The ongoing and contentious negotiations between DirecTV and Disney have left millions of customers dealing with blackouts. This article will focus on the stock performance of both companies and what the battle means for investors.
Impact on Customers
The carriage agreement between DirecTV and Disney expired on September 1, 2024, leading to a blackout of Disney-owned channels such as ESPN, ABC, and others for approximately 11 million DirecTV subscribers. This blackout is particularly problematic as it coincides with the start of the NFL season, a critical period for sports viewers, and the beginning of the US Open on September 13.
DirecTV has been advising customers that switching to streaming services may not be a viable solution, as these services also face similar carriage disputes. For example, YouTube TV subscribers experienced a Disney channel blackout in 2021, and Fubo lost Discovery channels earlier this year. Despite this, DirecTV is offering a $20 subscription credit to customers who enroll in alternative streaming services such as Fubo or Sling.
Negotiation Standpoints
DirecTV is seeking more flexible packaging terms, including the ability to offer "skinny bundles" focused on specific genres like sports or entertainment. However, Disney's demands for high minimum penetration rates (MPRs) are a major sticking point. DirecTV argues that these requirements are essentially pricing issues that limit the ability to unbundle channels effectively.
Disney has proposed various packages, including a sports-centric package and the option to bundle Disney+ and Hulu with DirecTV's TV packages. However, DirecTV claims that Disney's demands are unreasonable and include provisions like a "clean slate" clause and a prohibition on filing anticompetitive complaints.
Implications for Investors
The stock performance of both Disney and DirecTV is significantly impacted by this breakdown in negotiations.
Despite the ongoing dispute, Disney's stock has a Strong Buy consensus rating based on 19 Buys and four Hold ratings from analysts. The average price target implies a 34.8% upside potential from current levels. However, year-to-date, DIS shares have declined 2.2% (Forbes, September 6, 2024).
The dispute could impact DirecTV's revenue and subscriber base. DirecTV has been shedding subscribers, with estimates suggesting over 300,000 customers lost every three months. The blackout and potential loss of sports content could exacerbate this trend (Seeking Alpha, September 5, 2024).
Industry Impact
The outcome of this negotiation could drive broader industry change, particularly in how pay-TV distributors negotiate carriage agreements. If DirecTV succeeds in securing more flexible packaging terms, it could benefit other pay-TV distributors and potentially alter the landscape of the industry.
The dispute highlights the challenges faced by the pay-TV sector, including cord-cutting and the rise of direct-to-consumer (DTC) services. This shift is forcing traditional pay-TV providers to adapt their business models to remain competitive (Slate, September 7, 2024).
Regulatory and Legal Aspects
DirecTV has filed a complaint with the U.S. Federal Communications Commission (FCC), accusing Disney of acting in bad faith and displaying anticompetitive behavior. This complaint underscores the contentious nature of the negotiations and the potential for regulatory intervention (Variety, September 8, 2024).
A recent federal court decision blocked the launch of Venu Sports, a sports-focused streaming joint venture involving Disney, Fox, and Warner Bros. Discovery. The court noted that industrywide bundling practices are "bad for consumers," which supports DirecTV's argument for more flexible packaging options (The Verge, September 8, 2024).
Conclusion
The ongoing dispute between DirecTV and Disney has significant implications for both companies' stock performance and the broader pay-TV industry. Investors should be aware of the potential revenue impacts, subscriber losses, and regulatory developments that could shape the future of these companies and the industry as a whole.
