DirecTV CFO faces traffic battle with Disney, says pay-TV bundle must shrink

DirecTV CFO Ray Carpenter says a pay-TV package should include 10 to 50 of the “most engaging” channels, a fraction of the “hundreds” of offerings crammed into “bloated,” expensive packages.

Smaller packages “would much better reflect what customers are watching,” he said Tuesday on a conference call with Wall Street analysts.

The comments, which accompanied the presentation, came on the third day of a major outage for 16 Disney networks, including ABC and ESPN, for DirecTV’s more than 11 million subscribers. The dispute, coming at the start of the college football and NFL seasons, has captured the attention of the media industry as well as Wall Street, given the high rates of cable churn and uncertainty about where the pay-TV package will ultimately settle. After surpassing 100 million just a decade ago, the total number of U.S. pay-TV households has shrunk to just over 70 million.

At the heart of the conflict is the concept of slimmer channel packages, something that price-sensitive consumers and programmers and distributors hurt by the cable shutdown seem to support. DirecTV claims that Disney has rejected its efforts to offer a series of slimmer packages, including a sports-focused package; Disney has vehemently opposed this claim, saying that DirecTV has “not engaged” in several such proposals despite its “pivot” in the opposite direction.

Carpenter’s remarks and presentation focused on a “brighter” future for pay TV. In the current environment, he said, consumers “are being asked to manage this increasingly complex set of subscriptions and applications.” The result is higher churn. Since it was evaluating its options even before the Disney standoff, the executive said DirecTV is leaning toward the idea of ​​trading potentially lower profit margins for lower churn, given the long-term potential.

Asked by an analyst why DirecTV shouldn’t be expected to, as Charter did in its battle with Disney exactly a year ago, capitulate when Monday Night Football and the NFL return next week, Carpenter said the fight is “existential” for DirecTV. “This isn’t just a dispute for us,” he said. “We didn’t go into this thinking, ‘Hey, let’s see how much of this we can get before Monday Night Football comes around and then make a deal,’” he said. “We’re willing to stick it out as long as it takes.”

Disney is a shareholder, along with Fox and Warner Bros. Discovery, in a pay-TV joint venture, Venu Sports, whose launch was recently blocked by a New York federal judge on antitrust grounds. MoffettNathanson’s Craig Moffett, a respected analyst who has followed the cable industry for decades, sees the combination of Venu’s legal defeat and the DirecTV-Disney showdown as “potentially apocalyptic” for the traditional TV business.

“It’s no exaggeration to say that bundling is everything for the pay-TV industry,” Moffett wrote in a note to clients Tuesday. “Without it, what remained of linear TV (or at least its economics) would quickly disintegrate, replaced by a punishing a la carte model that, even with stratospheric prices for ‘must-have’ networks, would not come close to replacing the lost revenues of the current model.”

Asked about Venu’s ruling during the call, Carpenter said he was “not surprised.” Even if the service ultimately doesn’t launch, he said, the plans for its launch and the antitrust lawsuit Fubo filed to block it “help the broader public understand what’s broken” about the pay-TV system.