Modest mouse. Walt Disney is under fire for being a monopoly. If only it had that much pricing power. Two recent deals show the $160 billion media giant is trying to exert control over its content. The problem for Disney is that competition is tough and customers have plenty of other places to go.
In SundayDirecTV users were unable to access any of the Magic Kingdom’s channels, including the ABC television network and the ESPN sports network. The pay-TV provider and Disney are locked in a licensing dispute that has affected some 11 million subscribers just before the National Football League kicks off its opening game on Thursday.
At the heart of the dispute is a practice in the media business known as “bundling.” In effect, DirecTV accuses Disney of forcing the distributor to offer its 16 channels regardless of how many people watch them, passing the price on to consumers. For example, fewer than 40% of DirecTV customers watch Disney sports content, but 85% of subscribers pay for it.
This is not the only obstacle Disney has encountered when negotiating the cost of its shows. In August, a US judge ruled that the company should not be allowed to sell its shows to the public. temporarily blocked a sports streaming service from the Mouse House, Warner Bros. Discovery and Fox. The three networks had teamed up to agree that they would only distribute certain sports games through the new Venu company.
The fact that Disney needed a consortium of partners is instructive. Joining forces with similar media companies shows that the business needs to operate collectively to prevent others from competing. But that’s because the television ecosystem is rapidly fading. Consumers are rejecting expensive pay packages that shift the cost of licensing content to the viewer. At its peak in 2009, about 90% of American households had a cable subscription, according to MoffettNathanson. By the end of the second quarter of this year, that figure had dropped to about 50%.
People are faced with a dizzying array of streaming packages, from Netflix to Disney+ to HBO Max, that allow consumers to choose what they want to watch. DirecTV wants to offer choice, flexibility and personalized costs. And Disney is negotiating away its pricing power: The fees it and its peers charge for TV show licenses from cable distributors fell 6% in the second quarter of this year compared with the same period last year, MoffettNathanson estimates. Monopolies work best when they exist.
Context news
On September 1, Walt Disney pulled its channels from DirecTV. The pay-TV satellite provider and the media company were unable to come to an agreement on content licensing deals for programming including that of the ABC network and sports network ESPN. DirecTV said in a statement that Disney demanded that in its new contract DirecTV waive all claims that Disney’s behavior is anti-competitive. In addition, DirecTV alleges that Disney is making consumers pay for channels they don’t want. Disney executives Alan Bergman, Dana Walden and Jimmy Pitaro said in a statement to Reuters: “While we are open to offering DirecTV the flexibility and terms we have extended to other distributors, we will not enter into an agreement that undervalues our portfolio of channels and television programming.” Separately, on August 16 a U.S. judge temporarily blocked the launch of a new sports streaming service from Disney, Fox and Warner Bros Discovery over potential monopolistic behavior.
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