The development of Venu Sports by three of the country’s biggest holders of live sports rights proves broadcasters are willing to embrace a new model of pay television by which channels are distributed through genre-based packages, a DirecTV executive affirmed this week.
In an exclusive interview with The Desk on Monday, DirecTV’s Chief Programming Officer Rob Thun said programmers that own broadcast and cable channels have long resisted efforts to redistribute their networks in lower-cost packages that revolved around themes like news, sports and general entertainment, but evidence revealed in a recent antitrust lawsuit showed they’re keen on the idea when it benefits them.
The evidence — documents and sworn testimony by media executives from a variety of companies — was revealed publicly in an antitrust lawsuit brought by sports-focused streaming service Fubo earlier this year, after three broadcasters — Fox Corporation, the Walt Disney Company and Warner Bros Discovery (WBD) — affirmed plans to develop and launch Venu Sports.
As described, Venu Sports intended to offer sports-inclusive broadcast and cable channels from the three programmers, including ABC, ESPN, Fox, TBS, TNT, Tru TV, FS1 and FS2, but without general entertainment or cable news channels.
Fubo cried foul, saying the broadcasters were treating their wholly-owned joint venture substantially different from the deals that cable, satellite and streaming cable-like services are forced into. Those distribution deals typically distributors like Fubo to place entertainment and news channels like FX, National Geographic, CNN and Fox News in base programming packages as a condition of carrying sports-inclusive networks like ESPN, TNT and FS1. Programmers almost always charge fees for the distribution of their channels on cable and satellite platforms, and the channel bundling terms typically result in higher fees for customers.
A federal judge this month approved a request by Fubo for a temporary injunction that blocks Venu Sports while the antitrust case continues.
DirecTV is not a party to the lawsuit, but the satellite and streaming pay TV service is one of several that provided material support to Fubo as part of the case. Thun himself offered comments on the matter in an affidavit first reported by The Desk in April, through which he said that the broadcasters “are offering content in a manner that they do not allow DirecTV or other distributors to offer to consumers.”
“Rather, the joint venture partners require that DirecTV offers a large bundle of channels and do not allow DirecTV to offer a smaller sports-focused bundle of channels,” Thun affirmed.
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On Monday, Thun reiterated this position, saying it was high time that broadcasters allow cable and satellite TV platforms to distribute channels through genre-based bundles under the same premise as Venu Sports.
Thun said concerns by programmers that distributing channels across bundles would cause certain high-value networks like ESPN to push others out were now proven to be overblown, noting that Fox, Disney and WBD planned to embrace that exact model for Venu Sports.
“They claim to have been terrified of the cannibalization, yet their own documents suggest they weren’t so terrified of it,” Thun told The Desk on Monday. “They were willing to take up to two-thirds of the [subscriber] base. They were going to have Venu, and they were going to be cannibalistic to pay TV. So, let’s stop with the posturing. Your own internal documents suggested that you’re not that afraid of it.”
Thun is referring to comments made by some executives who projected Venu Sports stood to pull hundreds of thousands of customers away from traditional pay TV platforms like DirecTV — which carries channels from all three Venu Sports participants — and Fubo, which distributes channels from Fox and Disney.
David Gandler, the CEO of Fubo, reaffirmed those projections, saying the streaming service stood to lose as many as 400,000 customers by the end of the year, which would have caused Fubo to lose out on tens of millions of dollars in revenue. Gandler and Fubo’s Chief Financial Officer John Janedis separately warned that Venu Sports chipping away at their business would have forced Fubo into bankruptcy.
Related: Fubo CEO said company would go bankrupt if Venu Sports launched
The remarks proved the fragility of Fubo’s business model, one that appears entirely dependent on the distribution of broadcast and cable channels that are owned by bigger players in the space. In all likelihood, other pay TV platforms — including DirecTV — are probably in the same boat, which floats or sinks based on their ability to offer highly-sought channels at attractive prices and effectively compete against others in the same space.
Thun said it doesn’t have to be this way if programmers like Disney are willing to offer genre-based channel bundling opportunities to cable, satellite and streaming TV companies. He envisions a situation where customers can purchase a bundle of sports channels at a particular price, a package of news channels at a slightly lower cost and tack on groups of entertainment, lifestyle, knowledge and movie channels for separate costs.
“We think this gives them a more-modular approach to genres of content and cheaper prices that satisfies a customer’s desire for control,” he remarked.
When asked if DirecTV would ever support a model where customers can simply purchase the individual channels they want and build their own bundles accordingly, Thun claimed that would probably cause more problems than it solves, pointing to studies that claim an à la carte offering would require programmers and distributors to raise per-channel prices to the point where they would probably be much higher than if they were simply distributed through bundles.
Through a genre-based bundle offering, Thun said it is likely that customers might pay more, anyway. He notes customers “like to sample across genres,” which means the typical TV fan wants access to sports, movies, entertainment and news. Stacking those bundles might prove to be expensive, he affirms, but at least customers will have greater control over what they want to pay for, and DirecTV and others can offer differentiated packages that target sports fans and frugal TV viewers alike.
“We’re not trying to kill the cable channel model, but if the model doesn’t change, it’s going to kill us,” Thun warned. As it stands now, “customers have to pay Big Mac pricing to get the junior cheeseburger,” he quipped — meaning, satellite subscribers who only watch entertainment channels like FX or Comedy Central have to pay hundreds of dollars per year because they also have to buy ESPN and Fox News as part of their base programming package, too.
DirecTV may have some leverage to bring their pay TV utopia into reality: According to multiple reports, the company’s current contract to offer Disney-owned channels is set to expire on September 1. If both sides cannot agree on a new contract by then, DirecTV’s satellite and streaming customers, as well as customers of U-Verse, will lose access to ESPN, Disney Channel, FX, Freeform, National Geographic and a handful of other channels at the end of this month. Disney-owned ABC stations in New York City, Chicago, Philadelphia, Los Angeles, San Francisco, Houston, Fresno and Raleigh-Durham would also be dropped.
A spokesperson for DirecTV would not comment on the matter, referring The Desk back to comments made by Thun in our extensive interview with him on Monday, and an essay Thun penned for the DirecTV Insider blog that was published last Friday, which supported his view of the genre-based bundle model.
Some executives from Disney have been more vocal in recent days, expressing frustration over the situation and painting DirecTV as the holdout toward a new deal.
“They are trying to spin and push this narrative that they want to explore more flexible, skinnier bundles, and that we refuse to engage on that,” Justin Connolly, the President of Platform Distribution at Disney, told the Hollywood Reporter in an interview. “Bottom line: That is blatantly false, and we’ve been negotiating with them for weeks, and we proposed a variety of flexible options … but yet they haven’t engaged with us on the options.”
Those “flexible options” resemble a distribution deal reached between Disney and Charter Communications last year. That deal — which was reached after a temporary programming-related blackout — allowed Charter to drop some Disney-owned channels from its Spectrum TV service and offer complementary access to Disney’s streaming apps to Spectrum TV customers on eligible plans, among other things.
“In each of those instances, they tried to spin back some flimsy rationale around these ‘genre-themed packages,’ and frankly, it just feels like a tactic to distract from the real issues in negotiation,” Connolly said earlier this week. “They just continue to sort of spin, both publicly but also in the room, a little bit on these ideas that don’t have a lot of specificity to them, and, you know, from our perspective, don’t feel like they can be executed easily, and that continues to be a challenge.”
It is difficult to know whether DirecTV has the sort of leverage it thinks it does to strong-arm Disney into embracing the idea of genre-based packages. Even if Disney does acquiesce to the idea, it probably would not result in DirecTV and U-Verse customers benefitting from the deal instantly, as DirecTV would almost certainly need to negotiate similar deals with Fox, WBD, Comcast’s NBC Universal, Paramount Global and others, which could take several years.
DirecTV may not be able to afford to wait things out — while the distribution deal between Charter and Disney was seen as a huge potential shift for the pay TV industry, it also convinced hundreds of thousands of Spectrum TV customers to leave the service.
“Early on, we had some carryover from the Disney dispute in the August rate event,” Jessica Fischer, Charter’s Chief Financial Officer, said on a conference call earlier this year. “We had expected November and December to recover to the levels that we had seen going into that event — and they didn’t.”
Related: Disney spat fueled cord-cutting at Charter’s Spectrum TV
The moral of that cautionary tale is that DirecTV might not have the time it thinks it does: Disney is notorious for planning their contract renewal deadlines with pay TV platforms to coincide with the start of the National Football League’s (NFL) regular season — ESPN has the rights to “Monday Night Football,” which it sometimes shares with co-owned ABC — and the Charter-Disney dispute occurred shortly before the first Monday Night Football broadcast was scheduled to air.
Likewise, the looming DirecTV-Disney dispute could occur a little more than a week before the first Monday Night Football game on September 9, which will feature the return of the New York Jets’ star quarterback Aaron Rodgers in a highly-anticipated match-up with the San Francisco 49ers, one of last season’s Super Bowl teams. Last year’s first Monday Night Football telecast on ESPN and ABC brought in 10 million viewers, according to Nielsen, and this year’s match-up could bring in even more. If football fans have DirecTV, and the Disney blackout extends through the start of football season, they may have to switch to another service to watch the game. The clock is ticking.
