(Bloomberg) -- Walt Disney Co. is deep in contract renewal talks with pay-TV provider DirecTV that could see channels like ABC and ESPN blacked out as early as Sept. 1 if the two sides don’t reach an agreement, according to people familiar with the discussions.
DirecTV is looking to ease contract terms that have long required cable and satellite-TV distributors to charge customers for channels like Disney’s ESPN, whether they watch them or not, according to the people, who have asked to not be identified because the discussions aren’t public.
Instead, DirecTV is looking to offer smaller packages of channels in specific genres, like kids programming, movies, news, local stations, sports or Spanish language, the people said.
Rob Thun, chief content officer at DirecTV, said in a blog post last week that consumers want more flexibility and lower prices that are closer to what streaming providers like Netflix Inc. cost.
“Pay-TV subscribers have been declining because of our collective failure to evolve to meet consumer preferences,” he wrote.
Like other cable and satellite companies, DirecTV is losing subscribers who are canceling traditional packages in favor of streaming. The service, which is owned by AT&T Inc. and TPG Capital, is the third-largest pay-TV operator, with an estimated 11.3 million subscribers, according to Leichtman Research Group Inc.
Thun wrote in support of FuboTV Inc., which sued Disney, Fox Corp. and Warner Bros. Discovery Inc. in February to block their launch of a cheaper sports-focused streaming option. Fubo argued the companies should offer the same package to other distributors, and the judge hearing the case issued an injunction earlier this month halting the launch.
Disney is open to the idea of offering some sports-specific packages to other distributors, according to some of the people. It’s also willing to offer other types of smaller packages and negotiate some lower minimum subscriber guarantees, the people said.
Bruce Leichtman, the industry researcher, said the idea that Disney would take its flagship sports network out of the basic TV bundle is asking too much.
“Putting ESPN on a sports tier would come as close to ‘no go’ as you can get,” he said in an interview.
Last year, Charter Communications Inc., the largest cable-TV provider, reached what was considered to be a landmark deal allowing the company to drop eight Disney-owned channels and offer the Disney+ streaming service to basic cable subscribers at no additional charge in their place. Charter pays a wholesale rate estimated at $3 to $4 a month for the Disney+ subscriptions, according LightShed Partners.
In July, the newsletter Puck reported that fewer than 10% of the 9.5 million eligible Charter subscribers were using Disney+. Charter declined to comment. In a late July conference call, Charter Chief Executive Officer Chris Winfrey said the Disney+ addition was “going well and it’s growing every month.”
In the eyes of DirecTV management, however, the Charter-Disney arrangement is just a new version of the old problem of distributors paying for networks that customers don’t watch, and the satellite-TV operator will be more selective in the way it adds streaming services to its packages.
“Without fundamental change, costs will continue to soar, consumer satisfaction will erode, and the entire ecosystem will suffer,” Thun wrote in his blog post.
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