DIRECTV: Disney Blackout Not ‘Run-of-the-Mill Dispute’ Due to Price Gouging-Like Practices

There is a reason that channel owners like for their contracts with cable, satellite, and streaming distributors to expire around Labor Day. That way, they can maximize their leverage ahead of the NFL season in order to get the best possible deal on new carriage fee contracts. While that strategy has traditionally worked in nearly every situation — including Disney and Carter's dispute last fall — the same might not be true this year as DIRECTV executives seem determined to use this contract negotiation as an opportunity to reshape the entire pay-TV model.

Key Details:

• Disney pulled its channels off of DIRECTV platforms on Sunday night.
• DIRECTV is negotiating for increased flexibility in terms of the price and packages it can offer consumers.
• Normally these types of disputes wrap up quickly, especially when football is involved, but DIRECTV seems ready for the long haul.

On Sept. 1, the deal between Disney and DIRECTV ended, leading to ABC, ESPN, ESPN2, Disney Channel, Freeform, National Geographic, and all other Disney-owned channels to be pulled off of DIRECTV's satellite and streaming platforms. The blackout happened during the first weekend of the college football season and U.S. Open tennis tournament, as well as one week before the first “Monday Night Football” broadcast of the NFL season.

DIRECTV’s position in this dispute centers on the fact that channels are still sold to distributors in the same way that they have been for decades, despite the fact that the industry has changed dramatically in the past few years. No longer do channel owners like Disney exclusively rely on distributors to deliver content to consumers, but they are also now offering their content direct-to-consumer, often at prices far below the traditional pay TV platforms.

On a conference call with journalists and analysts on Tuesday, DIRECTV CFO Ray Carpenter said that by pulling the plug on the channels when it did, Disney was purposely aiming to upset customers who want to watch the Labor Day Weekend sports schedule and the upcoming NFL season.

“The timing of when they decided to pull the content was absolutely orchestrated to put the most pain and disruption on our customers,” Carpenter said.

While this is not an unusual strategy for content providers in contract negotiations, Carpenter said that it was part of a pattern of adversarial tactics that Disney regularly engages in. Disney’s reputation as an intractable negotiating partner has been a regular theme across the entertainment industry in recent years. In addition to the carriage blackout last fall with Charter’s Spectrum Cable, Disney is currently a co-defendant in an antitrust lawsuit brought by Fubo against the currently waylaid sports streaming joint venture Venu Sports, which was to be launched by Disney, Fox, and Warner Brothers Discovery last month.

Despite the impending NFL season kickoff, Carpenter is adamant that DIRECTV has no interest in giving in to Disney’s demands without seeing substantive changes to the distribution agreement between the sides. Unlike Charter, which has other businesses than video, specifically high-speed internet, DIRECTV is singularly built around television distribution, so the company is willing to experience some immediate pain for a better future for the industry.

“We’re not playing a short-term game,” Carpenter said. “We need something that is going to work for the long-term sustainability of our video customers … This is much more than a run-of-the-mill dispute; this is more existential for us. We would hate for our customers to not have access to any of the great content that is available via the Disney channels, but we’re not playing a short-term game.”

Related: DIRECTV and Disney Carriage Battle Could Change Pay-TV Forever

One lingering problem that could prevent DIRECTV and Disney from coming to a speedy conclusion is that Carpenter said on Tuesday that Disney was the most inflexible partner that it works with. Over the past year, DIRECTV has reached new agreements with regional sports network (RSN) provider Diamond Sports Group for their Bally Sports Channels and two of the largest local affiliate owners in the country Tegna and Nexstar, so it has a history of cutting deals with channel providers.

However, given Disney’s size and importance in the entertainment industry, it is understandable that the House of Mouse might be less inclined to compromise than other providers, but the fact remains that it doesn’t serve anyone’s interests for the channels to be blacked out for long. But Carpenter noted that Disney’s insistence on bundling its most popular channels with its less popular networks has pushed his company, and more importantly consumers, to a breaking point.

“Disney has always been one of the most inflexible as it relates to penetration rates. This is the requirement placed on us to charge our customers for channels … that they don’t value and don’t watch,” he explained. “They essentially hold the position that if you want to watch one Disney channel, you need to pay for all of them.”

It is standard operating procedure in these types of disputes for each side to blame the other. DIRECTV has launched a new website, UnbundleDisney.com, to lay out its case to consumers, while Disney released a statement over the weekend. The company implies that DIRECTV is asking for far more than any other partner has asked during a negotiation. Disney said that it would be willing to extend DIRECTV a similar deal to what it gave Charter last year, in which Spectrum cable customers got access to Disney+. However, the Disney statement says that DIRECTV is undermining the value of the content on ABC, ESPN, and the rest of the portfolio by asking for so much flexibility.

“DirecTV chose to deny millions of subscribers access to our content just as we head into the final week of the US Open and gear up for college football and the opening of the NFL season,” the company said. “While we’re open to offering DirecTV flexibility and terms which we’ve extended to other distributors, we will not enter into an agreement that undervalues our portfolio of television channels and programs.

“We invest significantly to deliver the No. 1 brands in entertainment, news and sports because that’s what our viewers expect and deserve. We urge DirecTV to do what’s in the best interest of their customers and finalize a deal that would immediately restore our programming.”

This dispute over flexibility is at the heart of DIRECTV’s argument; the distributor wants the ability to provide slimmer, more cost-effective packaging options to customers in order to provide channel lineups that best fit individual needs. On Tuesday, Carpenter routinely went back to the example that a household that doesn’t have kids shouldn’t have to pay for Disney Junior, and a family that doesn’t watch sports shouldn’t have to pay $9.42 per month for ESPN, let alone additional fees for ESPN2, ESPNU, ESPNews, and the other sports networks under the ESPN umbrella.

Those costs are one of the major reasons that prices in all areas of the pay-TV industry have continued to rise, even though viewership has dropped precipitously across the board. Carpenter said that in total, Disney’s portion of a standard DIRECTV package comes to $22.50 per month — or $270 annually — and then the company also charges customers for the streamers found in the Disney Bundle of Disney+, ESPN+ and Hulu. The problem, as Carpenter sees it, is that a large percentage of the content found on those platforms is also available on the linear channels that DIRECTV customers are already paying for. So, they are essentially paying twice for a lot of the same content.

“I don’t know exactly what the official definition of price gouging is,” he said, “but if it walks like it and sounds like it, it just might be that.”

Tough talk around multi-billion dollar business deals is not uncommon; last year, Charter Communication’s CEO Chris Winfrey said that if his company’s negotiations with Disney did not result in a favorable outcome, it might lead to Charter exiting the cable business altogether. Obviously, that did not happen.

But following comments made by DIRECTV chief content officer Rob Thun to The Streamable’s David Satin last month, it seems that the channel distributor is ready to dig its heels in for a fight that could last longer than a typical carriage dispute. While such a development would certainly put a damper on DIRECTV customers’ ability to enjoy the college and NFL football seasons, as well as the fall TV premieres, the satellite and streaming company is optimistic that such a drastic step might reshape the industry for a brighter future.