Disney continues its seemingly annual tradition of high-profile carriage disputes right before the start of NFL season, but unlike the Charter negotiations last year, DirecTV has little leverage.
The start of football season might well come to mean it’s time for Disney to engage in a standoff with one of its major distributors. On Sunday, Disney properties, including the ESPN family of networks, went dark for DirecTV customers during a crucial time on the sports calendar. The week ahead features continued coverage of the U.S. Open, college football, and of course, “Monday Night Football” on ESPN properties.
Shrewd media observers surely realize that this is common practice for content providers like Disney. This time last year, the company found itself in a similar battle with Charter Communications — another major pay TV provider. No doubt, companies like Disney wish to negotiate deals in the most high-leverage portions of the sports calendar.
However, last year’s negotiations with Charter reached a much higher temperature than the current DirecTV dispute likely ever will. Why? Charter did not need Disney in the same way that DirecTV needs Disney.
Negotiations are games of leverage. Charter, with its lucrative broadband and telephone businesses, could credibly threaten to pullout of the low-margin pay TV business altogether in a way that DirecTV cannot. DirecTV is not diversified in the same way as Charter, or other telecom giants like Comcast and Verizon for that matter. DirecTV is reliant on the pay TV business alone, and so no Disney properties means no viable business, full stop.
While DirecTV cannot afford to lose Disney long term, it can still inflict some pain by holding out. With around 11-million subscribers paying north of $10 per month in carriage fees for ESPN, Disney is conservatively out $110m each month an agreement is not reached, and more when one adds the rest of the Disney networks to that figure.
To ramp up the pressure, DirecTV has launched a full-on PR campaign in an effort to gain whatever leverage and goodwill can be earned through the media. Monday, DirecTV executives implied they were in this for the long-haul, suggesting the blackout may continue for some length of time. “This is not a run of the mill dispute. It’s about making sure the industry can survive,” DirecTV CFO Ray Carpenter said. The rhetoric is similar to the existential tone Charter struck last year, except it’s delivered without the weight of possibly exiting the video business entirely.
On Tuesday, DirecTV sent letters to the commissioners of the ACC, Big 12, and SEC — the three power conferences with deals inked with Disney — somewhat curiously suggesting that they would have the power to do something about this. The letter is mostly an appeal to do right by the alumni and fanbases of conference members, without much in the way of how a commissioner of a college conference could do such a thing.
Similar to how Turner Sports has taken the populist route with its effort to retain NBA rights, invoking its popular “Inside the NBA” studio show to rile up fans about errors in judgment that are ultimately the fault of network executives, DirecTV is painting Disney as the boogeyman when in reality, DirecTV is demanding concessions that Disney has not given to any other distributor.
Granted, the populist route is somewhat warranted. DirecTV’s demands for a “skinny bundle” are certainly pro-consumer. The distributor is asking for what every other pay TV provider would love to offer customers, a bundle consisting solely of sports content without the bloat that programmers like Disney jam into pay TV bundles, which consumer pay for on the back end. It’s a noble but unrealistic effort on DirecTV’s part. For one, Disney would be undercutting its own launch of ESPN’s direct-to-consumer product slated for next year. Second, any deal of that sort with DirecTV would almost certainly trigger renegotiations with other large distributors.
DirecTV has unsurprisingly been a vocal supporter of Fubo’s antitrust lawsuit over Venu Sports, the joint venture between Disney, FOX, and Warner Bros. Discovery that was (at least temporarily) halted by a judge last month. Both DirecTV and Fubo have a lot to lose if these companies can offer “skinny bundles” themselves without offering a similar bundle to distributors. However, with such an offering unlikely to come together this football season, DirecTV may be stuck accepting the same ancillary concessions Charter secured last year: bundling that includes streaming services like Disney+, and the ability to forego some sparsely-viewed channels like FXX and Freeform.
While the courts may side with DirecTV and other distributors down the line, that does not change the company’s reality now. Some 11-million subscribers, many of them football fans, will be unable to watch ESPN until an agreement is reached. As much saber-rattling as DirecTV may do in the coming weeks, it is in no place to hemorrhage subscribers any quicker than it already has. And with no other revenue streams to fall back on, it will be faced with no choice but to continue with the status quo, for now. The only question is: how long will it take?
