Controversial transportation fees have been under discussion for decades. The front page of the NY Daily News … (+)
The latest contentious negotiations over broadcast fees in the pay-TV industry involve the Walt Disney Company and satellite broadcaster DirecTV. Over Labor Day weekend, Disney broadcast the U.S. Open tennis tournament on ESPN, and ten minutes before kickoff of a highly anticipated college football game between #13 USC and #18 LSU on ABC, the television screens of some 11 million DirecTV subscribers went dark. If the standoff extends into the second week, the season opener of Monday Night Football on ESPN will also be unavailable.
Chief Financial Officer of DirecTV
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A statement from Disney Entertainment Chairmen Dana Walden and Alan Bergman and ESPN Chairman Jimmy Pitaro said: “DirecTV has decided to deny millions of subscribers access to our content just as we move into the final week of the U.S. Open and prepare for college football and the start of the NFL season. While we are open to offering DirecTV the flexibility and terms we have provided to other distributors, we will not enter into an agreement that undervalues our portfolio of television channels and programs. We invest significantly to deliver the top brands in entertainment, news and sports because that is what our viewers expect and deserve. We urge DirecTV to do what is in the best interest of its customers and enter into a deal that would immediately restore our programming.”
One factor in any recent carriage fee negotiations is the impact of cable cancellation on both companies’ revenues as consumers continue to watch more content on streaming platforms. For example, in 2011, ESPN had 100 million household subscribers (86% of U.S. households). Last month, ESPN had just over 66 million household subscribers (53% of U.S. households).
According to S&P, ESPN charges one of the highest monthly carriage fees in the cable industry, at $9.42 per household subscriber. That’s more than any of the financially struggling regional sports networks or any other top-tier cable channel. Last year, ESPN earned an estimated $8.1 billion in carriage fees. In 2011, ESPN’s monthly carriage fee was $4.69 per household subscriber.
DirecTV was also affected by the cancellation of cable TV subscribers. At the end of 2013, DirecTV had 20.25 million household subscribers. After losing 1.8 million subscribers in 2023, DirecTV ended the year with 11.3 million household subscribers.
The decline continues. In the second quarter of 2024, pay-TV providers lost a total of 1.67 million subscribers, with DirecTV and DISH accounting for 30% of the decline. Nevertheless, DirecTV remains the third-largest pay-TV provider and the largest satellite TV provider in the country.
With the acquisition of Fox assets completed in 2019, the Disney network portfolio includes: ESPN, ESPN2, ESPNU, ESPNEWS
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Sport DirecTV reportedly pays around $2 billion annually in broadcast fees for Disney content. For comparison, in Disney’s last quarterly report last month, the streaming division was profitable for the first time, generating $47 million.
As streaming TV continues to draw subscribers away from DirecTV, the satellite broadcaster is trying to offer new offerings at affordable prices to its customers. As part of the new agreement, DirecTV wants Disney to offer cheaper packages, including plans that exclude ESPN for non-sports viewers.
DirecTV released data showing that less than 40% of users regularly watch live sports and less than 40% watch “pure” entertainment channels. News and children’s programming are other genres. A 2019 Nielsen report found that households watch only 6.8% of the nearly 180 channels available.
This offer runs counter to the long-standing practice of bundling channels in cable television. Bundling would involve a media company bundling popular, must-see cable channels (e.g., ESPN, Disney Channel) with lower-rated and less desirable channels when negotiating carriage fees with a pay-TV provider.
The dispute comes as Disney, along with Warner Bros. Discovery and Fox, had plans to launch Venu Sports, a sport-focused Streaming service, in time for the start of the NFL season. However, the planned launch was halted last month when FuboTV, a streaming service, obtained a preliminary injunction in a New York federal court, citing antitrust violations, that halted the launch. Venu Sports had set a monthly subscription fee of $42.99 and expected to have five million subscribers by 2028.
Industry analysts have pointed out that Venu Sports poses a threat to the declining pay-TV model. Craig Moffett of MoffettNathanson called the combination of Venu Sports and the DirecTV-Disney conflict potentially apocalyptic for the traditional TV business. Moffett noted, “It’s no exaggeration to say that bundling is everything for the pay-TV industry. Without it, what’s left of linear TV (or at least its economics) would quickly fall apart and be replaced by a punitive a la carte model that, even with stratospheric prices for the must-have networks, couldn’t even come close to replacing the lost revenue of the current model.”
Live sports like the NFL, NBA and Olympics are the only genre that still sustains linear television. Yet most premium live sporting events are now either streamed exclusively or “simultaneously” broadcast on a linear television network. According to court documents, Venus’ three owners admitted that the streaming service could poach two-thirds of viewers from pay-TV providers. Last month, both Warner Bros Discovery and Paramount Global took write-downs on the value of their linear cable networks.
In an email, Dave Solomon, director of sports partnerships at Ampersand, wrote: “Live sport has exceptional brand equity, so it’s no surprise that there are attempts to deliver this content across a variety of platforms. Sport remains one of the few truly live and engaging content formats for advertisers, which explains the increasing frequency of high-profile disputes between media companies over distribution.”
DirecTV has stated that negotiations will not be affected by the start of football season. The satcaster points out that Disney only broadcasts one NFL game per week and subscribers can still watch the games on CBS, Fox, NBC and Prime Video. DirecTV subscribers with an inexpensive digital antenna can watch ABC. DirecTV said its customers can receive a $20 credit for the lockout, but they will have to take some steps to do so.
A year ago, coinciding with the start of football season, there was a similar standoff in transmission fee negotiations between Disney and Charter. The standoff resulted in Disney channels being temporarily removed from the cable operator’s lineup. Similar to DirecTV, Charter wanted to revise the pay-TV model to better reflect current consumer viewing habits.
The impasse lasted 12 days and resulted in Charter dropping several lower-rated cable channels such as Disney Junior and Freeform, and also provided Charter subscribers with ad-supported direct-to-consumer packages of Disney+ and ESPN+. Earlier this month, Charter reached a similar carriage fee agreement with AMC Networks that included subscribers access to the ad-supported AMC+ package.
DirecTV noted, “Consumer frustration is at an all-time high as Disney moves its best producers, most innovative shows, top teams, conferences and entire leagues to its direct-to-consumer services while making customers pay more than once for the same programming on multiple Disney platforms.”
At the start of negotiations, CNN reported that Disney had offered DirecTV a sports-focused package that included ESPN networks, ABC sports broadcasts and several other linear channels, in addition to some direct-to-consumer services.
A DirecTV executive said, “We need something that works for the long-term sustainability of our video customers. So the determination is there.” Disney executives said, “While we are willing to offer DirecTV the flexibility and terms we have given other distributors, we will not enter into an agreement that undervalues our portfolio of television channels and programs.”
Since both parties are still negotiating through the media at this point, a solution does not seem to be imminent.
