DirecTV and Disney Reach Agreement to End ESPN and ABC Blackouts

After a 13-day blackout, Walt Disney Co. and DirecTV settled their contract dispute Saturday morning, restoring ESPN, ABC and other Disney-owned channels to DirecTV’s more than 10 million subscribers.

DirecTV and U-Verse customers have been frustrated over the loss of Disney programming since talks broke down on September 1.

The two companies were motivated to strike a deal ahead of another weekend of ESPN-ABC college football, ABC’s broadcast of the 76th Emmy Awards on Sunday and the second week of ESPN’s “Monday Night Football,” which will feature the Philadelphia Eagles and Atlanta Falcons. ABC’s new prime-time season also begins later this month.

The nearly two-week battle has been costly. Thousands of subscribers canceled their services during the blackout, DirecTV acknowledged earlier this week. The satellite TV giant was trying to stem the bleeding.

After marathon negotiations, the companies said they had reached an “agreement in principle” that includes increases in the fees DirecTV pays for Disney programming. Earlier this week, DirecTV notified subscribers that it planned to raise prices on some packages next month due to higher programming costs.

DirecTV also scored wins in the new deal. It gained the ability to offer Disney channels in genre packages, including sports, general entertainment and a “kids and family” package. DirecTV can also offer Disney’s streaming services — Hulu, ESPN+ and Disney+ — to customers who buy certain packages, as well as on an a la carte basis. That will include the ESPN streaming service, which Disney plans to launch next year.

“With this first-of-its-kind collaboration, DirecTV and Disney are giving customers the ability to customize their video experience with more flexible options,” the companies said in a joint statement. “DirecTV and Disney have a long history of connecting consumers with the best entertainment, and this agreement strengthens that commitment by recognizing both the tremendous value of Disney content and the evolving preferences of DirecTV customers.”

The dispute highlighted the tensions traditional pay-TV distributors face as they transition to streaming.

An increasingly smaller group of subscribers to large packages is increasingly being burdened with higher program costs.

The costs of running broadcast channels (ABC, CBS, Fox, and NBC) and sports networks, including ESPN, have skyrocketed; programmers want to pass on the fee increases they have agreed to pay to sports leagues. ESPN is the most expensive basic cable channel, costing pay-TV distributors almost $10 per month per home subscriber.

The cost of sports has become a major issue in the recent dispute. Another sticking point was Disney’s requirement that its channels be available in most DirecTV and U-Verse homes.

Disney has long required its channels to reach about 90% of DirecTV’s subscriber base. ESPN’s minimum threshold is about 82%.

Pay-TV companies like DirecTV face penalties if they fail to meet a “minimum penetration rate” requirement.

Going into negotiations, DirecTV prepared for a fight, aiming to ease those thresholds. DirecTV wanted looser requirements so it could offer its customers smaller, genre-themed packages at lower prices.

DirecTV executives argued that forcing customers to buy a “bloated package” filled with expensive channels they don’t watch is not cost-effective. Most consumers watch fewer than 30 channels, they said.

Disney responded that programming is expensive and that the company invests heavily in high-quality content.

Neither side was eager to prolong a battle that was antagonizing customers. More than 4 million U.S. homes have already canceled pay TV in the first six months of the year, according to research firm MoffettNathanson.

Disney and DirecTV still generate billions of dollars in revenue from traditional pay-TV packages and want to keep the taps turning. Disney gets about $2 billion a year from DirecTV, MoffettNathanson said.

Unlike cable distributors that also offer high-speed internet and phone service, DirecTV has focused solely on selling video channel packages, including U-Verse, since the company was spun off from AT&T in 2021. The El Segundo company, which has lost more than half of its subscribers from a decade ago, couldn’t afford to turn away more customers and began offering $30 credits to encourage them to stay during the blackout.

Disney has previously expressed interest in working with DirecTV to create themed packages that include kids and family entertainment, local channels and sports.

“Disney’s open talk about smaller packages is a significant strategic turning point and likely indicative of where the industry ultimately heads,” Rich Greenfield, media analyst at Lightshed Partners, wrote in the report.

But the two companies have spent days haggling over penetration rates. Negotiators have spent hours trading proposals since the blackout began, despite public exchanges of sarcasm.

Outages have become increasingly common as the industry’s economy erodes. Last year, Disney channels disappeared for nearly 12 days on Charter Communications’ Spectrum service during a similar fight over fees and the flexibility to offer Disney’s streaming services to its customers at no extra charge.

Charter, DirecTV and other distribution executives are chafing at Disney’s efforts to bypass distributors and offer its programming directly to consumers. Disney plans to introduce ESPN as a streaming service next year.

The Burbank giant teamed up with Warner Bros. Discovery and Fox Corp. this year to offer a $43-a-month sports channel bundle called Venu. But a federal judge last month issued a temporary injunction, torpedoing Venu’s fall launch on antitrust grounds.

Distributors perceive such services as a direct threat to their business.

DirecTV Chief Content Officer Rob Thun also said Disney’s general counsel has asked DirecTV to waive any legal claims against Disney alleging antitrust conduct as part of any distribution deal. That has also become a sticking point during negotiations.

Last weekend, DirecTV filed a complaint with the Federal Communications Commission, alleging that Disney did not negotiate in good faith and its tactics were anticompetitive.