Somebody blinked in the standoff between Alphabet's (GOOG 0.74%) (GOOGL 0.55%) YouTube TV and Walt Disney (DIS 0.18%). The live TV streaming service warned its 4 million subscribers over the weekend that all Disney content -- including local ABC affiliate stations -- would be wiped from YouTube TV by Saturday.
All of the roughly 18 channels went dark on the platform, but the disruption didn't last. A truce was announced by Sunday, and all of the content was back. We don't know which side caved or if both parties had to make concessions to bridge their differences. It doesn't matter. The blackout was a lose-lose scenario for both parties. Let's break it down, pointing out how both blue chips skirted disaster with this compromise.
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Channel surfing
Disney's wingspan is bigger than you probably think. We're talking about more than just the Disney Channel and other Disney-branded networks along with the local ABC affiliates. Disney's carriage rights deal for YouTube TV covers all of the FX, National Geographic, and Freeform channels. It's also a juggernaut in sports, and not just ESPN and its various offshoots. Disney also provides cable and satellite TV providers as well as live TV streaming services with a pair of popular college sports networks: the ACC Network and the SEC Network.
YouTube TV was bracing for a prolonged standoff, and promised its subscribers that it would be slashing its monthly price by $15 to $49.99 as a result of losing the channels. Alphabet's Google reportedly was paying Disney a little more than $15 a month per subscriber for access, so one can argue that the move would be financially beneficial to Alphabet's bottom line in the short run. However, YouTube TV was going to have a hard time keeping subscribers around without the live sports programming that ESPN, ACC Network, and SEC Network bring to the table. Live sports is why viewers were willing to pay $65 a month for YouTube TV or one of its competitors as a proxy for the cable or satellite television plans they lost when they cut the cord.
Alphabet obviously knows a thing or two about data mining. It knows how many people are watching shows on each of the Disney networks bundled in this deal. Since Disney isn't keen on breaking up those channels it's not as if YouTube TV could've just negotiated to keep only ESPN and the local ABC stations. It knows more than we will ever know, and perhaps it saw that the arrangement wasn't working. It still would've quickly made YouTube TV a laggard instead of a leader in this space.
Disney also had a lot to lose, and like Alphabet's potential hit in a blackout this isn't just about the quick math. Disney could survive forgoing the more than $60 million a month it was reportedly collecting from YouTube TV in carriage rights. The bigger problem is the reach and mindshare it would be losing. Media networks -- including the ad-supported ones in Disney's arsenal -- appeal to marketers and content creators with their viewership numbers. Disney's deep bench of cable networks losing access to 4 million avid fans of linear TV programming would be a pretty big hit. It also could've led to a snowball effect with more providers following YouTube TV's lead.
We'll eventually get to a tipping point. The disruption of traditional media companies is going to happen. Alphabet and Disney get to kick the can down the road a little longer with this renewal, but eventually we'll have to address why consumers hate these prepackaged bundles consisting primarily of networks they will never watch. The industry will fix that the moment that it's ready to break it first, and that certainly didn't happen this weekend.
