The Disney Deal: Did DIRECTV Make Tens of Millions By Holding Out For 2 Weeks?

By Phillip Swann
The TV Answer Man –Follow me on X.
Former editor of Satellite DIRECT magazine. Reported on DIRECTV for 30 years.

TV Answer Man, I don’t see any new plans from DIRECTV after the Disney deal. Can you explain to me what the point of the blackout was? I read on a message board that a DIRECTV guy said they were able to save a lot of money by holding out. Was that the plan all along? — Mark, Dallas.

Mark, after a 13-day blackout, DIRECTV and Disney agreed to a new multi-year carriage pact on September 14 that both companies say gives DIRECTV greater flexibility in how it carries the Disney channels. DIRECTV plans to exclude certain Disney channels from certain packages so it can offer smaller, less expensive plans targeted to specific genres such as sports or kids. Previously, DIRECTV was required to include the Disney channels, including ESPN, in basically all plans which raised the price of those plans because the Disney channels are so expensive to carry.

However, as I noted in this article, DIRECTV may have the Disney agreement, but it doesn’t have similar arrangements with other programmers that offer sports, entertainment and children’s programming. So it may be months, if ever, before DIRECTV can negotiate similar deals and start offering all-sports or all-children’s packages. It’s important to DIRECTV that it got the Disney agreement — you have to start somewhere — but the average subscriber may not be able to order genre-based plans for some time, at least not ones that include most of the available channels in each genre.

So I can understand why a DIRECTV subscriber might ask: What was the point?

Why did I have to lose the Disney channels and ESPN for 13 days if DIRECTV can’t turn around and start offering me cheaper packages like it said it would?

Well, there was another benefit that DIRECTV received from holding out for almost two weeks. We know that because DIRECTV Chief Marketing Officer Vince Torres told us there was another benefit in a Q&A before the Goldman Sachs Communacopia + Technology Conference, held a few days before the blackout ended.

Torres revealed that DIRECTV was saving money by not having to pay carriage fees to Disney during the blackout. He said the savings were being used to offer a $30 credit to customers who applied for one during the dispute.

“In the short term, we are offering a very rich credit to customers who are impacted by this…but the way we fund that is by not paying Disney when we are in a dispute. So the content savings that we get we are passing that back to those customers who watch that content,” Torres said.

We don’t know how many customers applied for the $30 credit, but Sportico reports that DIRECTV was paying $2 billion a year to Disney in carriage fees. By not having to pay Disney for roughly two weeks, the company could have saved around $80 million. (Two weeks being about four percent of 52 weeks; and four percent of $2 billion is $80 million.)

Let’s say that one million subscribers applied for the $30 credit, which is likely a generous estimate since you had to read or hear about it and then go to a web page and apply for it, that would be $30 million. That’s a net gain of $50 million for DIRECTV. (In case you’re wondering, DIRECTV generates around $20 billion a year in revenue.)

I’ll also factor in the subscriber loss during the blackout, which Torres said was not ‘immaterial,’ but I suspect the total savings for DIRECTV was still huge.

I’m not saying that DIRECTV held out for two weeks for the savings alone, but I do believe it was a factor. The company is now jointly owned by a private equity firm (TPG) which certainly understands bottom line economics.

Mark, hope that helps. Happy viewing and stay safe!

The TV Answer Man is veteran journalist Phillip Swann who has covered the TV technology scene for more than three decades. He will report on the latest news and answer your questions regarding new devices and services that are changing the way you watch television. See the bio for Phillip Swann here.

Have a question about new TV technologies? Send it to The TV Answer Man at swann@tvanswerman.com Please include your first name and hometown in your message.