Spyglass - The Stopgap Sports Bundle

Now that a couple days have passed since the seeming bombshell sports streaming announcement which would further blow up the cable bundle dropped, a slew of new little details have come along, as you might expect.

First and foremost, the timing of that announcement was pretty clearly to get ahead of Disney's earnings the following day, where Bob Iger seemed to pull off a Michael Corleone baptism, executing (though in this case, not literally) a series of initiatives in concert that left his critics (and, importantly, Wall Street) in awe. More on this later today, but the key one for these purposes was the announcement that the long-awaited stand-alone ESPN streaming service would be coming in the fall of 2025.

In that light, the new sports streamer announcement feels like a rather brilliant way to bury bad news. 18 months from now may as well be 18 years from now in the fast-paced streaming environment.¹ If Iger had said nothing about the stand-alone ESPN service during earnings yesterday, he would have been asked. And so he either could have told the truth (that it was still 18 months away) or ducked the question, which would lead to more questions and annoyed analysts. By announcing the new sports streaming partnership – which is clearly so thrown together that not only does it not have a name yet, it doesn't have a leader yet, nor is any of it built yet – Iger was able to bury the bad ESPN news.

And actually, even more brilliantly, the bad ESPN news almost looks like a positive now. Because there would have been some subset of would-be subscribers who would only want ESPN, versus this new bundle (which is still likely to be pretty expensive – more on that below), and so may have opted to wait for it. But they're not going to wait over a year (presuming the new group can get the new service out the door in the next 6 months – which probably presumes it's largely going to be built on Disney's already in-place infrastructure for such services – I mean, might it just literally be Hulu with the other non-partner channels removed?!).

And so we finally have a streaming ESPN option (not including ESPN+, which of course is not actually ESPN, and is not only a part of this new bundle but presumably will be folded into the actual streaming ESPN service in the fall of 2025). But it's not entirely un-messy either. From Peter Kafka at Business Insider:

And while the programmers behind the joint venture won't say this out loud, they seem pretty aware that they're going to get some blowback here.

Which may explain why, up until Tuesday, they hadn't told any of the pay TV companies or sports leagues about their plans, industry executives tell me. (No one I talked to wanted to go on the record, yet. Though it's possible we'll hear from them in the coming days as they digest the announcement.)

This was the one big question I had upon first reading about all this: what would the leagues think of it? Surely, they can't be huge fans given the potential ramifications of what it would mean for sports rights packages (i.e. why would these three companies still compete for those rights if this bundle gives them de-facto access, regardless of who wins said rights?). Such collusatory (I think I just made that word up) possibilities led many (including myself) to assume that of course these companies must have run this plan by the sports leagues first (since aside from bidding on new contracts, they all have existing contracts with the various leagues, which would be the key part of this new streaming service).

But assuming the above report is correct, Disney, Fox, and Warner did not let the leagues know ahead of this announcement.² I cannot wait to see what the response will be to that! Back to Kafka:

Another reason the "this is just another pay TV service" argument is important is that programmers want to tell the leagues that they're not losing anything here, and may be gaining something.

That is: If someone decides to stop paying Comcast and switches over to the new bundle instead, the sports leagues' audience stays exactly the same. And maybe, the pitch goes, the bundle will attract a new audience that isn't paying to watch this stuff, so the league's reach increases. (This, by the way, is the same argument that Comcast and the NFL made when they put that playoff game on Peacock last month.)

Yes, this is one way the new company/service will try to calm the leagues down. "This is just like YouTube TV, but only for these handful of networks that will focus on sports." But again, I suspect they'll be far more worried about what it means for the potential bids on the next wave of rights versus actual viewership. Which Kafka finally gets to at the end of his piece:

And from the sports guys: "Wait. All three of you used to compete to buy TV rights from us. Now you're all working together? How is that good for us?" Analyst Michael Nathanson flagged this Tuesday night in a research note he published on the announcement: "Will the new structure ensure that each competing stand-alone company is still incentivized to go as big on their next set of sports rights?

A big obvious test case for this question will be the upcoming deal for NBA rights, which are currently shared by ESPN and TNT/TBS for $2.7 billion a year. The league wants to jack that up to $7 billion or more. Do ESPN and TNT compete as hard as they did last time for that deal — as long as one of them gets it and puts it in the new thing?

I'm not sure this is explicitly why these three networks got together on this deal – and again, I think Disney had the most obvious rationale – but it certainly can't hurt.³ They, of course, cannot say that. But something clearly had to change with regard to the ever-increasing sports rights and the new streaming reality we're entering with the end of the cable bundle.

Also interesting:

Important caveat here: If you watch the NFL — the most popular programming on TV — this package won't be a full replacement for the stuff you're already paying for. That's because the bundle doesn't include CBS and NBC, which have big deals with the NFL, so you'll be missing about half of the games you'd get with traditional pay TV.

Not only does this sports bundle not include those two key players in sports content (thanks to their NFL deals), their parent companies apparently weren't even approached about joining this new venture. That's all sorts of fascinating, but again perhaps speaks to Disney just wanting a stopgap measure of sorts. But also the fact that if they had gotten Comcast (which owns NBC) and Paramount (which owns CBS – at least for now) on board, the amount they would have had to charge consumers in order for this service to make sense for all the networks would have been probably pretty close to what you now pay for cable. Certainly what you're paying for a "full" MVPD, like YouTube TV, which is about $75/month (and itself getting awfully close to what you'd pay for cable).

This also explains why the programmers have been floating a price point of $50 or so a month for the new bundle thing: They have to sell the programming to themselves at the same price they sell it to the cable guys and everyone else. (This was also described to me as the logic for not including NBC and CBS in the package — once you add in their fees, you'd end up with something that costs about the same as regular cable TV.)

$50/month versus $75/month is probably the minimum gap you could have to make this service make sense to some people – notably those who only want sports and don't care about the rest of the cable bundle. (Though yes, the $50/month will undoubtedly come down a bit when bundled with one of the other parent company streaming services: so, say, Disney+ + "SportsStream" for $55/month versus the $58 it would be buying both stand-alone, etc).

Anyway, we now will have sports without needing to pay for cable. But not all sports. For that, you'll need to get an antenna for the NBC/CBS games. And increasingly, subscribe to one of the "pure-play" streaming services, which are striking deals to stream games as well (Amazon, Peacock, etc).

One key to this new service, in my mind, is how the three co-owners actually make it look and feel. If it's easy to navigate to the games/content you want, it may be worth it. For all the grief Hulu gets in hindsight, they actually got this element of the service quite right. The current sports streaming landscape is a mess – really, the entire streaming landscape is a mess when it comes to finding anything – so this may be an interesting way to test out some sort of unification.

A bundle, if you will.

I'm reminded of a similar general idea I had about a year ago – but for ESPN itself (which yes, was also an idea I had for Hulu back in 2015. I'm full of ideas!):

The way to square this circle might be to revisit an idea I wrote about back in 2015 — well before Hulu was offering live sports, let alone touting it as the main selling point in their advertising campaign (you’re welcome, Disney). Eight years ago, this was actually far less straightforward as Disney was just one (equal) partner in Hulu. But the aforementioned Fox acquisition made them the main partner. The RSNs were going to be a headache for this. That problem has now just about inverted (though dealing with a few major RSNs like the one owned by the Yankees will remain an issue). And now Hulu has a full over-the-top streaming cable service in the form of Hulu + Live TV. There may be a way to thread this needle.

All of the streaming cable replacement services are now more or less the same — and looking a lot more like traditional cable in price on down these days — so a focus on sports for Hulu’s service could remain a smart selling point and they should double-down on it. They should create a new UI that aggregates all the games you want to watch in a smart way. (Something which we’re all increasingly longing for in an era of increasing content fragmentation.) This is a natural place for ads, ads, ads, ads, ads, which Disney must appreciate. And they can upsell the other services that offers some sports, such as Amazon for some of their NFL games and Apple TV+ for their MLB and MLS games. Again, in the past this would have seemed impossible, but now it’s a standard business practice.

With Fox and Warner content, Disney now will be able to build a compelling experience around sports. Perhaps so much so that the other players have to get on board (again, similar to what happened with Hulu – as it was Disney who joined later!) It won't be under the ESPN banner, but rather that content will be a part of the package. At least until the actual ESPN streaming service gets here in 18 months. Then all bets are off – or perhaps on, as it were.

¹ Again, presuming they can get this new streaming service off the ground much faster than 18 months, you do have to wonder what is taking Disney so long for stand-alone ESPN. Maybe it's the gambling element? Or maybe they're still just trying to slow roll it and wean off the cable teet ever so slowly...

² Aside: this is also undoubtedly why this news didn't leak ahead of time, which is almost unheard of in this day and age given the players involved.

³ And, of course, you can't discount the churn prevention benefits this streaming service will offer to Disney and Warner's core streaming services, thanks to the strategic bundling each will offer. I don't know what Fox is thinking/doing. Just getting some money to be in the car as the cable bundle finally rides off into the sunset, I suppose. Maybe they get to take this thing over when "real" streaming ESPN comes?