Disney Channel, ESPN, ABC Will Disappear September 1 as Streaming Gets Even Worse

If you want to keep watching the Disney Channel, ESPN, ABC, and a whole bunch more, you’d better hope that the Mouse gets its streaming business in order by September 1. Otherwise, those channels will be disappearing from your television.

“These Guys Lied to Us”

The Walt Disney Company is facing a catastrophe of its own making, which, naturally, is quickly trickling down to its customers. Like virtually every other major media company, Disney leaped into the streaming wars without looking and is now discovering that not only did it not quickly take over the market from Netflix, but it’s actually losing billions of dollars trying to do so.

Disney has been ignoring traditional/linear TV for years now, heavily prioritizing streaming as the way of the future. Disney+ and Hulu are both gigantic money pits that have cost shareholders billions of dollars and need to be bailed out by ESPN+ to shadily make it seem like they make money, but Bob Iger has decided that the only way through the streaming wars is to stay the course and keep demonstrating the sunk cost fallacy.

But still, obscene executive stock options need to be financed, so Disney has been trying everything it can to make streaming profitable. The cost of Disney+ has doubled since 2019; it now heavily features ads, and the Mouse has axed the DisneyNOW, ABC, FreeForm, and FX free apps to try to get people to people to sign up for its paid streaming service without realizing they’re already paying for much of that same content via cable.

In a similar but legally distinct strategy, Disney has teamed up with two of its main business rivals, Warner Bros. Discovery and Fox, to launch Venu Sports. This new streaming app would feature content from ESPN, TNT Sports, and Fox Sports and cost $42.99. If you think there’s anything odd or collusive or even potentially monopolistic about three globally dominant media companies working together to grant a joint venture exclusively privileged content that they do not offer to cable or satellite companies, congratulations: so do the federal courts.

Related: Disney+ Subscribers May Lose Hulu Streaming Services, Purchase in Jeopardy

U.S. District Judge Margaret Garnett has given a preliminary injunction against Disney Company, Warner Bros. Discovery, and Fox at the behest of FuboTV, a sports streaming TV service. That means that Venu legally must stop its planned launch and take no further action until FuboTV’s antitrust lawsuit is heard or (more likely) an appeal is granted. Either way, Venu and all the money Disney hoped to make from it just ran facefirst into a wall.

This would be a huge problem by itself, but it just made another issue worse for Disney and, accordingly, its customers. Judge Garnett has described Venu thusly:

“Once [Venu] launches, the [Disney, Warner, and Fox] have no reason to take actions that could allow for the emergence of direct competitors. Quite the opposite: the multi-year monopolistic runway they have created for themselves will provide powerful incentives to thwart competition and hike prices on both consumers and other distributors.”

That got DirecTV, another pay-TV provider who would get cut out of the game by the Venu plan, steamed. Unfortunately for fans of the Disney Channel, its carrier contract with Disney expires on Sunday, September 1. If Disney can’t negotiate with DirecTV, 11.3 million households will lose a huge number of channels.

But DirecTV isn’t in the mood to go easy on Disney. In fact, Chief Content Officer Rob Thun (per Business Insider) put it bluntly: “These guys lied to us. When you pulled back the curtain and saw what they were really doing — wow. They really just want to disintermediate all of pay TV and drive everyone to themselves. It’s horrific.”

Disney Streaming vs. Everyone Else

The beef between DirecTV and Disney is complicated, so we’ll try to break it down as simply as possible.

• DirecTV, a satellite-based pay-TV company, licenses content from companies like Disney and Fox, such as ESPN, the Disney Channel, and ABC Family.
• Subscribers then pay DirecTV for access to those channels. Sports programming is a hugely profitable part of this.
• DirecTV is forced by Disney (and others, but we’ll just use the Mouse as the example) to only offer consumers “packages” that include less popular channels like National Geographic and ABC Signature with the more-watched ESPN. If DirecTV doesn’t accept this, it doesn’t get to offer the channels people want.
• For years, DirecTV and the other struggling pay-TV services (including cable TV) have been trying to convince Disney to let them offer “skinny” packages that only include the specific channels that consumers want.
• For example, a sports-oriented package would allow football fans to watch the premiere of Monday Night Football on September 9 without also having to sign up for Freeform.
• Disney has always refused because it gets paid for the unwanted channels getting included in packages, whether they’re watched or not. DirecTV gets stuck being blamed for overstuffed bundles and high prices.

Okay, that’s the general state of things. DirecTV’s carrier contract with Disney, which determines affiliate payment rates, package structures, and channel availability, will expire on September 1. Even in the best of times, the negotiations between the two companies would be strained. But now, Disney’s federal court loss over Venu has emboldened DirecTV, and it is fed up with the Mouse.

Related: Report: Disney+ Offers Steep Discounts as Subscribers Drop Out, Desperate To Keep Advertisers

Specifically, the fact that Disney, Warner, and Fox all granted Venu (a joint venture entity legally separate from its trio of parents) the right to offer streaming sports without bundling other channels, the very thing that DirecTV has been lusting after for years, has made the satellite company furious. To put it differently, Disney has always claimed it can’t NOT bundle things as long as it was to its advantage, but as soon as it could cut DirecTV out of the picture, it wants to offer “skinny” sports.

This is not just a theory. It is the opinion of the federal government, as written by Judge Garnett. Her injunction specified:

“It is indisputable that the [Disney, Warner, and Fox] have long used the combination of bundling and minimum penetration requirements to make live pay TV distributors carry content they otherwise would reject, or would only offer based on express customer preferences, and therefore, those distributors are forced to pass those superfluous costs on to consumers who, in many cases, also do not want that content, or would not pay for the content if they had the choice.”

“Now, for the first time ever, [Disney, Warner, and Fox], who are otherwise competitors both in securing the rights to broadcast live sports and in securing viewers for their content, are granting a firm a license to unbundled sports content. That firm is their own [joint venture.]”

Put like that, it is not really surprising that the judge feels that an antitrust lawsuit needs to be followed through on. Pay TV providers like satellite and cable are currently struggling, with DirecTV having lost approximately 50% of its customer base in the last decade. Those losses are largely due to the rise of streaming services as the dominant entertainment platform. But since Disney isn’t making money off streaming, DirecTV is losing customers, and consumers are still paying increasingly higher prices, who is really winning here?

It is also worth noting that while Disney’s strategy to team up with its rivals to cut out DirecTV and FuboTV and (allegedly) form a monopoly that it will definitely not use to raise subscription rates in the future may be dubious, it is not as though the pay-TV providers are angels here. In essence, DirecTV is demanding its rights to act as a middleman between the content owners and consumers; they just don’t want Venu to get to a leg up on them in doing so.

Rob Thun wrote in an official DirecTV blog post:

“Instead of allowing distributors like DIRECTV to also develop smaller, more tailored packages at prices that reflect the value they get from the content, programmers have continued to impose and enforce strict bundling requirements through exorbitant minimum penetration rates – the minimum proportion of a distributor’s subscribers required to access a channel.”

“These antiquated requirements force pay TV customers to subscribe to many channels they may not watch, which have yielded ‘fat bundles.’ At the same time, programmers have reserved flexible genre-based offerings solely for themselves, eroding the price-value proposition for pay TV customers by shifting the best programming to DTC services while raising programming fees on pay TV.”

“Venu, the recent joint venture across multiple programmers, is a perfect example. The programmers who created Venu – The Walt Disney Company, The Fox Corporation, and Warner Bros. Discovery – sought to bring a sports-centric streaming service to market until it was blocked last week by a U.S. district court on the grounds of severe antitrust concerns and the ‘near monopolistic control’ that the Venu JV partners would exercise over the market.”

If Disney and DirecTV can’t come to a compromise, consumers will lose numerous channels this Sunday. As far as it is concerned, Disney is doing everything it can and blames DirecTV. Disney President of Disney Platform Distribution Justin Connolly says (per Variety), “DirecTV has not engaged in earnest at this point. At the moment, we’re far apart. The focus is on trying to hammer out details, and the ball is in their court.”

DirecTV’s Rob Thun isn’t having it. He says, “We absolutely have to find our way to offering something smaller and less expensive than what we have today…I’m not sure what the wake-up call is going to be, frankly, for the programmers to realize this isn’t good … If I drive pay TV out of business, the gravy train is over.”

Massive corporations are currently arguing about who should get to charge consumers for the privilege of offering channel packages and how much they should be able to charge. Right now, Disney and DirecTV are playing chicken, and the Disney Channel and ESPN are standing right in the middle.

Which is better? Streaming, cable, or satellite?