Why Disney, Fox and Warner Bros. Discovery are teaming up on sports — and the challenges they will face

Pooling together resources will allow the companies to more aggressively compete with deep-pocketed tech giants, but they risk cannibalising their own linear businesses, according to analysts and media buyers.

Why Disney, Fox and Warner Bros. Discovery are teaming up on sports — and the challenges they will face

Disney, Fox and Warner Bros. Discovery are combining their sports rights in a new joint streaming service aimed at providing the TV giants with a way to “capture fans moving away from the full cable and satellite bundle,” Disney CEO Bob Iger told investors on Wednesday.

The new service will cost less than a typical cable bundle and will feature programming from the NFL, NBA, MLB, NHL and other professional sports leagues currently broadcast across an array of linear and direct-to-consumer offerings. Together, the offering could account for about 55% of U.S. sports rights, according to Citi analysts. 

The companies will each have one-third ownership of the new service, which will be available via an app and is set to launch in the fall. Customers will also be able to bundle the as-yet-unnamed offering with Disney+, Hulu and Max.

Pooling resources will allow the companies to compete more aggressively with deep-pocketed tech giants like Apple and Amazon, which have been snapping up sports rights over the past few years.

Iger also said the service will allow the media giant to capture viewers who have dropped the cable bundle “because they didn’t want all those channels or that cost.” Around half (53%) of consumers in the U.S. pay for a live TV package, a number forecast to drop to 46% by 2027, per EMarketer.

However, the announcement came the day before Disney announced ESPN would launch as a standalone streaming service in the fall of 2025 during its first quarter earnings, causing investors to query how Disney plans to grow the bundle while not cannibalising its own services, including ESPN and Hulu Live. 

Campaign US asked analysts and media buyers why the combined sports streaming service makes sense for the TV giants and how they can manage growing the bundle while not cannibalizing their own subscriptions and ad revenues. Their thoughts are below.

Ross Benes, analyst at Insider Intelligence

Pooling together allows the TV companies to split the burden of expensive sports rights. ESPN is less beholden to the NBA if they are selling a service that includes Warner Bros. Discovery (WBD)’s NBA games. WBD doesn’t miss out on the NFL when the service they are a part of includes ESPN’s football coverage. 

These companies have historically bid against each other for sports rights and driven up the prices — now they have less incentive to compete directly against each other because they are operating as frenemies.

The TV networks would also like to abandon cable providers so they could control distribution themselves. There’s less worry about the impact of a carriage dispute when you control more of your own distribution.

[Managing growing the bundle while not cannibalizing their own subscriptions and ad revenues] will be the toughest challenge and it isn’t clear they will be able to accomplish it. Hulu started as a joint venture before some of these same companies decided they didn’t want to operate it together, culminating in Disney’s full control. 

They will plan to target cord-cutters over linear TV viewers to avoid cannibalisation. But especially in the case of ESPN, it’s very unclear why anyone would pay for a standalone ESPN app if they get ESPN’s best games as part of a bundle that saves them money compared to subscribing to each service individually.

Lee Doyle, chief investment officer, Empower Media

Disney/ESPN has an embarrassment of riches when it comes to sports rights and sports content that it now needs to monetise in an on-demand world. ESPN accumulated all the rights and content when they had to provide programming 24/7 for multiple linear networks. On-demand streaming changes the whole dynamic.

Disney has more than enough sports content to support multiple sports streaming services. But monetizing it all is complex. Different sports content has a different value to consumers and advertisers. Optimising yield is the big challenge. Some consumers will pay top dollar to have the cream of the crop; others are willing to add additional services to fulfill a bigger appetite or a special interest. 

Same thing for advertisers. Some will pay high CPMs to reach the most selective, unique audiences that can only be found in top-tier sporting events. Others will be seeking more moderately priced sports content that still extends reach and complements the rest of their video mix. Optimising the balance between services both from a consumer and an advertiser perspective is the challenge.

There will be some cannibalisation, but this strategy should allow them to capture new streaming revenue faster than their linear revenues decline. The decline in linear revenue is inevitable.

Adam Schwartz, SVP, director of sports video investment, Horizon Media

There are still many unknowns about this new entity that need to be understood before jumping to any conclusions. That said, this is another distribution point for all three companies. In year one, this is probably all they’re looking for, but it’d be naive to think there weren’t bigger plans for the future. 

I believe their intentions to serve the sports fans who have cut the cord are genuine and can benefit advertisers with additional reach. But there is potential for much more. While the business model seems reminiscent of the original Hulu model, there are still a lot of questions. If this entity comes together to collectively bid on some of the outstanding sports rights packages, it would be a game changer in the sense that these three legacy media companies are not going anywhere and can collectively compete with the money that Amazon and Apple might be able to offer.

Jimmy Spano, EVP, Dentsu Media Sports

Cord-cutting and the decline in TV viewership has driven media partners to focus their bets on streaming and hunt for a direct-to-subscriber streaming service. This joint venture is another option to bring some of those subscribers in — similar to other aggregate options like YouTube TV — but focused on sports. The hope is to also sign up the younger “cord never” sports fans.

One potential positive of a joint venture is that it will give those involved a significant boost when it comes to bidding against others, including tech giants, for the sports media rights that are up for renewal in the coming years. NBA rights are up in 2025, MLB and NHL in 2028 and the NFL in 2032.

Mike Proulx, VP, research director, Forrester

This deal is yet another signal of traditional TV’s impending demise as live sports becomes streaming’s latest shiny object. But without sports properties from networks including NBC and CBS, this new sports-centric streaming service is, at best, incomplete out of the gate. It adds to the confusion of how and where to watch any given live sports event — making it hard to fully break up with cable, for now.

The streaming sports venture is a necessary step in what is inevitable: In the not-too-distant future, all TV will be delivered via streaming. Big media is feverishly working to figure out the right business model to not only be profitable but demonstrate continued growth. Advertisers and media buyers have many more options and configurations to consider — and this is just the beginning. Expect more disruption and more surprises in the short and medium term.

Source:
Campaign US

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