ESPN, ABC and other Disney channels dropped from DirecTV in contract dispute

As a long-time movie buff and TV enthusiast who has witnessed the evolution of the entertainment industry from the golden age of network television to the streaming revolution, this latest tussle between Disney and DirecTV leaves me feeling a bit like a spectator at a never-ending sports match. The constant back-and-forth of content providers and distributors negotiating fees and contracts is becoming as predictable as the plot twists in a soap opera.

In a cinematic twist that left many viewers on the edge of their seats, the captivating tales spun by the mighty Walt Disney Company, particularly its sports-focused ESPN and general entertainment ABC stations, unexpectedly vanished from DirecTV screens this past Sunday. Regrettably, it seems our favorite storytellers and sports commentators could no longer reach a deal to continue their distribution on DirecTV platforms, leaving fans craving for more suspended in an agonizing cliffhanger.

The blackout — which affects DirecTV’s nearly 11 million customer homes — hit before the kickoff of Sunday’s highly anticipated University of Southern California-Louisiana State University college football game and in the middle of ESPN’s coverage of the U.S. Open tennis tournament in New York. The impasse came at the deadline for a new distribution deal after weeks of haggling between the two companies over contract terms and fees that Disney charges to carry its programming.

Without an agreement, DirecTV lost its rights to carry Disney channels.

Sports enthusiasts won’t have long to wait before they start feeling the financial strain due to the upcoming sports events. The new NFL season kicks off later this week, alongside college football coverage on ESPN and ABC. In fact, ESPN is all set to commence its season with a “Monday Night Football” game on Sept. 9, featuring the San Francisco 49ers versus the New York Jets. Notably, it’s anticipated that Jets quarterback Aaron Rodgers will make his comeback in this game after sustaining an injury last year.

Disney’s eight ABC-affiliated channels, such as KABC-TV Channel 7 in Los Angeles, are no longer accessible on DirecTV. Consequently, fans of local news, “Jeopardy,” “Wheel of Fortune,” “Good Morning America,” “Jimmy Kimmel Live,” and other favorite shows will find these programs unavailable. Similarly, viewers in cities like Fresno, San Francisco, Chicago, and New York have lost access to their local ABC stations.

Additionally affected by the outage are other channels under Disney’s ownership, such as Freeform, FX, and National Geographic.

The duration of this power outage remains uncertain, much like the 12-day disruption experienced by Disney channels last year during their disagreement with Charter Communications (Spectrum TV service provider).

Last week, Justin Connolly, Disney’s president of platform distribution, expressed his viewpoint: “A blackout isn’t beneficial for anyone, particularly consumers.” He added, “Let’s put on our work aprons… and let’s collaborate to find a solution that suits everyone involved.”

The Labor Day Weekend clash reflects the television industry’s economic strain.

Over the past decade, the move towards streaming services and subsequent abandonment of traditional cable packages (also known as cord-cutting) has dealt a significant blow to pay-TV companies. For instance, DirecTV has experienced a loss of over half its subscribers during this period. As per industry estimates, the company based in El Segundo now boasts approximately 11 million subscribers.

This year saw an unprecedented decrease in pay-TV subscribers across the industry, as reported by MoffettNathanson Research. In the initial quarter alone, the industry experienced a loss of approximately 2.4 million pay-TV households in the United States – a 12% drop compared to the same period last year, as stated in their latest report.

Subscriber declines have squeezed Disney.

For many years, the media firm based in Burbank has been dependent on massive sums of money, around billions of dollars each year, as programming fees from services like DirecTV and others. A significant portion of these fees is determined by the total number of subscribers who tune into their channels.

Moreover, Disney’s ESPN has traditionally been one of the priciest basic cable channels, charging distributors approximately $10 monthly per subscriber household. Disney aims to sustain these high fees to offset expenses related to their costly sports rights agreements, such as long-term deals with the NFL and NBA.

The challenges set the stage for contentious contract talks at DirecTV’s El Segundo headquarters.

The circumstances surrounding these two companies’ agreement have undergone significant transformation compared to 2019, when DirecTV was entirely controlled by AT&T. Since then, AT&T has separated its television distribution division into an independent entity and collaborated with TPG, a private equity firm, for the management of their business operations.

Over the past year, DirectTV’s team has been developing strategies to expand their services for customers.

DirectTV is considering offering package deals based on specific themes, such as sports or general entertainment, in an attempt to provide cost-effective plans for customers who balk at spending over $100 per month on a traditional bundle with over 100 TV channels. The aim is to cater to customers who have been eagerly waiting for the option to subscribe only to the channels they regularly watch.

However, as per DirecTV’s statement, their current agreements with content providers restrict them from broadly providing customized packages to their customers.

“Rather than enabling distributors such as DirecTV to create smaller, more personalized packages priced according to the worth of the content, programmers have persisted in setting and enforcing stringent rules that force all content to be bundled together,” is how DirecTV expressed their viewpoint in a document published at the end of August.

With the 2019 distribution agreement with Disney reaching its end, DirecTV now has an opportunity to negotiate new contract terms.

The satellite television provider has requested Disney to lessen a crucial condition in their distribution agreements – the need for a certain percentage of subscribers (approaching 80%) to access channels like ESPN.

DirectTV argues that the outdated channel penetration rates make it necessary for pay-TV consumers to subscribe to numerous channels they might not even watch, as these rates restrict DirectTV from providing more affordable and compact plans with fewer channels.

As a cinephile myself, I’ve noticed that audiences gravitate towards various film genres. However, in my role as a content executive at DirecTV, I find that we strive to offer our viewers the freedom to choose and control their viewing experience, but unfortunately, that level of flexibility isn’t available to us just yet.

But such a switch could reduce revenue flowing to Disney at a critical time.

Disney’s stock has been under pressure amid softness at its theme parks and resorts and shares have been trading near five-year lows. On Friday, Disney closed up nearly 1% to $90.38.

Previously, a blackout affecting ESPN and various Disney channels on Charter’s Spectrum service was resolved by an arrangement that resulted in the removal of several smaller Disney networks such as Freeform and Disney Jr. from Spectrum’s channel selection.

In the end, both companies said they came away with a win.

Disney and Charter voluntarily decided to expand the availability of their streaming services, such as Disney+, within Spectrum households, rather than Charter being compelled by the charter to discuss or set penetration rates.

Disney executives are optimistic that the deal they made last year (Charter agreement) could serve as a blueprint for an agreement with DirecTV.

“There has to be the path to a deal here,” Disney’s Connolly said.

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2024-09-02 02:31