ESPN, Fox, & WBD: Sports Streaming Super Team?

Hunter Martin, CFA - Head of Media / Cable
Davis Hebert, CFA - Head of Telecom / Media
Brian McKenna - Associate Analyst, Telecom
Savannah Buzzeo - Associate Analyst, Telecom / Media

EXECUTIVE SUMMARY
  • ESPN, Fox and WBD partnering to create a new sports streaming service. ESPN, Fox and WBD announced plans to create a JV and launch a new sports streaming service this fall. Under the current plan, each entity would own one-third of the JV, have equal board representation and license their sports content to the JV on a non-exclusive basis.
  • Impressive content offering spanning NFL, NBA, MLB and College Football. Subscribers to the new service will have access to all the linear sports networks owned by Disney, Fox and Warner Bros. Discovery, as well as ESPN+. We view this offering as appealing for sports fans, who will eventually be able to get most sports via streaming platforms in the near future (including RSN DTC, Peacock and Paramount+). As we noted in our sports primer, the JV effort is in line with our expectation that sports rights are best monetized in a hybrid linear/streaming model.
  • Mega sports streaming launch adds to cord-cutting concerns. Cord-cutting is already running at a high-single digit rate, and we expect the launch of this mega sports streamer in the fall will lead to an increase in the pace of pay TV subscriber losses, although the extent of the damage will be highly dependent on the price point. Pricing will be announced at a later date, but we expect a $40-$50 monthly price tag, which could reduce interest in the service. Including other sports streaming platforms (Amazon, Peacock, Paramount+ and RSN DTC), the monthly cost for a sports fans creating his/her own sports bundle could approach $100 a month, not much cheaper than the linear bundle itself (and without the entertainment content and local news).
  • Friction with MVPDs also a consideration. The announcement of the sports JV comes just months after a bruising battle between Charter and Disney, which was mostly related to the cost of ESPN and Disney’s efforts to allocate premium content away from the bundle. If fans can now get most or all sports through DTC, cable companies may become even more “indifferent” (to use Charter’s word) to the video business. This outcome would be especially concerning for linear networks and TV broadcasters that rely heavily on distribution revenue.

ESPN, Fox and WBD partnering to create a new sports streaming service. ESPN, Fox and Warner Bros. Discovery announced on February 6th that they have reached an understanding on principal terms to form a new joint venture (JV) to develop, launch and operate a streaming sports service. The offering, scheduled to launch in the fall of 2024, would be made available directly to consumers via a new app. The service would have a new brand with an independent management team. Subscribers would also have the ability to bundle the product, including with Disney+, Hulu and/or Max.

All-in-one sports service offers access to numerous linear sports networks and ESPN+. Subscribers to the new service will have access to all of the linear sports networks owned by Disney (ESPN, ESPN2, ESPNU, SEC Network, ACC Network, ESPN News and ABC), Fox (Fox Sports 1, Fox Sports 2, Big Ten Network, and FOX) and Warner Bros. Discovery (TNT, TBS and truTV), as well as ESPN+. Although not mentioned in the press release, we assume that only the live sports feed from the national ABC and Fox broadcast networks will be included. The new service will showcase thousands of high-profile sporting events, including content from all the major professional sports leagues and college sports, which we summarize in the table below. We view this offering as highly appealing for sports fans, especially in comparison to the alternative of stand-alone sports offerings from ESPN, Fox and WBD. We note that the NFL and College Football programming that falls outside of this bundle is already available via direct-to-consumer streaming offerings from NBCU (Peacock), Paramount (Paramount+) and Amazon (Prime Video).

Each company would own one-third of the JV. The formation of the pay service is subject to the negotiation of definitive agreements amongst the parties. Under the current plan, each entity would own one-third of the JV, have equal board representation and license their sports content to the JV on a non-exclusive basis. In a previous report, we estimated that ESPN is the biggest spender on sports rights at ~$6 billion per annum, followed by Fox (~$4 billion), with WBD’s Turner far below (~$2.6 billion). Thus, it will be interesting to see how the licensing terms are struck and whether WBD and Fox will need to contribute more upfront cash to the venture.

Pricing will be announced at a later date, but we expect a $40-$50 monthly price tag. We view the combined affiliate fee per sub/month of each linear network included, which we estimate at ~$26.50 (see table below), as the absolute floor price for the new sports streaming service. While the new platform is targeted at sports fans “outside of the traditional pay TV bundle”, we expect distributors like Comcast, DirecTV and YouTube TV will nevertheless require the streaming service to be priced at a sizable premium to the price they are paying to carry these networks in the linear bundle. A ~50% premium implies a price of ~$40 a month and if we assume a 2x markup, the service could be priced at ~$50 per month to reduce friction with MVPDs. We note that Fox and WBD also have very high profit exposure to non-sports programming, particularly Fox News and WBD’s vast array of non-fiction networks, and should accordingly be hesitant to price the new sports service at a level that will be highly disruptive to the traditional linear bundle. The fact that WBD’s B/R Sports add-on is priced at $9.99 a month (in addition to a Max subscription) and ESPN+ stand-alone is priced at $10.99 a month supports our view that this new service will carry a premium price tag. At the high-end, the new sports streaming service needs to be priced at a meaningful discount to vMVPDs like YouTube TV (~$73 a month) and Hulu + Live TV (~$77 a month), which have a broader content offering.

Would you like access to the full report?
Receive a complimentary copy of ESPN, Fox, & WBD: Sports Streaming Super Team?.

Request a Trial

Receive 1-month complimentary access to our research platform, where you can browse our library of expert-produced insights and reporting. Qualifying institutions can gain access to our platform.

REQUEST A TRIAL

Sign up to our Newsletter

It is our mission to enable fixed income professionals to know more, risk better, and ultimately create value. Sign up to receive our monthly newsletters to get the latest credit insights direct to your inbox.

SUBSCRIBE NOW

Our Products

We’re proud to be the trusted resource for these credit research consumers:

Research

The independent research and actionable ideas you need to help guide investment and risk management decisions.

Risk Products

From BondScore to Credit Quality Score and Fallen Angel Score, these products give you an analytial edge.

Covenant Review

In-depth analysis and impact assessment on current and future leveraged finance deals from the market’s trusted authority on bond and loan covenants.

LevFin Insights

News and analysis covering the debt capital markets including leveraged loans, high yield, secondary trading, CLOs, middle market and BDCs.

Markets Served

We’re proud to be the trusted resource for these credit research consumers:

BUY SIDE

From mutual funds, pensions and hedge funds to the world's largest insurers, managers at these institutions are guided by our credit research

SELL SIDE

Financial intermediaries-the world's broker-dealers, market makers and liquidity providers-rely on our credit insights each day

WEALTH

Brokers, financial advisors and private wealth managers entrusted with their clients' assets leverage our intellectual capital when it comes to the credit markets