The next massive carriage discussion features DirecTV and ESPN parent Disney, and there are some particularly notable elements to that one. The current deal between the sides was a five-year agreement signed in September 2019. And that came after a protracted and public dispute, including Disney running on-screen notifications on the potential loss of channels during sports programming (although no blackout actually happened).
Both companies are in rather different places than they were around that last dispute . But they’re again engaged in high-stakes renewal talks, which could potentially lead to blackouts as early as Sept. 1. And the decisions made this time around could have impacts well beyond these particular firms.
To start with, let’s look at the current situation. That has a lot to do with the planned Venu Sports joint streaming venture from ESPN/Disney, TNT Sports/Warner Bros. Discovery, and Fox, which was blocked (at least temporarily) from launching by a judge in Fubo’s lawsuit against the venture on Aug. 16 . DirecTV representatives were not as publicly outspoken against Venu as Fubo was, but the company certainly had concerns there about those entities teaming for a sports-only offering they couldn’t match, concerns shared by many multichannel video programming distributors (cable/satellite/virtual MVPD). And John Ourand discussed the Venu idea (and if DTV could potentially make similar offerings) up as a key part of these talks in an Aug. 21 Puck piece :
Another, less discussed future renewal is Disney’s deal with DirecTV. …Charter, DirecTV, Comcast and others would love the flexibility to offer the same kind of sports-only skinny bundle that Venu had planned. But they also recognize that scenario—a skinny bundle for sports, say, or another for entertainment or another for kids or another for lifestyle content—represents a pipe dream. Disney isn’t going to cut a deal for ESPN’s channels without also requiring a distributor to take other Disney channels. The same dilemma applies for Fox and FS1 and Fox News. Plus, the powerful National Association of Broadcasters lobby would ensure that politicians opposed this plan.
An Aug. 21 post on DirecTV’s Insider site from chief content officer Rob Thun also brought up Venu, and illustrated some of what his company wants (including the opportunity to offer skinnier packages) for a “brighter TV future” (while not specifically mentioning Disney beyond their Venu involvement):
Venu, the recent joint venture across multiple programmers, is a perfect example. The programmers who created Venu – The Walt Disney Company, The Fox Corporation, and Warner Bros. Discovery – sought to bring a sports-centric streaming service to market until it was blocked last week by a U.S. district court on the grounds of severe antitrust concerns and the “near monopolistic control” that the Venu JV partners would exercise over the market.
DIRECTV applauds Judge Garnett’s ruling that the creation of such a genre-based product should not rest entirely with these media giants. We agree with Venu’s shrouded market-sizing estimates that were unearthed during the trial that recognize an “ocean of opportunity” to offer consumers skinnier packages. However, we disagree with Venu’s anti-competitive strategy and believe that TV distributors should have the same flexibility to thrive alongside DTC services by offering genre-based packages that extend beyond sports to include locals, entertainment, news, family, movies, and others.
DIRECTV believes that programmers need to collaborate with pay TV distributors to deliver entertainment options that align with consumer preferences, including:
- Flexible Packages. Consumers want the ability to choose from genre-based programming without piecing together and purchasing an extensive lineup of channels that don’t meet their desires.
- Lower-Priced Alternatives. Consumers want price points closer to the DTC options they are familiar with and the ability to pay for all their programming through one platform.
- Aggregated Experience. Consumers want access to their favorite shows and sports and the ability to discover new content in one complete experience – live ‘linear’ TV or on-demand content from DIRECTV or a third party – instead of through numerous disjointed entry points while managing multiple individual subscriptions to those products.
Pay TV subscribers have been declining because of our collective failure to evolve to meet consumer preferences, not due to external forces. Without fundamental change, costs will continue to soar, consumer satisfaction will erode, and the entire ecosystem will suffer.
And Bloomberg’s Christopher Palmeri brought this up further in a piece Monday titled “ DirecTV Looks to Rewrite Pay-TV Rules in Disney Networks Talks “:
Walt Disney Co. is deep in contract renewal talks with pay-TV provider DirecTV that could see channels like ABC and ESPN blacked out as early as Sept. 1 if the two sides don’t reach an agreement, according to people familiar with the discussions.
DirecTV is looking to ease contract terms that have long required cable and satellite-TV distributors to charge customers for channels like Disney’s ESPN, whether they watch them or not, according to the people, who have asked to not be identified because the discussions aren’t public.
Palmeri’s piece goes on to note that DTV is proposing smaller packages across many genres (kids’ programming, movies, news, local stations, sports, Spanish content), and that Disney is open to offering some of these packages (including in sports) to them and others and to potentially reducing minimum subscriber counts for certain content. And it’s notable that Disney did move off some of its original asks in a heated carriage dispute with Charter last year (which did see an 11-day blackout ), eventually providing basic Disney+ to Spectrum TV Select Plus subscribers, offering Charter the ability to sell the Disney bundle to their subscribers, and allowing Charter to remove lesser-watched entertainment channels or add them to a higher tier. That deal also reportedly offered “flexibility” for Charter to offer cheaper packages, but that doesn’t appear to have yet led to a cheaper English offering than their 150-channel Spectrum TV Select Signature (starting at a promo price of $65 a month).
The idea of cheaper MVPD packages either focused on sports or excluding sports has long been a subject of discussion, but there are several complicating factors that have led to that not really happening to date. (It has with some bundles with no sports, but those have had limited success.) One is that entertainment companies like Disney have long gotten their best leverage from full bundling, forcing programmers to take channels they’re not that interested in in order to secure the likes of ESPN. That’s how they’ve managed to get even conference networks like SEC Network and the ACC Network fully-distributed.
Fox has done a similar thing with FS1 and Big Ten Network (they own 61 percent of the latter). And the lack of a media partner and bundling was a big part of what led to the Pac-12 Network’s carriage struggles and the eventual doom of it and the 12-member conference. Beyond that, everyone uses bundles to some extent, from WBD with their usage of TNT, TBS, and Discovery to bolster lower-down channels like truTV and Comcast with USA, their other cable networks, and their RSNs. So going away from that full-bundle model carries challenges.
Disney may be willing to slightly prune some less-important channels that have more duplication with their streaming services. They did that in the eventual Charter deal. And Palmeri’s report makes it sound like they may go further still now. But it’s not yet clear if they’ll come close to DTV’s proposals here. And if they did, that would represent a major change that would likely impact many MVPDs (thanks to most-favored-nation clauses that limit companies’ abilities to strike better deals with individual MVPDs).
Another big part of what’s kept the MVPD bundle intact (as a product, not in terms of subscribers, which remain regularly on the decline) is broadcast TV, retransmission fees, and lobbying. Most MVPD packages include local broadcast stations, which charge often-hefty retransmission fees to MVPDs to carry them despite their content being available for free over the air to those with an antenna. The aforementioned lobbying has helped to make those stations’ continued inclusion necessary for most packages.
And those stations are becoming more and more important on the sports front. Various broadcast networks, including Scripps’ ION and its local affiliates and Nexstar’s The CW, are signing more and more sports deals. And a key part of companies’ selling points to leagues is about broadcast’s expanded reach versus cable (see much of the recent NBA rights discussion, especially around the shift from WBD to Comcast and NBC). And Thun specifically highlighted local affiliates’ increased sports rights as a potential carriage negotiations issue last year.
Now, the primary local affiliates specifically affected by a DTV-Disney dispute would just be the eight owned-and-operated ABC affiliates (the others get impacted when their owners get involved in carriage disputes), but those are in some of the biggest U.S. markets, including New York, Los Angeles, and Chicago. So the local affiliate angle’s certainly part of this discussion for those cities. And beyond that, local affiliates limit what flexibility MVPDs have in their bundle offerings.
What is interesting about the DTV-Disney discussions is the different public tone on Venu from Thun and DTV compared to Fubo. Rather than particularly opposing the idea of Venu, Thun argued that “the creation of such a genre-based product should not rest entirely with these media giants,” adding “we believe that TV distributors should have the same flexibility to thrive alongside DTC services by offering genre-based packages,” and talking about the “ocean of opportunity” with skinnier bundles. And that’s somewhat along the lines of what Charter fought for and partly got, the opportunity to drop some Disney channels and join Disney in distributing its direct-to-consumer packages.
The question remains if Disney will actually go for these DTV ideas in a meaningful way, though. As noted, the bundle idea is still very important to their bottom line, and the amount of people who still subscribe to MVPD bundles is significant. And the forestalling of Venu means ESPN doesn’t currently have a way to take their full linear offerings direct-to-consumer (they do with ESPN+, but that’s quite different and more limited). And any giving in on Disney’s front here could impact their whole bundle model, not just with DTV but with other providers (either when more contracts come up or if existing contracts require a revamp based on what they do with DTV).
So far, these Disney-DTV talks seem to have been far from apocalyptic. We haven’t seen much in the way of competing PR websites or on-screen warnings of possible blackouts (which were q uite common during those 2019 discussions) yet, and Palmeri’s report suggests both sides are willing to make some concessions. But until a deal is struck here, there’s absolutely blackout potential for ESPN and other networks, and that could be notable for both individuals and businesses (DTV remains a massive player in that space) around the beginnings of the college football and NFL seasons. Thus, these talks will be worth tracking closely, both for if a resolution is found and what that resolution means for Disney, DTV, and other MVPDs.
[ Bloomberg ]
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