Just over a week ago, ESPN, Fox and Warner Brothers Discovery announced plans for a stand-alone sports streaming service combining the offerings of the three networks into one bundle. Much of its strength comes from offering a ton more football, basketball and hockey to those without cable, but the joint venture will also benefit from an accounting sleight of hand.
As Sportico’s Anthony Crupi pointed out last week, the joint venture service will function as a skinny bundle, allowing fans who have cut the cable cord to access the various ESPN networks, ABC, Fox, its FS1 and FS2 cable networks, and TNT, TBS and truTV.
The immediate effect on the media landscape was seismic: Shares of sports-centric streaming service Fubo plunged 22% last Wednesday, after the news was announced. While not quite as drastic, there were still dramatic drops, too, in the shares of Paramount, NBC parent Comcast and local station and network owners Sinclair and Nexstar. Interestingly, shares of Fox and Warner Brothers Discovery also fell after the news. The combined market cap loss of those seven companies in reaction to the streaming bundle: $15.8 billion. There was one winner: ESPN parent Walt Disney Co., which saw it shares leap more than $11 higher on the news. The jump added $20 billion to Disney’s market cap.
“This brings together content from all of these companies’ combined assets, including all the major professional sports leagues and college sports,” Disney CEO Bob Iger said on a call with analysts after the stock market closed last Wednesday. “There might be some de minimis economic impact on us with more cord-cutting for those channels. We’re backstopped in all of those channels with the content that exists or that we ultimately put on Hulu and Disney+. So for us, it’s very low risk and actually … potentially quite accretive to us in terms of signing up sports fans that have never signed up for the bundle or they may no longer want it.”
Clearly Wall Street’s kneejerk reaction sees the new service as hastening cord cutting, slicing down cable revenue even more for most players. Cord cutting also hurts ESPN, but investors predict, at least for now, the move will benefit Disney the most.
One advantage the joint-venture sports streaming offering will have that few have taken notice of is accounting. As a trio of media equity analysts at Lightshed Research point out in a recent note, by splitting ownership among three companies, the sports streaming joint venture won’t require Disney, Fox or Warner Brothers to explicitly point out the costs associated with the service on their financials.
“It can aggressively spend to acquire subs and the operating losses are all off balance sheet for all three owners,” said Lightshed.
While the Lightshed analysts expect the service to start out at $35 a month (with Disney taking about $20 of that, Fox about $8 and WBD perhaps $4) the joint venture could make the offering a loss leader for an extended period of time to gather up subscribers. It’s a strategy that worked well for Hulu, when it was split among Comcast, Disney and 21st Century Fox—some details leak out in occasional regulatory filings, such as capital contributions—but with no single business controlling the venture, there is no easy-to-find, clear picture of profit and loss.
The accounting advantage helps, but it can’t make up for the exclusion of Paramount and Comcast and their share of NFL, NCAA and other licenses, such as UEFA and English Premier League soccer.
“Nobody has ever tried to build a [virtual multichannel video programming distributor] without all the broadcast networks,” the Lightshed analysts said. “If you love sports and are a diehard for local sports, you want the facilities-based big bundles (Comcast/DirecTV), and if you are primarily a national sports viewer, you probably want a YouTube TV or Hulu Live. Who is the fan who wants only part of YouTube TV?”
In fact, the joint venture with Fox and Warner Brothers may already be just a prelude. Next year, Disney plans to offer a full ESPN add-on for subscribers to its Hulu bundle.
“In the fall of 2025, we’ll be offering ESPN as a stand-alone streaming option with innovative digital features, creating a one-stop sports destination unlike anything available in the marketplace today,” Iger said last week. Streaming ESPN in 2025 will have integrated sports betting and sports fantasy capabilities and some type of merchandising options—three things the effort with Fox and WBD won’t have, he pointed out.
The upheaval of cord-cutting, it seems, will continue for some time.
