Disney (DIS) Channels Could Be Removed From YouTube TV

Carriage contract dispute with Alphabet jeopardizes presence on platform

Channels of The Walt Disney Company (DIS)—including 17 live channels and eight ABC stations—are at risk of being removed this Friday from Alphabet Inc.'s (GOOGL) YouTube TV platform over a carriage contract dispute. At issue are the terms of a carriage agreement that is set to expire at 11:59 p.m. on Friday, Dec. 17, 2021. Non-renewal of the agreement could cut off an important source of subscriptions for Disney and set back its pivot to establishing streaming as a viable source of revenue.

Key Takeaways

  • Disney and Alphabet's YouTube TV are locked in a carriage contract dispute that could threaten its renewal.
  • At the center of their dispute is the most favored nation clause guaranteeing that Disney will not offer its networks for cheaper rates elsewhere.
  • Along with Hulu, a Disney streaming provider, YouTube TV has the maximum number of subscribers for its offering of live TV plus streaming on demand.
  • Non-renewal of the contract could set back Disney's pivot to streaming.

An Equitable Agreement 

In a blogpost announcing the dispute on its site, YouTube said that it had not been able to reach an "equitable agreement" with Disney to carry its programming on the YouTube TV platform. "Our ask to Disney, as with all our partners, is to treat YouTube TV like any other TV provider—by offering us the same rates that services of a similar size pay, across Disney's channels for as long as we carry them," the post's authors wrote.

According to online publication Ars Technica, the platform is angling for the inclusion of a most-favored nation (MFN) clause with Disney. In simple words, this means that Disney must match rates that it offers to services that are similar in size to YouTube TV. The carriage agreement between the two companies covers ABC television stations, ESPN networks, Disney channels, Freeform, FX, and National Geographic.

Carriage disputes have generated many headlines in recent years as customers cut expensive bundled cable costs and gravitate toward a la carte streaming offerings. Disney was involved in a similar dispute over carriage terms with Dish Network Corporation (DISH) in 2019 over renewals for FX and National Geographic.

In the current case, the dispute encompasses both live and on-demand TV, a category known as virtual Multichannel Video Programming Distributor (vMVPD). According to the latest statistics, YouTube TV was the leader in this category with 4 million subscribers. It surpassed Disney's Hulu, which had 3.7 million subscribers for its vMVPD offering in October this year.

A Complicated Decision for Disney  

While Disney holds the upper hand in negotiations thanks to its reservoir of content and networks, the agreement's calculus is still complicated. Disney owns the most expensive streaming bundle in the market. (In fact, YouTube TV promised its subscribers a $15 cut in its overall fee if the agreement with Disney falls through.) With average carriage fees of $8.23, ESPN is also the most lucrative part of the Disney bundle. The sports network has been a cable network money spinner for Disney for several years now. 

However, ESPN has been relatively slow in catching up with Disney's streaming push. ESPN+ had 17.1 million subscribers at the end of fiscal year 2021, while its linear counterpart was in 76 million households. Hidden in the latter figure is a story of decline: ESPN had 84 million subscribers at the end of 2020. FX, another Disney property, also witnessed a decline of 9 million subscribers to 77 million for its linear version. 

YouTube TV could broaden reach for these networks across streaming platforms. In its blogpost, YouTube redirected viewers to Disney's standalone streaming platform. While customer defection could boost streaming subscriber numbers for Disney, that increase might be temporary in an era when audiences constantly switch between providers. In the end, the strategy might not prove to be a viable source of revenue.

For now, Disney is "optimistic" about the agreement's renewal. "Disney Media and Entertainment Distribution has a highly successful track record of negotiating such agreements with providers of all types and sizes across the country and is committed to working with Google to reach a fair, market-based agreement. We are optimistic that we can reach a deal and continue to provide their YouTube TV customers with our live sporting events and news coverage, plus kids, family, and general entertainment programming," the company stated.

Article Sources
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  2. Ars Technica. "YouTube Warns it May Lose All Disney Channels."

  3. Deadline.com. Disney and Dish TV Extend Talks Over National Geographic FX.

  4. Fierce Video. "YouTube TV Hits 4 Million Subscribers."

  5. SPG Global. "Pricing Out YouTube's Potential $15 Decrease."

  6. Deadline.com. "ESPN Pay TV Carriage Fell Another 10%."

  7. Statista. "ESPN Plus Subscriber Numbers."

  8. SEC. Disney Annual Report for 2020.

  9. Ars Technica. "YouTube Warns It May Lose All Disney Channels."

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