that serves the needs of DirecTV and their customers while also recognizing the value of our top-quality content and the significant investment required to create and acquire it.”

DirecTV Chief Content Officer Rob Thun told CNBC that the dispute is not over rates, but rather the conditions Disney has attached to the “skinnier” bundles of programming. For decades, distributors like DirecTV and programmers such as Disney have bickered over rates as the cost of television packages has 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 prized programming like 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, as they continue to attract viewers even as cable and satellite TV distributors shed subscribers. But, as viewers migrate to streaming, sports has followed. Major events, such as the Olympics, have moved to streaming platforms, along with professional sports from the NFL and NBA.

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,” said MoffettNathanson’s Craig Moffett, using the term for traditional TV broadcasts where programs are scheduled.

Court documents reveal that Venu’s media partners acknowledged that the sports streaming service could siphon two-thirds of its customers from cable and satellite TV.

Charter Communications, the nation’s largest pay TV company, won some concessions last year from Disney by negotiating for a skinnier package of programming and gaining rights to distribute Disney+, Hulu, and ESPN+ to its Spectrum TV customers who want access to streamed content. In contrast, DirecTV is solely focused on delivering video into consumers’ homes.

“We need something that is going to work for the long-term sustainability of our video customers,” Carpenter stated. “So, the resolve is there.”