After a 13-day blackout, the Walt Disney Co. and DirecTV settled their contentious contract dispute early Saturday, restoring ESPN, ABC stations and other Disney-owned channels to more than 10 million DirecTV subscribers.
DirecTV and U-Verse customers have been frustrated by the loss of Disney programming since negotiations fell through on Sept. 1.
The companies were motivated to reach an agreement before the start of another weekend of ESPN and ABC college football, ABC's broadcast of the 76th Emmy Awards on Sunday and the second week of ESPN's “Monday Night Football,” which includes a game between the Philadelphia Eagles and Atlanta Falcons. ABC's new primetime season also begins later this month.
The battle, now nearly two weeks old, has been costly. Thousands of subscribers canceled their service during the blackout, DirecTV acknowledged earlier this week. The satellite television giant wanted to stop the bleeding.
After marathon negotiations, the companies said they reached an “agreement in principle” that includes increases in the rates DirecTV pays for Disney programming. Earlier this week, DirecTV alerted subscribers that it planned to raise prices on some packages next month because of rising programming costs.
DirecTV also got benefits from the new deal. It gained the ability to offer Disney channels in genre packages, including sports, general entertainment and a “kids and family” package. DirecTV can also offer Disney’s streaming services — Hulu, ESPN+ and Disney+ — to customers who subscribe to certain packages, as well as on a custom basis. That will include the ESPN streaming service that Disney plans to launch next year.
“Through this first-of-its-kind collaboration, DirecTV and Disney are giving customers the ability to personalize their video experience through more
“DirecTV and Disney have a long history of connecting consumers to the best entertainment, and this agreement reinforces that commitment by recognizing both the tremendous value of Disney content and the changing preferences of DirecTV customers,” the companies said in a joint statement.
The dispute underscored the tension facing traditional pay-TV distributors amid the shift to streaming.
A shrinking group of subscribers to large packages are increasingly being asked to shoulder higher programming costs.
The cost of maintaining over-the-air channels (ABC, CBS, Fox and NBC) and sports networks, including ESPN, has skyrocketed as programmers seek to pass on fee increases they agreed to pay to sports leagues. ESPN is the most expensive basic cable channel, costing pay-TV distributors nearly $10 a month for each subscribing household.
Sports costs have become a major sticking point in the recent dispute. Another sticking point was Disney's requirement that its channels be available in most households with DirecTV and U-Verse.
Disney has long required its channels to reach roughly 90% of DirecTV's subscriber base. ESPN's minimum threshold is around 82%.
Pay-TV companies like DirecTV are required to pay fines if they fail to meet this “minimum penetration.”
Heading into the negotiations, DirecTV prepared for battle by trying to relax those thresholds. DirecTV wanted more flexible requirements so it could offer its customers smaller, thematic and genre-specific packages at lower prices.
DirecTV executives argued that it was unsustainable to force customers to buy a “bloated package” full of expensive channels they don’t watch. Most consumers watch fewer than 30 channels, they said.
Disney responded that programming is expensive and that it has been investing heavily in high-quality content.
Neither side was willing to prolong a battle that antagonized consumers. According to research firm MoffettNathanson, more than 4 million American households have already abandoned pay-TV in the first six months of the year.
Disney and DirecTV continue to generate billions of dollars in revenue from traditional pay-TV packages and want to keep their cash flow open. Disney receives about $2 billion a year from DirecTV, MoffettNathanson said.
Unlike cable providers that also offer phone service and high-speed internet, DirecTV has been focused solely on selling video channel packages, including U-Verse, since the company split from AT&T in 2021. The El Segundo firm, which has lost more than half of its decade-old subscribers, couldn’t afford to scare away more customers and began offering $30 credits to encourage them to stick around during the blackout.
From the beginning, Disney said it was willing to work with DirecTV to create genre-themed packages, such as children's and family entertainment, local broadcast stations and sports.
“Disney openly talking about smaller packages is a major turning point strategically and likely indicates where the industry is ultimately headed,” Rich Greenfield, a media analyst at Lightshed Partners, wrote in a report.
But the two companies spent days haggling over penetration rates. Negotiators spent long hours exchanging proposals since the blackout began, despite trading barbs in public.
Blackouts have become increasingly common as the industry’s economics deteriorate. Last year, Disney channels went offline for nearly 12 days on Charter Communications’ Spectrum service during a similar dispute over fees and flexibility to offer Disney’s streaming services to its customers at no extra charge.
Charter, DirecTV and other distribution executives have chafed at Disney’s efforts to bypass distributors to deliver its programming directly to consumers. Disney plans to launch ESPN as a streaming service next year.
The Burbank giant also partnered with Warner Bros. Discovery and Fox Corp. this year to offer a $43-a-month sports channel package called Venu. But last month, a federal judge granted a temporary injunction, blocking Venu from launching in the fall, on antitrust grounds.
Distributors view these services as direct threats to their businesses.
Rob Thun, DirecTV’s chief content officer, also said Disney’s general counsel asked DirecTV to waive any legal claims against Disney alleging antitrust behavior as part of any distribution deal. That also became a sticking point during negotiations.
Last weekend, DirecTV filed a complaint with the Federal Communications Commission alleging that Disney had not been negotiating in good faith and that its tactics were anticompetitive.
