The ESPN/Fox/WBD Mega-Bundle and the Vegas-ization of Live Sports Streaming
In Super Bowl week, when interest in sports in the U.S couldn’t be higher--and when the clash between the Chiefs and the 49ers is likely the biggest single-game betting event in US history--old media titans Disney, Fox, and WarnerBros. Discovery are having one last throw of the dice.
News that Disney was prepping a DTC version of ESPN were baked into analyst predications before Christmas. Bob Iger had other ideas. He has ringfenced ESPN’s marquee sports coverage in a digital play with erstwhile rivals at Fox Sports and WarnerBros. Discovery into a mega-sports streamer, due to launch this year, though with no app or brand name in sight.
That Disney hasn’t announced it has ditched plans for a standalone ESPN digital service is just one of a hundred questions thrown up by the move.
Nathan McAlone of Business Insider said it “truly represents an existential threat to cable TV” and “an acceleration of cord-cutting into a real death spiral.”
The union is judged “a major disruptive play” by PP Insight analyst Paolo Pescatore who thinks timing of the announcement may be in part to put pressure on other major sports rights holders not party to the pact: Paramount and NBCU.
Each company will own one-third of the new joint venture, have equal board representation, and license their sports content to the joint venture on a non-exclusive basis. The service will also have a new brand with an independent management team. There are no details as yet on revenue share although Wells Fargo analyst Steven Cahall thinks this likely to be split along lines of the rights contributed. He estimates this "as around $20 billion total, including Fox/Disney/WBD at 30 percent/50 percent/20 percent.”
Pricing is a hotly debated topic and one that the owners of the mega-app have to get right, or risk pricing consumers out of the game. Variety has a lot of speculation on this although there’s general agreement that $50/month is not unreasonable. Subscribers would also have the ability to bundle the product with other services such as Disney+, Hulu and/or Max.
And doubling down on the bundle is what this is. As Pescatore points out, “For many, aggregation is the holy grail, and it is evident that we are returning to [cable TV’s] big bundle being offered via the Internet. This has the noted benefit of being a far simpler model for the consumer to understand. Consumers have had enough of signing up for multiple services, paying for different subscriptions, and downloading a slew of apps."
This is especially true in sports, Pescatore adds, which is one of the few genres driving sign-ups. “While competition seems to be healthy, the battle for rights and subscribers is leading to a hugely fragmented landscape. Many companies have made huge gambles, which will take many years to come to fruition, let alone think about making a profit.”
MoffettNathanson analyst Michael Nathanson called the venture “the skinny sports bundle we’ve been waiting for,” adding, “It seems to us this is a long overdue repackaging of linear’s core content that strips out the bloat of non-exclusive content found cheaper elsewhere.”
His major caveat was that this bundle also excludes each of the company’s news and general entertainment networks, pointing out again that pricing will be key.
Pescatore thinks it all feels like “a slightly defensive move” that reflects the massive shift towards streaming. Unless Disney or WBD swoop to acquire AppleTV, then rights to the MLS are tied up for the next decade. Netflix also shelled out $5bn to own WWE rights as it seeks to build its own live sports subs base.
Huddling together to form economies of scale and share the burden of increasingly expensive sports rights may be the last resort for legacy media which simply do not have the deep pockets nor non-media revenue generation of Big Tech like Amazon, Google, or Apple.
“Deals such as this represent one of the key routes available to providers to reduce fragmentation, reduce risk, and take greater control,” he says. “There is a huge focus in the US industry on cutting costs and driving greater efficiencies to improve margins for the year ahead. We can expect more bumps ahead. We can also expect other companies and markets to follow developments closely with a view of replicating it in other territories should it prove to be successful.”
Dubbing the venture “the Hulu of the sports world,” George Salazai of The Hollywood Reporter noted that such A-list marriages rarely end well. All the partners need to be aligned on on strategic and financial goals, and then there are the technical mechanics of rights management, data analysis, and customer management to resolve.
“So will the sports vehicle end up working much differently than Hulu which started as a streaming venture only to end up with a deal for Disney to become the sole owner?” Salazai speculates.
The American Gaming Association (AGA) expects 26% of U.S. adults will bet on the Super Bowl this Sunday for a combined total of $23bn.
Rights holders as well as sports federations view sportbooks as the keys to the kingdom. As UK paper The Guardian noted, ESPN just published a lengthy feature about the NFL’s less hostile outlook on sports betting. EPSN surrounded the story with links to analysis and advice articles for gamblers. A link to the ESPN BET sportsbook is “prominently” placed just below the latest scores on ESPN.com. Last year ESPN agreed a $2bn deal with a gaming company, Penn Entertainment, to launch the branded sportsbook.
While the Chiefs and 49ers face off at the Allegiant Stadium, the Vegas-ization of live sports streaming has barely touched down.
Fubo filed an antitrust lawsuit against The Walt Disney Company, FOX Corp., Warner Bros. Discovery, Inc. and their affiliates today, alleging that the vertically-integrated media companies have engaged in a years-long campaign to block Fubo's innovative sports-first streaming business resulting in significant harm to both Fubo and consumers. The complaint alleges that the forthcoming launch of a sports-streaming joint venture steals Fubo's playbook and is the latest example of this campaign.
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