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Big Media Circles the Wagons On Sports to Fend Off Tech Giants — Will It Work?

The blockbuster deal by Disney, Fox Corp. and Warner Bros. Discovery to team up for a sports streaming joint venture was the focus of Wall Street mid-week. Their still-unnamed streaming service will offer live linear channels, such as ESPN, ABC, Fox, TNT and TBS, games and other sports rights from all three companies on a nonexclusive basis. Expected to launch in the fall, in time for the NFL season, it will be available directly to consumers, but also as a bundle with WBD’s Max, as well as Disney’s ESPN+ and Hulu.

The venture will have rights to the NFL, NBA, MLB, NHL, college football and NCAA March Madness basketball, the FIFA World Cup, three of the four Grand Slam tennis events, the UFC, Formula 1 and NASCAR. Disney CEO Bob Iger called the venture “an important step forward for the media business.”

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Indeed, it feels like a first step toward a streaming sports bundle amid industry-wide expectations of more content re-bundling moves in the streaming age.

But many questions, for now, remain open for what can be seen as the Hulu of the sports world, including the pricing of the joint streamer, whether other media players could join and how the financials will exactly be divvied up. Also, joint ventures have often proven to be tricky across Corporate America and Hollywood as they require all partners to be aligned on strategic and financial priorities. 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?

With that backdrop, Wall Street experts’ first take on the sports streaming partnership was to describe it as a move towards a new bundle of sorts.

“A Super Sports App is coming to a screen near you,” Sanford C. Bernstein analyst Laurent Yoon summarized in the headline of his report. “At this point, there are more questions than answers but this is definitely a step towards providing a compelling consumer choice to access sports outside the multichannel video programming distributor/virtual multichannel video programming distributor offerings,” he wrote.

The expert then listed a slew of questions, hoping for answers to some of them from Fox’s and Disney’s quarterly earnings conference calls on Wednesday. Among them: Will the companies work with pay-TV distributors and “how will they balance the loss of linear revenue and the incremental revenue from the sports streaming app?”

Yoon also highlighted that Disney spends more on sports rights than Fox and WBD, while all three parties will own an equal share in the joint venture. So how will they divide up costs? And the analyst wondered about the possible industry-wide impact of the venture. “Will NBCUniversal/Paramount join the bus? Why are they not in already? What will it take?” he noted before wondering if there was “any risk that this arrangement can be challenged on an antitrust basis?”

Meanwhile, Wells Fargo analyst Steven Cahall shared this takeaway from the streaming venture in the headline of his report: “Sports Finally Heads to Streaming.” He suggested the economics will be “split to the rights contributed, which we estimate as around $20 billion total, including Fox/Disney/WBD at 30 percent/50 percent/20 percent.” And he highlighted that “bundling opportunities abound, including multichannel video programming distributors, non-sports streamers etc.”

Arguing that the venture “completes the sports puzzle” on streaming platforms, the expert highlighted that “including Paramount+ and Peacock, most of the $30 billion per annum in U.S. sports rights will be on direct-to-consumer (DTC) for the around 50 million cord-cutters/-nevers.”

His conclusion: “We think this is positive for the aforementioned media companies, negative for some peers and defensive versus Big Tech. … We do think media stocks have improved their terminal values.”

With tech titans “angling into future rights,” entertainment giants “will now have both production and distribution,” Cahall highlighted. But he also noted that “the financial value creation remains subject to many unknown variables, including pricing and tiers, revenue sharing (likely not equal given disparities in sports rights contributed), costs/investments, sub expectations etc.”

MoffettNathanson analyst Michael Nathanson called the venture “the skinny sports bundle we’ve been waiting for,” writing in a report: “The unexpected news actually makes a lot of sense to us, especially in the context of who is in the partnership and who is not.”

He went on to highlight: “What Disney, Fox and WBD have in common is that they have each thus far largely refrained from ‘cheating’ the linear ecosystem – that is leaking their best linear content to DTC. NBC and CBS’ NFL games are available for often discounted monthly fees through Peacock and Paramount+, but to date, the only place to watch Monday Night Football or Fox’s Sunday NFL games has been on linear. WBD’s sports content recently became available to view through Max’s Bleacher Report add-on. The delay to initially charge Max subscribers $9.99 for this sports tier this spring now can be viewed with a different understanding.”

Nathanson also pointed to the Disney carriage dispute with cable giant Charter Communications, explaining how the sports streaming venture fits in with that. “Charter negotiated access for its subscribers to ESPN Flagship DTC without an incremental wholesale fee (which will likely have the full bevy of Disney’s currently exclusive to linear sports content) when it launches and a discounted wholesale rate for Disney+,” the analyst wrote. “With live feeds of most of the critical networks for a sports fan, this [venture] is in a sense a version of the ‘skinny bundle’ that kicks out all the cheaters that we have long been calling for.” He noted a “big caveat” though, namely that the sports streaming bundle excludes each of the company’s news and general entertainment networks.

“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,” concluded Nathanson. “Yet, it is also clear that this is not the final form for these companies’ sports offerings, nor is this yet a full emergence of the ‘Great DTC Re-Bundling.’ As a standalone service/paid add-on, sports will continue to have an explicit price where it once was obscured by the bundle, potentially limiting its appeal and churn mitigating effect.”

The MoffettNathanson expert then also listed key open questions for Disney following the sports streaming deal. With the company still expected to launch an ESPN DTC service as a standalone offering, with a possible minority partner, he noted, for example: “How this new venture will affect those plans and, once ESPN Flagship DTC launches, how Disney will handle having two competing products, remains to be seen.”

Another open question is the sports streaming venture’s impact on Hulu Live TV. “We question why Disney opted to roll this new product out as a joint venture where it holds a minority stake rather than take actions to recreate a similar offering though its existing Hulu Live TV product,” Nathanson wrote.

The biggest sports package coming up is the NBA, whose partnerships with ESPN and Warner Bros. Discovery’s Turner run through 2025, Nathanson noted before outlining the key questions for the current rightsholders: “Will Turner now be even more aggressive to lock up its NBA rights and how does this new structure impact how ESPN will think about its NBA partnership?”

Experts beyond Wall Street also chimed in on the sports streaming venture. “Disney, Fox, and Warner Bros Discovery have disclosed few details about what their joint venture will look like, but one thing is clear: bundling is back,” argued Third Bridge analyst Jamie Lumley. “Combining forces for these companies will allow them to reach a large audience while sharing the burden of increasingly expensive sports rights.”

Lumley also shared his prediction for the upcoming NBA rights negotiations. “We’ve heard from our experts just how important sports are for Warner Bros Discovery’s strategy,” he said. “With the NBA rights up for negotiations this year, it is likely Warner will fight tooth and nail to retain a sport they’ve carried for the last 30 years.”

And U.K.-based PP Foresight analyst Paolo Pescatore called the sports streaming venture “a major disruptive play in the U.S. market.” His pricing estimate: “Expect around $50 with promos and discounts to be a reasonable price.”

He also shared his take on the timing of the news announcement. “This has many moving parts, from tech development to managing ad inventory, data analysis and more. Hence, it looks like moving early now is a tactic to generate maximum awareness when the U.S. is fixated on all things sports during Super Bowl week,” Pescatore suggested. “Conceivably, it might also put pressure on other streamers and right holders to come on board to build an even more all-encompassing offering.”

The benefits of a sports streaming bundle are clear to the analyst. “For many, aggregation is the holy grail, and it is evident that we are returning to the big bundle being offered via the internet. This has the noted benefit of being a far simpler model for the consumer to understand,” he explained. “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, which is one of the few genres driving sign-ups.”

Pescatore added of his big-picture takeaway: “This feels like a slightly defensive move that reflects the ever-changing world of the U.S. TV landscape and the massive shift towards streaming. Netflix, Amazon, and Apple are all showing increasing interest in sporting properties, and users’ behavioral patterns are changing rapidly, forcing traditional providers and rivals to react, partner, and evolve quickly in turn.”

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