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ESPN, WBD, & Fox Announce Sports Triumvirate

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WBD stock and FOXA stock increased by 3% and 3.6%, respectively, when three giants of the media industry, Fox Corporation (NASDAQ: FOXA), Warner Bros. Discovery (NASDAQ: WBD), and Disney’s ESPN (NYSE: DIS), announced their plans to join forces and create a game-changing sports-streaming service.

This streaming service promises the very best content from all the major leagues, bundled together in one package. It will be available to Max, Hulu, and Disney+ subscribers as part of a bundle and each company will have an equal stake in the venture, which is expected to debut in the fall.

Those offering traditional cable packages which had been the go-to for sports fans, are no doubt dreading this new streaming service which promises to be a cable killer. In fact, analysts predict that this streaming service will take 55% of U.S. sports rights.

As WBD, DIS, and FOXA set out to form a triumvirate essentially monopolizing all U.S. sports content, it will face a number of challenges that could impact the outlooks for DIS stock, WBD stock, and FOXA stock. But if successful, this new sport-streaming service promises to radically change how we view sports.

The End of Cable?

While its name still hasn’t been announced, we do know is that it will be offered directly to consumers, who would be able to stream all of these companies’ sports content on one platform.

Its library will include all the content that’s available if you pay for cable on ESPN, Fox, or the Turner channels from Warner Bros. Discovery. Rather than pay for multiple cable packages, sports fans will have direct access through a new sports-centric service.

This joint venture, which is internally dubbed “raptor”, emerged after talks began four months ago, when Disney CEO Bob Iger reached out to Fox CEO Lachlan Murdoch, who in turn reached out to Warner Bros. Discovery CEO David Zaslav. Disney likely reached out to Fox first since Fox and ESPN already have a partnership in Australia.

In the next few weeks, the JV’s CEO is expected to be named and people are already speculating the subscription will cost around $30 a month. If so, then it appears these companies are aiming slightly higher than the typical cost of a streaming service but still significantly lower than a cable bundle which can cost more than $100 a month.

This new service could dethrone cable once and for all since sports has been the glue holding the old-school “bundle” together despite the rise of streaming. If you take away sports from cable, it could really be the final nail in the coffin.

Shifting to Streaming

Media companies have been hesitant to offer their valuable sports content, like the NFL, the NBA, and the MLB, outside the traditional, high-price cable package. But more and more people are abandoning cable each day. In fact, the share of U.S. households without a traditional cable subscription is expected to reach 75% by the end of 2025. Disney, Fox, and Warner Bros. simply see the writing on the wall and are shifting their focus to streaming before what appears to be cable’s inevitable demise.

Why are they Partnering?

For Disney, this partnership is just one in a long list of strategic options the company has explored for ESPN. In mid-January, Disney was reportedly in talks with the NFL for it to acquire a stake in ESPN, and in return Disney would recieve the rights to NFL Media.

But this new sports streaming app doesn’t mean ESPN’s talks with the NFL are over. In fact, Disney has made it clear that it’s still looking for a potential partner or investor. It will also offer a stand-alone ESPN streaming app for those not intersted in the all-in-one bundle.

Disney’s approach to this partnership is likely very different than FOXA and WBD’s since it’s in the fifth year of trying to end its joint ownership of Hulu by buying out its partner Comcast. After being trapped in this negotiation for so long, its in no hurry to get caught in another.

As for Fox and Warner Brothers, this deal is a new way of monetizing their content without relying on the typical distribution service. But for Fox, its particularly important since it currently does not have a subscription-based streaming service. The timing of this joint venture could also indicate this app is a direct response to competition from other streaming services branching into sports.

For example, Apple TV Plus signed a $85 million seven-year deal with the MLB for rights to a slice of the baseball season in 2022. Comcast’s Peacock also acquired exclusive rights to some NFL games this season, including a highly anticipated NFL playoff game between the Kansas City Chiefs and the Miami Dolphins. This game set a record for the most-watched event on a streaming service after drawing 23 million viewers.

If successful, this joint venture could be extremely lucrative for the three companies since sports content is the most expensive content due to its high licensing fees. For example, ESPN is currently negotiating NBA media rights, hoping to extend them into the 2030s.

But, ESPN might walk away from the deal because the NBA is seeking a combined $50 – $75 billion for its next long-term cycle of media rights. That is double or triple the payout from its current nine-year deals which pay a combined $24 billion or $2.6 billion a year.

By breaking sports away from the cable bundle so that it can stand on its own, the companies will now be able to pass these costs onto consumers. Because of this, it seems likely that the subscription fee for this streaming service will be more expensive than typical streaming services.

Risks Facing the Triumvirate

The three companies said that the new joint venture will be in addition to their existing sports offerings, but there’s a risk that the new app could eventually canabilize these services. In other words, the new app might succeed in attracting viewers – detracting from the other sports offerings. However, the companies don’t appear too concerned with this since their main focus when it comes to streaming profitability is on the entertainment side.

On the other hand, there is also the risk that viewers will not subscribe since they have access to this content through the companies’ other platforms and even through competitors’ platforms like NBC and CBS. Therefore, from a customer’s point of view, the partnership may not solve the issue of fragmented sports media, potentially affecting its subscriber base.

There’s also the fact that the three companies are still rivals at the end of the day, which could create conflict over issues like control, the subscription fee, and how to manage the platform. Even though the companies announced that the joint venture would have an independent management team – internal friction could still be a concern.

Besides these risks, a major issue outside of their control is the possibility that regulators will block the deal since one JV owning roughly 55% of all US sports rights could fuel fears of a monopoly.

Impact on FOXA Stock & Others

Overall, this shift towards sports streaming could be very useful for media companies, especially since their studio businesses suffered last year due to Hollywood strikes. Looking at the last 12 months, FOXA stock is down 17.5% while WBD stock has shown the worst performance of the three – slumping 35%. Comparitively, DIS stock is up roughly 4.6%.

Controlling the majority of all US sports rights could help these three companies overcome 2024 box office projections which have dipped to $8 billion from $9 billion the year prior. In light of these troubles at the box office, the new app could be an important catalyst for the growth of these companies and the streaming industry as a whole.


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