By Dawn Chmielewski
(Reuters) – What began as routine haggling over the fees that satellite television provider DirecTV would pay to carry Walt Disney’s television channels is turning into a referendum on the future of bundled programming, executives and experts said.
The current public dispute between DirecTV and Disney has resulted in 11 million DirecTV customers losing access to ESPN in the middle of the US Open tennis tournament and a week before the New York Jets play the San Francisco 49ers on Monday Night Football. The dispute comes against the backdrop of a competing plan by major media companies Disney, Fox and Warner Bros Discovery to form a streaming video joint venture dedicated exclusively to sports, called Venu Sports.
The service, which was scheduled to debut in August, was intended to bundle all of the media companies’ live sports programming. The launch was temporarily blocked by an injunction filed as part of a lawsuit by sports streaming competitor FuboTV, which accuses the media companies of anti-competitive behavior.
“This is not a normal dispute. This is not about haggling over percentage points on rates,” DirecTV’s Chief Financial Officer Ray Carpenter said in an analyst briefing on Tuesday. “This is really about changing the model so that everyone has confidence that the industry can survive.”
DirecTV, as part of a new multi-billion-dollar licensing deal, sought to change its offerings to meet consumer tastes in the age of streaming television. The company pushed Disney for permission to sell smaller, cheaper packages, including plans without ESPN for customers who don’t watch sports.
“DirecTV continues to misrepresent the facts surrounding our ongoing negotiations,” said a statement from Dana Walden and Alan Bergman, co-chairmen of Disney Entertainment, and Jimmy Pitaro, chairman of ESPN.
“Our priority is to enter into a marketplace agreement that meets the needs of DirecTV and its customers while recognizing the value of our high-quality content and the significant investment required to create and acquire it.”
Rob Thun, chief content officer at DirecTV, told CNBC on Wednesday that the dispute is not about prices, but rather about the conditions that Disney has attached to the “stripped down” programming packages.
With the cost of television packages skyrocketing, providers like DirecTV and programmers like Disney have been arguing over rates for decades.
What has helped the television industry is the decades-old practice of “bundling,” which requires pay-TV providers to pay for and carry less-watchable channels like Freeform in order to gain access to ESPN’s coveted programming. The terms of the deal also dictate the extent to which a provider will make that content available to its subscribers.
Sports have historically played an important role in protecting the pay-TV industry, attracting viewers even when cable and satellite TV providers have lost subscribers.
But as streaming has become more popular, so has sports. Major events like the recently concluded Olympic Games are now being streamed, as are professional sports competitions 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 sounded the death knell for the traditional linear pay-TV package,” wrote Craig Moffett of MoffettNathanson, using the industry term for traditional broadcast television where programs are scheduled.
In court documents, Venu’s media partners acknowledged that the sports streaming service could lure two-thirds of its customers away from cable and satellite television.
Charter Communications, the country’s largest pay-TV company, was able to extract some concessions from Disney last year, negotiating a slimmed-down package of programming and securing the rights to distribute Disney+, Hulu and ESPN+ to its Spectrum TV customers who want access to streaming content.
However, DirecTV is exclusively focused on delivering videos to consumers’ homes.
“We need something that works for the long-term sustainability of our video customers,” Carpenter said. “So the determination is there.”
(Reporting by Dawn Chmielewski in Los Angeles and Harshita Mary Varghese in Bengaluru; Editing by Richard Chang and David Gregorio)
