Disney and DirecTV battle to alter TV bundles

What began as ordinary negotiations over the rates that satellite TV provider DirecTV would pay to transmit Walt Disney's (NYSE:DIS) television networks has evolved into a referendum on the future of packaged programming, according to executives and analysts.

DirecTV's ongoing public struggle with Disney has resulted in 11 million DirecTV subscribers losing access to ESPN in the midst of the US Open tennis tournament and a week before the New York Jets face the San Francisco 49ers on "Monday Night Football." The argument is taking place in the midst of a competing effort by major media companies Disney, Fox, and Warner Bros Discovery (NASDAQ:WBD) to form a streaming video joint venture specialized to sports named Venu Sports.

The service, which was set to launch in August, would combine the scope of the media organizations' live sports coverage. The launch was briefly halted by a court injunction as part of a lawsuit filed by sports streaming rival FuboTV (NYSE:FUBO), which accused the media giants of anticompetitive behavior.

"This is not a typical dispute. In an investor briefing on Tuesday, DirecTV Chief Financial Officer Ray Carpenter stated that this is not the type of situation in which people are negotiating percentage points on rates. "This is truly about revamping the business so that everyone is certain that the industry will thrive."

As part of a new multibillion-dollar license arrangement, DirecTV wants to adapt its programming to meet the demands of consumers in the streaming TV era. It pressed Disney to allow it to sell smaller, lower-cost bundles, including non-ESPN tiers for people who do not watch sports.

"DirecTV continues to distort the facts about our ongoing negotiations," according to a statement published by Disney Entertainment co-chairmen Dana Walden and Alan Bergman, and ESPN chairman Jimmy Pitaro.

"Our primary goal is to negotiate a marketplace agreement that meets the demands of DirecTV and its customers while also acknowledging the value of our high-quality content and the enormous expenditure required to generate and acquire it."

DirecTV Chief Content Officer Rob Thun told CNBC Wednesday that the argument is not about prices, but about the constraints Disney has imposed on the "skinnier" programming packages.

For decades, distributors like DirecTV and programmers like Disney have fought over fees as the cost of television packages has risen.

The decades-old practice of "bundling," or requiring pay TV distributors to pay for and carry less-viewed networks, such as Freeform, in order to receive access to ESPN's treasured programming, has served to keep the TV industry alive. Contractual agreements also define how widely a distributor makes this content available to its subscribers.

Sports have historically served as a bulwark against the fall of the pay TV business, attracting viewers even as cable and satellite TV providers lost subscribers.

However, as audiences shift to streaming, sports have followed. Marquee events, such as the just concluded Olympics, have shifted to streaming, as have professional sporting games like the National Football League and the National Basketball Association.

Venu threatens to accelerate the collapse of pay television.

"A successful launch of Venu may have signaled the death blow to the old linear pay TV package," wrote MoffettNathanson's Craig Moffett, using the industry name for regular TV broadcasts with scheduled programs.