Los Angeles Lakers manage number 23 LeBron James during the NBA game between the Los Angeles Clippers and the Los Angeles Lakers at Crypto.com Arena in Los Angeles on January 7, 2024.
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The American media world rushed – in panic? – Wednesday to try to determine its consequences Disney, Warner Bros. Discovery And Fox's new joint venture, an unprecedented move to collaborate in the years since media companies broke out their own competing streaming platforms.
The service will be launched this fall and is aimed at sports fans who do not subscribe to the traditional cable bundle. Consumers will have access to all networks owned by the companies that offer sports, along with Disney's ESPN+.
Some of the motivations for the companies are clear, as they look to sports to increase streaming profits. Other reasons for launching the product are murkier and more numerous company specific.
Many media executives are searching for answers about a deal that could have major ripple effects across the industry.
What is the audience?
At first sight, the company is a major concern for the three largest pay-TV operators, Charter, Comcast and Direct TV.
But just How much of what they stand to lose is obscure. One person involved in the launch of the new venture told CNBC that the platform will be “a monster” and massively disruptive to cable TV.
That is possible. A certain percentage of people who ultimately sign up for a sports bundle will cancel traditional cable in favor of the new, cheaper alternative. The price for the new product has not yet been determined, but sources told CNBC that it will be higher than $30. One person said $45 to $50 a month seemed to make sense after the introductory discount offers ended.
A product costing around $40 per month is much cheaper than the $72.99 per month for YouTube TV, which is now a growing cable alternative for sports fans.
But it is also possible that the platform simply does not have a large audience. There's a reason why tens of millions of Americans have canceled cable. Many simply do not want access to sport and the costs associated with it.
Fox Chief Executive Officer Lachlan Murdoch said Wednesday that the product is aimed at people who have never signed up for cable. But it's a leap of faith to assume that many of these people want to spend about $40 every month on live sports.
Spokespeople for Charter, Comcast and DirecTV all declined to comment on the new offering.
Charter and Comcast haven't really cared about video defects for years. Broadband is a much more profitable product. Cable TV has been relegated to an add-on that gets people to subscribe to high-speed internet.
But broadband subscriber growth has stalled for both Comcast and Charter Verizon, T-Mobile And AT&T have rolled out 5G home and fixed wireless broadband products. That makes the additional loss of video subscribers potentially more harmful to the companies.
Satellite TV providers DirecTV and Dish, which have no high-speed broadband products at all, may be more at risk. This also applies to virtual distributors of linear networks, such as Googling's YouTube TV, Fubo TV and Hulu with Live TV (owned by Disney!).
The Disney, Warner Bros. and Fox service is not a complete sports offering. That doesn't include NBC and CBS, both of which broadcast many sports, including the all-important National Football League. Granted, NBC and CBS are free over the air with a digital antenna, and both offer streaming services (NBC's Peacock and CBS's Paramount+) that already include sports.
But the more consumers feel they need to expand this service, the greater the cost and hassle, and the less attractive it becomes.
And now that the joint venture is in place, distributors may also eventually have more flexibility to offer similarly skinny bundles.
There is another dynamic at play: ESPN still plans to launch a full direct-to-consumer offering no later than next year. That product will also have an audience.
It remains to be seen how many people will subscribe to the new platform. Maybe it's a game changer, maybe not.
What does this mean for news?
Traditional pay TV still has about 70 million subscribers. That includes so-called “virtual MVPDs,” like YouTube TV, which just announced it has more than 8 million subscribers.
The cable bundle has survived largely because it still includes exclusive live news and sports.
Now there's a cheaper way to access most sports, without cable news networks like Fox News, CNN, MSNBC and CNBC. The shift could threaten those channels, which are now at risk of losing subscribers.
Could the news networks team up to offer a lean news bundle, in a similar way to the new sports bundle? Or will the new sports venture be a catalyst for news anthologies, a concept CNBC has been writing about for years but hasn't happened yet? Could Fox News bundle with other conservative-leaning publications? Could CNBC partner with the Wall Street Journal or the Financial Times to offer a print and video combo?
These are hypotheses, but the sports package can force managers to think in new ways.
Warner Bros. Discovery and Disney Tradeoffs
LightShed media analyst Rich Greenfield called the new sports platform “the winner's bundle.” To some extent he has a point. Customers for this new platform will include Disney, Warner Bros. Discovery and Fox will continue to pay for content, and they will not pay NBCUniversal and Paramount Global.
But it also brings risks for Warner Bros. Discovery and Disney.
Warner Bros. Discovery has unbundled TNT, TBS and TruTV from the rest of its networks with the skinny bundle. That could lead to pay-TV distributors requiring them to pay only for the same package, putting many of Discovery's legacy networks at risk, including HGTV, Animal Planet, TLC and Discovery Channel. These are cheap, profitable channels for Warner Bros. Discovery.
Those who want the Discovery networks can always subscribe to Max. All the content is already there.
Fox is less at risk. Cable providers will likely still need Fox News to appease the network's rabid fan base.
Disney's flagship ESPN streaming service, when it launches, now feels muted by these new sports offerings. Previously, the upcoming service was the only way for cord cutters to get ESPN off the cable bundle. Now the new platform will also give cord cutters a cheaper way to get ESPN.
The joint venture requires Disney to share revenues with two other companies. Disney's direct-to-consumer offering is completely Disney. The platform's launch seems like a hedge at best and a criticism at worst of the potential popularity of an expensive streaming product that only runs on ESPN.
One possible way Disney could add some edge to its own direct-to-consumer product is by offering the three-company sports platform limited or no on-demand options. But if that's true, it could reduce the appeal of the joint venture.
David Zaslav's merger campaign
Part of the rationale behind this announcement comes down to competitive dynamics. There was never any love lost between Disney and Comcast.
It probably shouldn't come as a surprise that the product wasn't a shared venture between these two companies after years of disagreements over Hulu's direction. Ownership of the product is still divided between the companies, while valuation talks continue to make the service fully owned by Disney.
The structure can also be seen as a not-so-subtle joke at Paramount Global and Warner Bros.' NBCUniversal. Discovery Chief Executive Officer David Zaslav, who may be interested in a merger with one or both companies.
His message to Paramount Global and NBCUniversal is clear: you are no longer strong enough on your own. Not inviting either company to the sports platform party is a signal that Iger and Zaslav believe NBCUniversal and Paramount Global's programming is simply not necessary.
As the joint venture turns out to be a 'monster', Zaslav may have been able to exert some influence on future merger discussions.
(Disclosure: Comcast's NBCUniversal is the parent company of CNBC.)
WATCH: ESPN should have been in a sports bundle 'from the beginning,' says Lightshed's Rich Greenfield