ESPN, ABC, and other Disney channels removed from DirecTV in dispute

The Walt Disney Company has pulled its channels, including ESPN and ABC stations, from DirecTV as of Sunday following the failure of negotiations for a new distribution agreement. This blackout has impacted nearly 11 million homes that subscribe to DirecTV and comes right before the much-anticipated college football game featuring the University of Southern California and Louisiana State University. Additionally, it interrupts ESPN’s ongoing coverage of the U.S. Open tennis tournament taking place in New York.

The dispute arose as the deadline for a new contract approached amid prolonged discussions over pricing and terms. As a result of the unresolved negotiations, DirecTV no longer holds the rights to broadcast Disney’s channels.

Rob Thun, chief content officer at DirecTV, commented on the situation, stating that the Walt Disney Company seems unwilling to take responsibility for how its actions affect consumers and distribution partners. He criticized Disney for prioritizing profits over accessibility, making it increasingly difficult for consumers to access their desired programming at a fair cost.

Sports enthusiasts are particularly affected by this development. Alongside college football on ESPN and ABC, the National Football League’s season opens later this week. ESPN has a “Monday Night Football” game scheduled for September 9, featuring the San Francisco 49ers against the New York Jets, where Jets quarterback Aaron Rodgers is expected to make his return after recovering from an injury.

Eight ABC stations owned by Disney, including KABC-TV Channel 7 in Los Angeles, will no longer be accessible via DirecTV. This means viewers across various regions, including those in Fresno, San Francisco, Chicago, and New York, will miss local news coverage and popular shows such as “Jeopardy,” “Wheel of Fortune,” “Good Morning America,” and “Jimmy Kimmel Live.”

Other Disney-owned channels affected by the blackout include Freeform, FX, and National Geographic. In response to the situation, Disney Entertainment leaders Dana Walden, Alan Bergman, and ESPN Chairman Jimmy Pitaro released a statement indicating their willingness to offer flexible terms similar to those given to other distributors. However, they were firm that they would not accept an agreement that undermined the value of their extensive portfolio of channels and programming.

As of now, it remains uncertain how long the blackout will persist. A prior conflict between Disney and Charter Communications last year led to a 12-day blackout of Disney channels. Justin Connolly, Disney’s president of platform distribution, expressed concern over the negative impact of a blackout on consumers and emphasized the need for both parties to reach a resolution.

This Labor Day Weekend confrontation highlights the ongoing financial struggles within the television industry. The shift towards streaming services and the resultant cord-cutting have had a devastating effect on traditional pay-TV companies. Over the last decade, DirecTV has lost more than half of its subscribers, with its customer base now estimated to be around 11 million.

This year has marked the most significant decline in pay-TV subscriptions to date, with nearly 2.4 million homes in the U.S. having cut the cord in the first quarter alone, representing a 12% year-over-year decrease, according to financial research firm MoffettNathanson.

The decline in subscribers has pressured Disney to rethink its business strategies. Previously reliant on substantial programming fees from distributors such as DirecTV, Disney is now confronted with changing dynamics. ESPN is known to be one of the costliest basic cable channels, with distributors paying nearly $10 monthly per subscriber to carry the channel, a price that Disney seeks to sustain to support its expensive sports rights agreements.

Changes in the industry structure make renegotiations critical. Since the last agreement between Disney and DirecTV in 2019, the satellite TV provider underwent a separation from AT&T and is now managed by private equity firm TPG. In light of dwindling subscriptions, DirecTV is exploring ways to cater to consumer preferences, such as introducing genre-specific packages—like sports or entertainment—that could offer lower-priced options for customers uninterested in paying over a hundred dollars monthly for a vast channel lineup.

However, DirecTV maintains that existing contracts inhibit the ability to create these tailored offerings. The company’s position paper from late August stated that programmers impose strict bundling limits that complicate the introduction of smaller, targeted packages that align with the content value.

DirecTV believes that the aging penetration requirements from contracts, which obligate distributors to provide channels like ESPN to a high percentage of subscribers, hinder their ability to respond to consumer demands. Thun highlighted the importance of letting customers choose channels they genuinely watch, indicating that flexibility currently is not an option.

Switching to a model allowing smaller packages could significantly affect revenue to Disney at a challenging time, with the company’s stock experiencing pressure from underperformance in its theme parks and trading near five-year lows.

A previous outage of ESPN and other Disney channels on Charter ended with an agreement that saw some smaller Disney networks dropped from Charter’s offerings, yet both companies emerged claiming success. Unlike that agreement, which sidestepped penetration rate controversies in favor of expanding streaming reach, the hope is that a new agreement with DirecTV might follow a similar pattern.

Disney executives are optimistic that a deal can be achieved with DirecTV, expressing confidence that a path forward exists.

Source: Los Angeles Times