A contract dispute between Disney (DIS) and DirecTV continued Monday after the media giant pulled its own channels, including ESPN and ABC, from DirecTV last week.
The media blackout, which has already impacted the start of the NFL and college football seasons, will now impact the NFL’s first Monday Night Football game between the New York Jets and San Francisco 49ers, leaving millions of DirecTV subscribers without access to the game.
In addition to ESPN, other Disney entertainment channels are also affected, including the Disney Channel, Freeform, National Geographic and local news channels on the ABC network.
The crux of the problem? DirecTV doesn’t want to carry (and pay for) all of those channels. It wants a “leaner” package, something media companies themselves have begun experimenting with as linear TV viewership plummets as more subscribers cancel cable and opt for streaming services.
The dispute is similar to last year’s media blackout between Disney and broadband provider Charter Communications (CHTR), which fought to include more Disney streaming options in its packaged offerings.
The two sides eventually agreed that Charter would offer some Disney streaming services – the ad-supported version of Disney+, ESPN+ and ESPN’s yet-to-launch direct-to-consumer offering – as part of select cable packages at no additional cost to the consumer.
This time, however, the negotiating tools are different.
“The difference is that DirecTV doesn’t have a broadband distribution business that they can kind of coordinate with,” Macquarie analyst Tim Nollen told Yahoo Finance. “They’re completely dependent on the pay-TV ecosystem and Disney is going hard on them because they can.”
In other words, DirecTV, which has over 11 million subscribers, cannot offer streaming packages as part of its packages. This weakens the satellite cable provider’s negotiating position with Disney.
“Charter could develop cross-selling options for broadband packages,” Nollen explained. “They could put together this combination of linear channels and streaming for their pay-TV subscribers, while DirecTV is the satellite provider.”
“They don’t have the same flexibility when it comes to getting the content to the consumer over a broadband connection. Without that connection, I think DirecTV is more limited in what it can offer.”
However, the company is trying to fight back by giving customers a one-time $20 credit to minimize subscriber churn, as well as a $30 credit for Dish’s Sling or Fubo streaming packages, both of which include ESPN’s entire network bundle.
And over the weekend, DirecTV filed a complaint with the Federal Communications Commission alleging that Disney did not negotiate in good faith.
“Disney violated the FCC’s good faith principles by making each licensing agreement contingent on DirecTV waiving all legal claims with respect to past, present or future anticompetitive conduct by Disney, including its ongoing packaging and minimum penetration requirements,” the company said in a statement.
Nollen said the move symbolizes DirecTV’s desire to “redefine market expectations” when it comes to how other pay-TV companies might negotiate with media companies like Disney in the future.
“They say, look, the world has changed. Others have these options out there. We should also have options that include smaller packages,” he said.
So far, Disney itself has partnered with rivals Fox (FOX) and Warner Bros. Discovery (WBD) to launch a “stripped down” sports package called Venu Sports. A judge temporarily blocked the service’s launch last month on antitrust grounds. The three companies have since appealed the decision.
Outside of Venu, Disney also plans to launch a full over-the-top ESPN streaming service in fall 2025.
“They’re creating their own stripped-down bundles,” Nollen said. “It’s something they’d rather run, manage and control themselves.”
However, according to the analyst, it is still in Disney’s interest to make a deal.
“Disney would lose all those viewers (if a deal isn’t done by the time the football game starts on Monday night). And then there’s all that unmet advertising demand,” he said. “So that’s going to be a problem for Disney as well, but probably more so for DirecTV because Disney has other distribution options.”
On Monday, Disney said it is continuing to negotiate with DirecTV to restore the content as quickly as possible. It said it has asked DirecTV to “stop creating distractions and instead prioritize its customers by reaching a deal that allows its subscribers to watch our strong upcoming lineup of sports, news and entertainment programming, starting with the return of ‘Monday Night Football.'”
But as Monday night’s game approaches, it’s becoming clearer that this moment marks a much bigger turning point for the entire industry.
“The pay-TV providers are getting more and more desperate,” Nollen said. “Subscription numbers are continuing to drop, and this loss of Disney and ESPN, arguably the most important content they can have, would be really bad for DirecTV.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].
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