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FT editor Roula Khalaf selects her favourite stories in this weekly newsletter.
A new Labor Day tradition has arrived in the U.S.: Disney is in the middle of a messy contract dispute with another television giant as each side tries to survive a new world order in entertainment.
Disney’s contract with satellite provider DirecTV expired last weekend with no renewal scheduled. As a result, DirecTV customers missed the start of the college football season as well as the middle rounds of the U.S. Open tennis tournament.
These kinds of “carriage” disputes have become commonplace. Exactly one year ago, Disney fought over a renewal with John Malone’s Charter Communications. But over the course of the year, the decline of linear TV has only accelerated. Worse for Disney, a recent legal setback may threaten its usual ability as a provider of valuable content to pressure distributors like DirecTV.
In 2015, AT&T acquired DirecTV for a total value of $67 billion. Three years ago, the telecom company sold majority control of DirecTV to private equity group TPG for an enterprise value of just $16 billion. Satellite TV has been losing subscribers for years, but unlike cable TV providers, DirecTV does not have a broadband business to counterbalance changes in video consumption.
With TV viewership declining, Disney needs to charge as much as possible for each remaining traditional linear pay-TV subscriber. Its flagship channel, ESPN, for example, has the highest affiliate fee, at about $9 per subscriber. In its most recent quarter, affiliate fee revenue fell 2% as subscribers fell 8% while its fees rose 6%.
The current standoff between DirecTV and Disney has somehow become even more existential. As Lex recently commentedA federal court has halted a sports streaming joint venture created between Disney, Fox and Warner Bros Discovery. The judge said bundling practices whereby distributors had to agree and pay for multiple channels as a package of Disney and the content companies were likely illegal.
Following the decision, DirecTV told Disney it does not want to pay for everything that comes with ESPN, but only what it believes ESPN is worth on its own.
Each side digs in, accusing the other of being irrational and hurting American consumers. Labor Day is the time for this now-annual fight, and it bodes ill. The biggest live TV content by far is the National Football League, which kicks off its schedule on ESPN next Monday night. Last year that was enough to prompt a compromise just before Monday Night Football. This year, don’t be so sure.