A contract dispute between Disney (DIS) and DirecTV still has not reached a conclusion after the media giant pulled its owned and operated channels, including ESPN and ABC, off DirecTV last week.
Along with ESPN, other Disney Entertainment channels affected include the Disney Channel, Freeform, National Geographic, and local news stations on the ABC network, which is set to host the first presidential debate Tuesday night between Donald Trump and Kamala Harris.
Disney said Tuesday afternoon it would provide a three-hour feed of ABC News coverage to all impacted DirecTV customers at no cost "because we want all Americans to be able to view tonight’s debate at this important moment in our history."
"We remain at the table negotiating with DirecTV and the restoration of our programming to their subscribers is completely within their control," a Disney spokesperson said.
DirecTV, however, rejected the offer, with a spokesperson telling Reuters it would be confusing to subscribers, who are able to watch the debate via other networks.
The crux of the issue? DirecTV doesn't want to carry (and pay for) all of those channels. It wants a "skinnier" bundle, something the media companies themselves have begun to experiment with amid steep declines in linear television viewership as more subscribers cut the cord and opt for streaming services.
"Everybody loses," Needham analyst Laura Martin told Yahoo Finance's Morning Brief on Tuesday. "Content and distribution are complementary networks. They both win together, and they both lose together. But this is inevitable because Disney keeps wanting to raise prices."
"DirecTV wants to pay less [because] it has negative margins in the cable business. So these kinds of disputes are going to become more and more common."
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The dispute is similar to last year's media blackout between Disney and broadband provider Charter Communications (CHTR), which fought to include more of Disney's streaming options into its bundled offerings.
The two sides eventually reached an agreement in which Charter would offer some Disney streaming services — the ad-supported version of Disney+, ESPN+, and ESPN's yet-to-be-launched direct-to-consumer offering — as part of select cable packages at no additional cost to the consumer.
But it's a different set of negotiating chips this time around.
"What makes it different is DirecTV does not have a broadband distribution business that they can somehow align this with," Macquarie analyst Tim Nollen told Yahoo Finance in an interview on Monday. "They're dependent entirely on the pay TV ecosystem, and Disney is playing hardball with them because they can."
In other words, DirecTV, which boasts over 11 million subscribers, can't offer streaming packages as part of its bundles. That makes the satellite cable provider less powerful in its negotiations with Disney.
"Charter could come up with cross-selling options across broadband packages," Nollen explained. "They could put together this combination of linear channels with streaming for their paid TV subscribers, whereas DirecTV is the satellite provider."
"They don't have the same flexibility in terms of how to get the content to consumers across a broadband connection. Without that, I think DirecTV is more limited in what they can offer."
But the company is still trying to fight back, providing a one-time $20 credit to customers in an attempt to minimize subscriber churn, along with a $30 credit toward Dish's Sling or Fubo streaming packages — both of which carry ESPN's full suite of networks.
And over the weekend, DirecTV filed a complaint with the Federal Communications Commission, alleging Disney has not negotiated in good faith.
"Disney has violated the FCC’s good faith mandates by predicating any licensing agreement on DirecTV's waiving any legal claims on Disney’s past, current, or future anticompetitive actions, including its ongoing packaging and minimum penetration demands," the company said in a statement.
Nollen said the move symbolizes DirecTV's desire to "reset market expectations" when it comes to how other pay TV businesses can negotiate with media companies like Disney in the future.
"They're saying, look, the world has changed. Others have these options out there. We should have options that include smaller packages as well," he said.
To that point, Disney itself has partnered with competitors Fox (FOX) and Warner Bros. Discovery (WBD) to launch a "skinny" sports bundle, known as Venu Sports. A judge temporarily blocked the launch of the service last month on antitrust concerns. The three companies have since appealed the decision.
Kansas City Chiefs tight end Travis Kelce (87) signals a first down after a catch against the Baltimore Ravens during the first half an NFL football game, Thursday, Sept. 5, 2024, in Kansas City, Mo. (AP Photo/Reed Hoffmann) ·(ASSOCIATED PRESS)
"They're creating their own skinny bundles," Nollen said. "That is something that they would prefer to run and manage and control themselves."
But it's still in Disney's best interest to strike a deal, according to the analyst.
"Disney would be losing all of those eyeballs [for the NFL.] And then there's all that advertising demand that gets unmet," he said. "So it becomes a problem for Disney as well but DirecTV probably more so [because] for Disney there are other distribution options."
On Monday, Disney said it has urged DirecTV "to stop creating diversions and instead prioritize their customers by finalizing a deal that would allow their subscribers to watch our strong upcoming lineup of sports, news and entertainment programming."
But as the minutes ticked closer to Monday night's game, it became clear a deal would not be reached with the dispute signaling a much larger turning point for the industry.
"Pay TV distributors are getting more desperate," Nollen said. "The number of subscribers is accelerating further down, and this event, losing Disney and ESPN, arguably the most important piece of content that they can have, would be really bad for DirecTV to lose."
