This report does not constitute a rating action.
The recent announcement that The Walt Disney Co., Fox Corp., and Warner Bros Discovery (WBD) have reached an agreement to launch a sports-focused virtual pay-TV bundle alarmed investors who fear that such a skinny bundle would accelerate the decline of the full pay-TV bundle. We believe such fears are overblown and that the joint venture (JV), if priced correctly, could add some new pay-TV customers.
The proposed skinny sports bundle is a partial package because it only includes sports programming from Disney, Fox, and WBD but not from Paramount Global or NBCUniversal (a wholly owned subsidiary of Comcast Corp.), the local regional sports networks (RSNs), the CW Television Network (controlled by Nexstar Media Group.) or the CBS and NBC local TV broadcast affiliates.
We believe the price point will be key to the service’s success and to its impact to the pay-TV ecosystem. Priced too high, and it won’t appeal to cord-cutters or cord-nevers since many of these consumers have shunned pay-TV due to ever increasing prices. Priced too low and it could both cannibalize existing pay-TV subscribers and compromise Disney’s future ESPN flagship direct-to-consumer (DTC) service.
We believe this skinny sports bundle could serve to test consumers’ demand for a stand-alone sports bundle and will give Disney key consumption, marketing, and pricing data for when it launches its ESPN flagship DTC service in fall 2025.
Here, S&P Global Ratings presents frequently asked questions from investors regarding the announced sports-focused pay-TV bundle.
Frequently Asked Questions
What are the details of the proposed joint venture?
Disney, Fox, and WBD announced they have reached an understanding on principal terms to form a new JV to launch a sports-focused virtual multichannel video programming distributor (MVPD) in fall 2024. The proposed JV, which still requires the three partners to reach definitive agreements, will consist of 14 linear TV networks and Disney’s ESPN+ streaming service. Disney will contribute seven linear networks--ABC, its ESPN family of networks (ESPN, ESPN2, ESPNU, ESPNews), ACC Network, and SEC Network. Fox will contribute four linear networks--the Fox network, FS1 and FS2, and the Big Ten Network. Unlike its two partners, WBD doesn’t have its own sports-focused linear TV network, but it has three linear networks that include sports in their programming slates, TNT, TBS, and truTV.
All three partners would have equal one-third ownership of the JV. However, the financial payout for each partner would be different because each partner would be paid the affiliate fees for their own networks. S&P Market Intelligence estimates the average per subscriber affiliate fee for the 14 networks is $29.35. We note that the JV would pay a higher price per subscriber because it has no subscriber base. The partners could not give the JV a price discount because that would trigger "most favored nation" clauses in other distribution agreements. If we use the 30%-50% premium number that fuboTV quoted in their lawsuit filing, the per subscriber affiliate fees could be between $38-$44.
The proposed bundle is a virtual MVPD and not a true direct-to-consumer (DTC) streaming service, like Disney+ or WBD’s Max. It will not have any programming that is exclusive to the service, nor will it bid on sports broadcast rights. It is, at its basic core, a skinny package of linear TV networks. This service is similar to fuboTV’s original bundle (in 2017) before that company broadened its programming lineup to include non-sports oriented linear TV networks.
Which sports programming would be available to subscribers to the JV?
The JV does not offer the sports fan all sports programming. For some sports, it’s all national programming but for others, it's only what the three partners have the rights to broadcast. For professional sports, the JV would offer complete national coverage for both the National Hockey League (ESPN and WBD) and the National Basketball Association (ESPN and WBD). However, the current broadcast contracts for the NBA end after the 2024-2025 season and there's no guarantee that the two partners will retain current broadcast rights. Consumers can also view almost all of the national programming for Major League Baseball (Fox, ESPN, and WBD), although Apple has the rights to the Friday national broadcast package. Additionally, the local games, which are generally carried by the Regional Sports networks (RSNs), are not included in this skinny sports bundle. Fox broadcasts only the first half of the NASCAR season; NBC broadcasts the second half, which includes the playoffs.
Consumers will only be able to view two of the five National Football League’s broadcast packages and only their local station broadcast from Fox. Consumers will have to find alternative methods to watch the other three NFL broadcast packages (CBS, NBC, and Amazon Prime). Fox will broadcast the Super Bowl in 2025, so it will be available to subscribers, but NBC will broadcast the game in 2026, and therefore would not be included. We note that this year’s Super Bowl broadcast wouldn’t have been available on the service because it was broadcast by CBS.
Regarding college sports, the JV will provide all the college football playoffs (ESPN) and college bowl games (ESPN and Fox), though the current broadcast contract ends after the 2025 season. Consumers will get only a portion of the NCAA Men’s Basketball tournament (WBD and CBS) and won’t be able to view the final four and national championship game when those games are carried by CBS. Only the Big Ten games that are carried by Fox will be included in the bundle; those games assigned to CBS or NBC will not be available.
Who is the target audience for this service?
As the three partners have each publicly discussed, the proposed service targets cord-cutters (those who once had a pay-TV service but have dropped the service) and cord-nevers (those who have never subscribed to a pay-TV service) who want a sports bundle but don't want to pay for a full-sized bundle.
Where could this service be priced?
We believe the partners will seek to price this bundle between $40-$50 per month, a price point that the partners believe is currently not served and could be attractive to sports fans. At the moment, there is a significant price gap for sports programming. The individual regional sports networks (RSN) streaming services (including $29.99 per month for NESN 360 and $24.99 per month for the YES Network) are at the low end, and the basic tier price for the other virtual MVPDs (such as $79.99 for fuboTV, $75.99 for Hulu TV Live, and $72.99 for YouTube TV) are at the high end.
Will this service cannibalize existing pay-TV subscribers, or will it appeal to cord cutters?
We believe that where the service is priced will be critical to how it performs and, more importantly, how it could impact both the pay-TV ecosystem and Disney’s plans for its ESPN flagship DTC service when it is launched next year. If the JV is priced too high, too close relative to the full pay-TV bundle, then we believe it won’t appeal to both cord-cutters and cord-nevers since many of these consumers have shunned pay-TV due to high prices. However, if the bundle is priced too low, we think it could cannibalize those existing pay-TV subscribers who only subscribe because that is the only way to get all major sports; the combination of the JV and Paramount+ and Peacock could be priced below the vMVPD basic tier price. In addition, a low price point could compromise Disney’s future ESPN flagship DTC. It could put a cap on the potential price for Disney’s future ESPN flagship DTC service, limiting its profitability.
Ultimately, we don’t believe this lower-priced partial sports service will appeal to many existing pay-TV subscribers. Those who already subscribe to pay-TV do so in part because they recognize the value of the full bundle and won’t see value in a modestly lower-priced, partial sports bundle. Additionally, we think those who cut the cord did so because they didn’t want to pay for sports (so they’re not coming back for this) or because they didn’t want to pay the high price for a full-sized linear TV bundle. We only view the value proposition to be attractive to cord-nevers if this bundle is priced much lower than the basic tier (which we don’t expect).
| Per subscriber affiliate fees for networks in proposed skinny sports bundle | ||||||
|---|---|---|---|---|---|---|
| Network | Partner | Estimated fee (2025) | ||||
| ABC | Disney/Affiliates | $3.44 | ||||
| ACCN | Disney | $0.87 | ||||
| BTN | Fox | $0.84 | ||||
| ESPN | Disney | $10.79 | ||||
| ESPN2 | Disney | $1.39 | ||||
| ESPNews | Disney | $0.41 | ||||
| ESPNU | Disney | $0.35 | ||||
| FOX | Fox/Affiliates | $2.98 | ||||
| FS1 | Fox | $1.76 | ||||
| FS2 | Fox | $0.44 | ||||
| SECN | Disney | $1.02 | ||||
| TBS | WBD | $1.49 | ||||
| TNT | WBD | $3.24 | ||||
| truTV | WBD | $0.34 | ||||
| Total | $29.35 | |||||
| Source: S&P Market Intelligence. | ||||||
How will the JV affect TV station operators?
Since this is a virtual MVPD, we would expect that the ABC and Fox affiliated TV stations would be included in the bundle, and these TV stations would get paid through a similar arrangement to those they have with other virtual operators. That is, the MVPDs directly pay the networks and the networks then pay the affiliate stations. To the extent that the partial sports bundle attracts cord-cutters or cord-nevers, this would provide an incremental benefit to the ABC and Fox affiliates. To the extent that there is a modest uptick in cord cutting to the new service, this would modestly hurt the NBC and CBS affiliates that aren’t included in the JV. Given these factors, we believe the overall impact to local TV station operators is largely neutral.
What do we need to know to better evaluate the proposed service?
At this stage, most key details for the service have yet to be officially announced. We believe the partners haven’t yet determined these details. As such, outstanding questions remain, including how U.S. regulators will react to the announcement. The Federal Communications Commission (FCC) regulates the legacy MVPDs but not the virtual MVPDs--which this service would be classified as--or the streaming services. Would the regulators, in particular the antitrust division of the Department of Justice, require that Disney, Fox, and WBD offer this slimmed down bundle option to other pay-TV distributors, such as Charter and Comcast? Would this bundle trigger most-favored nations (MFN) clauses that the media companies have with the large legacy pay-TV distributors? And will the other pay-TV distributors demand the right to distribute this package as well? On Feb 20, 2024, fuboTV filed an antitrust lawsuit against the three partners, alleging antitrust practices.
Additionally, there are no current details on the operating structure of the service. What are the start-up costs? Will the service build all its systems including billing, marketing, ad sales (we assume that like other pay-TV operators, the JV would be allocated two minutes per hour of ad inventory), and technology platform, or will the JV leverage one of the partner’s already created infrastructure? We think Disney would likely be the best partner to license its systems since it already does so for Hulu Live TV.
What’s the potential ratings impact to the partners?
We believe there’s limited upside potential for all three partners because we view the service has having limited appeal to consumers. We do think there is also limited downside risk to both Fox and WBD, other than the loss of their invested capital.
For Disney, we believe there’s additional downside risk because it isn’t clear how this skinny sports bundle ultimately fits into the company’s ESPN DTC strategy. Can this service paint Disney into a corner in how the company can price that streaming service when launched next year?
Related Research
- Industry Credit Outlook 2024: Media and Entertainment, Jan. 9, 2024
- SLIDES: U.S. Media And Entertainment Industry: Key 2024 Themes And Concerns, Jan. 3, 2024
| Primary Contact: | Naveen Sarma, New York 1-212-438-7833; naveen.sarma@spglobal.com |
| Secondary Contacts: | Rose Oberman, CFA, New York 1-212-438-0354; rose.oberman@spglobal.com |
| Jawad Hussain, Chicago 1-312-233-7045; jawad.hussain@spglobal.com |
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