Sector Insights
UPDATE 1: Disney Programming Goes Dark on DirecTV; DTV Says Disney ‘Demanded’ Waiver of All ‘Anti-Competitive’ Behavior Claims
Mon 09/02/2024 09:00 AM
Mon Sep 02, 2024 09:10 AM ET: On Sunday evening, Sept. 1, after Disney and DirecTV reached an impasse in their carriage negotiations, Disney’s channels were “blacked out” on DirecTV’s platforms, including “DIRECTV, DIRECTV STREAM, and U-verse,” according to a statement. DirecTV said, “Disney demanded that to reach any licensing agreement or to extend access to its programming, DIRECTV must agree to waive all claims that Disney's behavior is anti-competitive.”
Further, according to DirecTV, under Disney’s proposal, “any future lawsuits resulting from DIRECTV/Disney licensing agreements would be adjudicated in California – and not New York – because – as Disney counsel specifically stated – SDNY Judge Garnett ‘didn't understand the issues’ when granting a preliminary injunction against Disney's Venu Sports.”
DirecTV characterized Disney's “last-minute demands to foreclose upon any legal accountability” as a “growing pattern of anti-competitive actions [that] should be troubling to all pro-consumer advocacy groups, regulators, and Department of Justice attorneys alike.”
Reiterating themes discussed in DirecTV Chief Content Officer Rob Thun’s Aug. 21 blog post highlighted below, the company stated, “Instead of offering DIRECTV and other subscription TV customers the same flexibility [as Venu Sports], Disney is forcing consumers to pay for channels they don't watch. On average, only two-thirds of DIRECTV customers watch a combined three hours or more across the entire suite of 16 Disney channels, which includes local ABC stations.”
Disney’s cable networks and owned and operated local broadcast stations are “blacked out” on DirecTV’s satellite service. Additionally, on DirecTV Stream, a virtual multichannel video programming distributor, or VMVPD, non-Disney-owned local ABC affiliates are unavailable.
As Reorg previously discussed, networks, not the owners of the stations, negotiate the carriage of local affiliates on VMVPD services.
DirecTV said that it is “assisting customers at TVPromise.com” and providing updates on the situation at “UnbundleDisney.com.”
Reorg’s recent deep-dive report analyzing the evolving competition in the pay-TV and video industry is available HERE.
Original Story 5:58 p.m. UTC on Aug. 29, 2024
DirecTV Looks to Venu Momentum for Programming Flexibility Upon Sept. 1 Disney Carriage Expiration; Negotiation Potentially Presents Industrywide Impact; Injunction Labeled Programmers’ Bundling ‘Bad for Consumers,’ Deferred Antitrust View
Relevant Documents:
Venu Injunction Opinion and Order
DirecTV Aug. 21 Blog Post
DirecTV’s carriage agreement with Disney expires Sunday, Sept. 1, triggering a negotiation that could serve as a new flashpoint in the evolving distribution of pay TV. The expiration comes in the wake of a federal court’s Aug. 16 decision to block the launch of competitor Venu Sports, the sports-focused streaming joint venture formed by Disney, Fox and Warner Bros. Discovery, or WBD.
Leading up to the expiration date, DirecTV has sought to capitalize on the momentum from the Venu opinion to negotiate more flexible packaging terms, allowing it to offer sports or other genre-focused “skinny bundles.” Whether through carriage agreement negotiations or the legal process, such flexibility could boost legacy pay-TV distribution margins and incrementally extend the longevity of the legacy pay-tv bundle.
In the FuboTV-Venu decision, the U.S. District Court for the Southern District of New York held that likely “anticompetitive effects” from the Venu joint venture obviated the need to consider industrywide bundling antitrust issues at an early stage in the litigation. However, the court added that “it is difficult to avoid the conclusion that, on balance, these practices are bad for consumers” (emphasis added).
The Venu partners appealed the decision on Aug. 19 and filed an emergency motion to expedite the appeal, arguing that a lengthy appeal could cost Venu the fall 2024 sports season. Meanwhile, the district court scheduled a Sept. 12 status conference to determine if the parties would like to forgo the summary judgment phase and go to trial as early as late February 2025.
On Aug. 21, DirecTV Chief Content Officer Rob Thun echoed the court’s reasoning regarding bundling in a blog post. “TV distributors should have the same flexibility to thrive alongside [direct to consumer, or DTC,] services by offering genre-based packages that extend beyond sports to include locals, entertainment, news, family, movies, and others,” he said.
With the emergence of lower-price DTC services, rather than demanding that distributors carry a “fat bundle” with “exorbitant minimum penetration rates,” programmers must provide distributors with the ability to develop “smaller, more tailored packages at prices that reflect the value [subscribers] get from the content,” Thun added.
Justin Connolly, president of Disney platform distribution, told Variety that Disney continues to “put a number of tangible options on the table” but that “DirecTV has not engaged in earnest at this point.” Citing Connolly, Variety said, “Disney has put forth various proposals, including a sports-centric package that includes ESPN and ABC and the option to bundle Disney+ and Hulu with DirecTV’s TV packages.” “What keeps coming up is this spin of, ‘We want something different,’ ‘genre-based options,’ without any specificity,” Connolly told Variety.
The DirecTV-Disney carriage contract expiration arrives on the one-year anniversary of Charter and Disney’s 12-day September 2023 carriage dispute blackout. That high-profile dispute, which also aligned with the start of the ratings-dominant professional and college football seasons, resulted in an agreement providing Charter with flexibility to offer certain Disney streaming products under particular Spectrum TV packages in a “hard bundle,” and the ability to “offer Disney's direct-to-consumer services to all of its customers,” including broadband-only subscribers, at “retail rates.”
Although privately held DirecTV likely ranks as the third-largest U.S. pay-TV distributor, with Charter as the largest, Reorg expects the outcome of this negotiation similarly holds the potential to drive broader industry change. In our view, the ability to provide skinny packages would benefit all pay-TV distributors but would be particularly valuable to satellite operators and virtual multichannel video programming distributors, or VMVPDs, that rely more heavily on pay-TV cashflows versus broadband connectivity.
If DirecTV successfully negotiates additional packaging flexibility with Disney, those benefits would likely be offered to distributors industrywide in future Disney carriage agreements. As Reorg discussed in its in-depth analysis of the hard bundle, carriage agreements, which are confidential, typically include most favored nations, or MFN, clauses, which require that certain terms are no less favorable than those provided to similarly situated distributors.
MFN clauses are typically forward-looking, meaning favorable new terms must be provided in renewing contracts rather than immediately inserted in the current contract, according to conversations with industry management.
MFN provisions, however, would only relate to Disney agreements. Other programming providers would need to agree to similarly flexible packaging arrangements for distributors to practically offer a skinny bundle, a process that could lengthen the timeline to offering such a product. In the hard bundle example, after the Charter-Disney agreement in September 2023, Charter and Paramount’s distribution renewal in May also provided for a hard bundle with certain Paramount streaming products.
As Reorg discussed in its deep-dive report on the future of pay-TV/video competition on Aug. 19, Disney plans to distribute ESPN, the longtime anchor and costliest component of the pay-TV bundle, in an ESPN flagship DTC suite of services in fall 2025. It is unclear if the impending launch will affect Disney’s willingness to provide additional packaging flexibility.
The aforementioned Reorg report, which provides wide-ranging views and analysis on legacy pay-TV bundle and streaming participants' efforts to rationalize the fragmented marketplace, is available HERE.
Further, according to DirecTV, under Disney’s proposal, “any future lawsuits resulting from DIRECTV/Disney licensing agreements would be adjudicated in California – and not New York – because – as Disney counsel specifically stated – SDNY Judge Garnett ‘didn't understand the issues’ when granting a preliminary injunction against Disney's Venu Sports.”
DirecTV characterized Disney's “last-minute demands to foreclose upon any legal accountability” as a “growing pattern of anti-competitive actions [that] should be troubling to all pro-consumer advocacy groups, regulators, and Department of Justice attorneys alike.”
Reiterating themes discussed in DirecTV Chief Content Officer Rob Thun’s Aug. 21 blog post highlighted below, the company stated, “Instead of offering DIRECTV and other subscription TV customers the same flexibility [as Venu Sports], Disney is forcing consumers to pay for channels they don't watch. On average, only two-thirds of DIRECTV customers watch a combined three hours or more across the entire suite of 16 Disney channels, which includes local ABC stations.”
Disney’s cable networks and owned and operated local broadcast stations are “blacked out” on DirecTV’s satellite service. Additionally, on DirecTV Stream, a virtual multichannel video programming distributor, or VMVPD, non-Disney-owned local ABC affiliates are unavailable.
As Reorg previously discussed, networks, not the owners of the stations, negotiate the carriage of local affiliates on VMVPD services.
DirecTV said that it is “assisting customers at TVPromise.com” and providing updates on the situation at “UnbundleDisney.com.”
Reorg’s recent deep-dive report analyzing the evolving competition in the pay-TV and video industry is available HERE.
Original Story 5:58 p.m. UTC on Aug. 29, 2024
DirecTV Looks to Venu Momentum for Programming Flexibility Upon Sept. 1 Disney Carriage Expiration; Negotiation Potentially Presents Industrywide Impact; Injunction Labeled Programmers’ Bundling ‘Bad for Consumers,’ Deferred Antitrust View
Credit Research: Adam Rhodes, CFA
Relevant Documents:
Venu Injunction Opinion and Order
DirecTV Aug. 21 Blog Post
DirecTV’s carriage agreement with Disney expires Sunday, Sept. 1, triggering a negotiation that could serve as a new flashpoint in the evolving distribution of pay TV. The expiration comes in the wake of a federal court’s Aug. 16 decision to block the launch of competitor Venu Sports, the sports-focused streaming joint venture formed by Disney, Fox and Warner Bros. Discovery, or WBD.
Leading up to the expiration date, DirecTV has sought to capitalize on the momentum from the Venu opinion to negotiate more flexible packaging terms, allowing it to offer sports or other genre-focused “skinny bundles.” Whether through carriage agreement negotiations or the legal process, such flexibility could boost legacy pay-TV distribution margins and incrementally extend the longevity of the legacy pay-tv bundle.
In the FuboTV-Venu decision, the U.S. District Court for the Southern District of New York held that likely “anticompetitive effects” from the Venu joint venture obviated the need to consider industrywide bundling antitrust issues at an early stage in the litigation. However, the court added that “it is difficult to avoid the conclusion that, on balance, these practices are bad for consumers” (emphasis added).
The Venu partners appealed the decision on Aug. 19 and filed an emergency motion to expedite the appeal, arguing that a lengthy appeal could cost Venu the fall 2024 sports season. Meanwhile, the district court scheduled a Sept. 12 status conference to determine if the parties would like to forgo the summary judgment phase and go to trial as early as late February 2025.
On Aug. 21, DirecTV Chief Content Officer Rob Thun echoed the court’s reasoning regarding bundling in a blog post. “TV distributors should have the same flexibility to thrive alongside [direct to consumer, or DTC,] services by offering genre-based packages that extend beyond sports to include locals, entertainment, news, family, movies, and others,” he said.
With the emergence of lower-price DTC services, rather than demanding that distributors carry a “fat bundle” with “exorbitant minimum penetration rates,” programmers must provide distributors with the ability to develop “smaller, more tailored packages at prices that reflect the value [subscribers] get from the content,” Thun added.
Justin Connolly, president of Disney platform distribution, told Variety that Disney continues to “put a number of tangible options on the table” but that “DirecTV has not engaged in earnest at this point.” Citing Connolly, Variety said, “Disney has put forth various proposals, including a sports-centric package that includes ESPN and ABC and the option to bundle Disney+ and Hulu with DirecTV’s TV packages.” “What keeps coming up is this spin of, ‘We want something different,’ ‘genre-based options,’ without any specificity,” Connolly told Variety.
The DirecTV-Disney carriage contract expiration arrives on the one-year anniversary of Charter and Disney’s 12-day September 2023 carriage dispute blackout. That high-profile dispute, which also aligned with the start of the ratings-dominant professional and college football seasons, resulted in an agreement providing Charter with flexibility to offer certain Disney streaming products under particular Spectrum TV packages in a “hard bundle,” and the ability to “offer Disney's direct-to-consumer services to all of its customers,” including broadband-only subscribers, at “retail rates.”
Although privately held DirecTV likely ranks as the third-largest U.S. pay-TV distributor, with Charter as the largest, Reorg expects the outcome of this negotiation similarly holds the potential to drive broader industry change. In our view, the ability to provide skinny packages would benefit all pay-TV distributors but would be particularly valuable to satellite operators and virtual multichannel video programming distributors, or VMVPDs, that rely more heavily on pay-TV cashflows versus broadband connectivity.
If DirecTV successfully negotiates additional packaging flexibility with Disney, those benefits would likely be offered to distributors industrywide in future Disney carriage agreements. As Reorg discussed in its in-depth analysis of the hard bundle, carriage agreements, which are confidential, typically include most favored nations, or MFN, clauses, which require that certain terms are no less favorable than those provided to similarly situated distributors.
MFN clauses are typically forward-looking, meaning favorable new terms must be provided in renewing contracts rather than immediately inserted in the current contract, according to conversations with industry management.
MFN provisions, however, would only relate to Disney agreements. Other programming providers would need to agree to similarly flexible packaging arrangements for distributors to practically offer a skinny bundle, a process that could lengthen the timeline to offering such a product. In the hard bundle example, after the Charter-Disney agreement in September 2023, Charter and Paramount’s distribution renewal in May also provided for a hard bundle with certain Paramount streaming products.
As Reorg discussed in its deep-dive report on the future of pay-TV/video competition on Aug. 19, Disney plans to distribute ESPN, the longtime anchor and costliest component of the pay-TV bundle, in an ESPN flagship DTC suite of services in fall 2025. It is unclear if the impending launch will affect Disney’s willingness to provide additional packaging flexibility.
The aforementioned Reorg report, which provides wide-ranging views and analysis on legacy pay-TV bundle and streaming participants' efforts to rationalize the fragmented marketplace, is available HERE.
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