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Want to know why Disney channels are still blacked out on DirecTV a full week into football season? Just Google the phrase “offset by higher contractual rates.”
In one earnings report after another, this type of business jargon explains how Disney and other TV programmers have tried to blunt the impact of cord cutting. While subscriber numbers are tanking, programmers prop up revenues by raising carriage fees for their channels—the aforementioned “higher contractual rates.” Instead of making TV bundles more attractive through choice and flexibility, the industry has chosen to fleece whoever hasn’t reached their personal breaking point through routine price hikes.
This strategy has never been sustainable, and now the bill has come due. The dispute between DirecTV and Disney is a sign that TV providers are reaching their own breaking points, and are no longer willing to sit on their hands while their businesses evaporate—even if it means their customers miss out on football.
The sad thing is that it didn’t have to be this way.
The bottom drops out
To make sense of the DirecTV-Disney dispute, it helps to understand how quickly the pay TV model is eroding. TV providers are collectively losing millions of subscribers every year, and while the industry once assumed that the losses would eventually stabilize around a core of sports fans, that no longer seems to be the case.
In 2021, MoffettNathanson Research predicted that number of homes with pay TV service would drop to 73.2 million in 2024. Three years later, pay TV subscriptions have sailed past that milestone, reaching 68.76 million households at the end of Q2. While MoffettNathanson once estimated that 53 million homes would represent “the bedrock floor of the pay TV world,” the firm now says the pit is bottomless.
“It is becoming increasingly clear that there is no longer any floor,” analyst Craig Moffett wrote in a recent research report.
These figures don’t just cover cable, satellite, and telco TV service. They also include live TV streaming services such as YouTube TV, Hulu + Live TV, and Fubo, which have become just as bloated as the TV packages they aimed to replace. According to MoffettNathanson, only one out of four households subscribes to a live TV streaming plan after cutting traditional TV service. The rest stick with cheaper services like Netflix, free services like YouTube and Tubi, or a plain old antenna.
DirecTV is getting the worst of it. As a primarily satellite-based TV provider, it has no home internet business to fall back on and no direct-to-consumer streaming service to prop up. A lost live TV subscriber is a lost customer, and DirecTV’s bled about 13 million of them over the last eight years.
The Disney dispute is DirecTV’s breaking point. To go on offering the same old TV packages would be a death sentence, so it’s raising a big public stink about bloated pay TV packages, seeking out cheaper and more flexible alternatives, and telling frustrated customers that switching to another provider won’t solve anything.
Blowing up the bundle
Whether it prevails or not, DirecTV has a point: The time has come for new kind of TV package, one that combines a smaller, cheaper lineup of cable channels—namely, the ones focused on live sports—with easy ways to add a la carte streaming services such as Netflix, Hulu, and Max. The bundle model doesn’t have to die, it just has to adapt to what people actually want.
That’s easier said than done, though. Disney has tried to perform its own end-run around bloated bundles with fellow programmers Fox and Warner Bros. Discovery, forming a joint venture called Venu Sports that would offer a slim bundle of sports channels for $43 per month. That effort is now on hold after a federal judge ordered an injunction against Venu, agreeing with live TV streamer Fubo that the service was an antitrust threat.
DirecTV has suggested that it wants to offer a similar sports-centric package—as has Fubo itself—but Justin Connolly, Disney’s president of distribution, told The Hollywood Reporter that DirecTV’s ideas “don’t have a lot of specificity” and “don’t feel like they can be executed easily.” Given that other large TV providers can seek deals that match whatever DirecTV gets, Disney may not want to move so hastily.
The time was then
All of which is to say that the entire TV industry should have been hashing this out years ago, long before the pay TV model entered freefall. The bloated bundle has long outlived its usefulness, and alternatives should already be in place.
The industry’s had plenty of chances. Remember when T-Mobile tried to sell a TV service with two separate packages—one for entertainment, and another for news and sports? Programmers flipped out, and T-Mobile wound up shutting the whole thing down. Remember when Hulu’s former CEO spoke of plans for a skinny live TV package of news and sports? Never happened. Remember when Verizon tried to sell a choose-your-own-channels TV bundle? Disney got it killed in court.
Of course, any shake-up to pay TV bundling has risks. If cheaper, more flexible bundles were available, some existing subscribers might downgrade. But that seems acceptable given the alternative, which is a bottomless pit of subscriber losses, a steady stream of carriage fights, and a fractured streaming landscape that even Hollywood executives hate.
The Wrap reports that if the dispute with DirecTV drags on, Disney could lose $3.5 billion annually in carriage fees and ad revenue. It probably won’t come to that, but it also can’t end the same way these fights always do.
Otherwise, we’ll keep getting the same old bundles, “offset by higher contractual rates,” and everyone will lose.
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