The deal between ESPN, Warner Bros. Discovery and Fox on a joint streaming platform “marks a milestone in the growth of the streaming industry” and “could accelerate consumers’ shift away from cable TV,” according to Flint & Simonetti of the WALL STREET JOURNAL. Sports has “long been the key attraction of cable, the glue holding the old-school ‘bundle’ together.” But companies have been “hesitant to offer their most-valuable sports properties ... outside the high-price traditional cable package," which has made "watching sports exclusively on streaming platforms particularly complex.” But with ESPN, WBD and Fox teaming to “create a supersize sports-streaming service that will offer content from all major leagues,” companies now are “shifting their bets to the streaming world." Citi analysts expect the new service to “encompass about 55% of U.S. sports rights.” Sources said that the deal for the venture, which is “internally dubbed ‘raptor,’ emerged after talks that started about four months ago,” with ESPN Chair Jimmy Pitaro and Disney CEO Bob Iger “focusing on bundling with other media companies on sports.” Iger then reached out to Fox Exec Chair & CEO Lachlan Murdoch, who had “engaged in similar talks” with Warner CEO David Zaslav. Fox and ESPN “already have a similar partnership” in Australia in which ESPN content airs on Foxtel there. The leagues “weren’t informed of the talks” to create the new venture (WALL STREET JOURNAL, 2/6). CNBC's Andrew Ross Sorkin reports Disney "was really the prime mover in putting this package and deal together” ("Squawk Box," CNBC, 2/7). As of presstime, Disney's stock was trading at $98.10, WBD's at $9.76 and Fox's at $27.60.
GETTING THEIR PIECE OF THE PIE: The HOLLYWOOD REPORTER’s Alex Weprin noted the three companies will "each own one-third" of the new untitled streaming platform, which will “have its own brand and independent management team.” A source said that the new venture, while a "major step forward, is not expected to impact ESPN’s plans to offer a direct-to-consumer ‘flagship’ ESPN streaming service,” but is "meant to complement it.” Weprin noted in some ways, it is "closer to something like a ‘skinny bundle’ of streaming networks, one that is focused exclusively on channels with live sports, rather than entertainment” (HOLLYWOOD REPORTER, 2/6). In D.C., Ben Strauss cited a source as saying that each channel "will receive the same fee from subscribers that it receives from cable operators, which means ESPN would receive more revenue per customer than the other companies" (WASHINGTON POST, 2/6).
EXAMINING THE POTENTIAL MARKET: While no price has been attached to the service, CNBC's Sorkin estimated it would cost $40-50 monthly, and it is "not going to be a cheap product.” Sorkin: "There are two markets for this. This is for either people who have already cut the cord and don’t have access to sports or this is to try and capture people who are about to cut the cord and they want to try to keep them. The question is whether this accelerates the cutting of the cord" ("Squawk Box," CNBC, 2/7). CNBC's Morgan Brennan wondered why the three companies are coming together "if it’s potentially going to cannibalize the businesses they have already been building at a time where all of these companies are trying desperately to get streaming to a place of profitability." CNBC’s David Faber replied, "The hope is instead of cannibalizing, it will bring in so many of those that are interested in sports but don’t want to have a cable subscription. It would not impact the entertainment-focused offerings on streaming (from those companies) ("Closing Bell: Overtime," CNBC 2/6).
LOOKING AT THE BIG PICTURE: CNBC.com’s Sherman & Pramuk wrote the three companies’ "longer term goal is to make the platform a home base for sports programming.” A source noted that hypothetically, independent networks such as Tennis Channel “could be added to improve the offering.” A source said that Comcast’s NBCUniversal and Paramount Global “weren’t approached to be a part of the joint venture.” A source added that NBCUniversal “likely would have balked at the idea of unbundling its sports networks from its other entertainment cable channels.” Sherman & Pramuk noted still, the “new skinny bundle may chip away at the number of cable subscribers for both NBCUniversal and Paramount Global.” Both companies have streaming services -- Peacock and Paramount+ -- that “offer additional sports,” including live NFL games. That may “mitigate potential revenue losses for NBCUniversal and Paramount Global” (CNBC.com, 2/6).
WORKING AN END AROUND: In N.Y., Mullin & Draper wrote the new service “will offer streaming subscribers all the channels owned by those companies that show sports, like ESPN, TNT and FS1, but also ABC and Fox.” In addition to sports content, subscribers “will be able to watch nonsports shows” that are available on the channels. Subscribers will “have access to 14 channels in total, as well as ESPN’s existing streaming service, ESPN+.” Network contracts with leagues are “usually specific about where games can be shown,” and “most leagues have been hesitant about allowing too many games to move off broadcast and cable channels and making a full transition to streaming.” By structuring the new app in such a way that everything on the channels -- "sports and nonsports content alike -- is available to subscribers," the companies did “not need to secure permission from the leagues for the games” (N.Y. TIMES, 2/6).
BEGINNING OF THE END FOR THE BUNDLE? ABC’s Rebecca Jarvis noed the goal of the venture is to "create a kind of home base for all things sports so that consumers who have cut the cord no longer have to cobble together a bunch of apps just to watch their favorite game" ("GMA," ABC, 2/7). On Long Island, Neil Best noted many people who "still are happy with their cable bundles will keep them," as this is "more aimed at current cord-cutters or those contemplating that move to keep them within the live sports ecosystem." Best: "That itself is another dagger to the heart of the cable bundle, which for years has been held together largely by sports that one cannot get anywhere else" (NEWSDAY, 2/7). Bloomberg’s Chris Palmeri said, “This is not great news for the cable bundle. … There’s less reason now to subscribe to those is you can get the sports live, direct from this” (“Bloomberg Markets: The Close,” Bloomberg TV, 2/6). CNBC's Sorkin said, "I think this is the beginning of the end of the (cable) bundle." He said the "great danger" for Paramount and NBCU, which are not part of this deal, lies in how the "competitive landscape shakes out and if people decide to buy just one thing over another." Sorkin: "That to me is where it gets super complicated, super, super quick" ("Squawk Box," CNBC, 2/7).
A CASE OF HISTORY REPEATING? CNBC's Becky Quick said this "reminds you so much of Hulu." Quick: "Different timing, different partners on some of this. But as they’re paying off to buy Comcast out of the Hulu deal, I guess the question is, is this more successful because it comes from the sports side of things?" ("Squawk Box," CNBC, 2/7). CNBC’s Jon Fortt: "This reminds me of a ‘Hulu for sports,’ which in a way confuses me because that’s getting untangled finally now it seems" ("Closing Bell: Overtime," CNBC, 2/6).
PLENTY OF QUESTIONS LEFT UNANSWERED: PUCK's Julia Alexander wrote there currently are "more questions than answers" about the joint venture, including:
- Why are the companies owning this equally when Disney and Fox bring the NFL and Warner Discovery does not?
- How will ad revenue be allocated?
- What about customer acquisition and retention, especially if one service -- say, ESPN -- is responsible for most of the subscribers?
- Will Max shut down Bleacher Sports on Max? (PUCK, 2/6).
