The Journal. - Why Three Media Giants Are Betting on Sports Streaming

Episode Date: February 12, 2024

While the National Football League was getting ready for yesterday’s Super Bowl, major news was announced that caught high-level NFL executives off guard: Disney, Fox and Warner Bros. Discovery said they are teaming up to create a new sports streaming service. WSJ’s Joe Flint explains what we know about the new venture and how it could change sports broadcasting. Further Reading: -ESPN, Fox and Warner Team Up to Create Sports Streaming Platform  -Why Three Media Giants Made a Hail Mary Bet on Sports Streaming  Further Listening: -ESPN’s Big Bet on an F-Bomb-Throwing YouTube Star  -How Americans Watch Sports is Changing  Learn more about your ad choices. Visit megaphone.fm/adchoices

Yesterday, tens of millions of people tuned in to the biggest sporting event of the year, the Super Bowl. It's there! Jackpot, Kansas City! But a few days before the event, the National Football League was blindsided by some major news. Football League was blindsided by some major news. ESPN, Fox, and Warner Brothers Discovery announced they're teaming up to create a new streaming service, a venture that, by some estimates, will include more than half of U.S. sports rights. Our colleague Joe Flint says the deal had been top secret. When they were developing this, it was Project Raptor.

Raptor was the code name for the development of this streaming service. Wow. I don't know why Raptor, but that was it. Why are they teaming up? What's behind this? Well, these are dinosaurs trying to figure out how to stop the meteor storm from killing them. Cable subscriber growth, well, that's an oxymoron. The number of cable subscribers are going down.

And with that means less revenue from subscribers, less revenue from advertisers. So these companies recognize that they need to pivot to the future, which is streaming. In many ways, you know, it's a Hail Mary. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Monday, February 12th. I'm Kate Linebaugh. It's Monday, February 12th. Coming up on the show, a Hail Mary that could upend sports broadcasting. Make your nights unforgettable with American Express.

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Visit amex.ca slash yamex. Benefits vary by card. Other conditions apply. Are you a big sports fan? I'm a pretty big sports fan, particularly the NFL, but also baseball. I get into the NBA around playoff time and get caught up in March Madness. So yeah, I mean, I'm not as big as I was when I was a kid, of course, but a fair amount of my TV viewing is

still spent on sports. Can you describe the experience of watching sports in the age of streaming? A lot of times you could be hopscotching back and forth, not only from channel to channel, but platform to platform. I feel like these days you need a roadmap to find the games. Thursday Night Football is on Amazon now. Apple has Friday Night Baseball and some soccer. But on top of that, there's just all these cable networks as well. I'm going to four

different channels to try to find the game. Is it on TBS? Is it on Fox Sports? Is it on ESPN? Is it on MLB? It becomes very frustrating. I don't know how sports bars do it because they got to navigate it with a room full of angry drunks. For devoted fans, the easiest way to watch their favorite sports has long been on cable TV. But for years, cable subscriptions have been shrinking. And that's put pressure on sports networks like ESPN, which is owned by Disney. And, you know, we say ESPN, but it's not just ESPN. There's multiple ESPN channels. There's ESPN2, there's ESPN News, there's a lot of platforms at ESPN. ESPN is still a big business, but because of the cord cutting, because of the rising rights fees that they continue to face, because of just rising programming costs in general. They are seeing viewership

decline as their channels lose reach, and they're seeing advertisers decline. And more viewers are pivoting towards streaming and other platforms, and so ESPN needs to adjust. I mean, you know, what they're facing, every company is facing. needs to adjust. I mean, you know, what they're facing, every company is facing. For decades, the entertainment industry and sports along with it had this beautiful system. I mean, it's in industry terms, it's called the bundle. And this is how the bundle works. Your ESPN, you pay a lot of money to the NBA or the NFL to carry games. Those games then make your channel popular. Cable distributors have to have it for their customers.

So ESPN charges a premium to those cable distributors. They charge a premium to advertisers who want to advertise on it. The cable distributors then pass the buck down to the consumer. And the consumer ends up paying a lot to get these channels, some of which they watch, some of which they don't. You've got sports and entertainment and distribution all working together to put this bundle that, God forbid, you try to break away from. And it worked beautifully for decades. And that era is over.

It is certainly coming to an end. ESPN already has a streaming service. It's called ESPN+. But it doesn't include ESPN's cable channels. And last year, a top ESPN executive, Chairman Jimmy Pataro, came up with an idea. Create a new streaming service just for sports channels.

And then Jimmy Pataro began to wonder, well, could we bring in another partner as well to make this offering a little more alluring? I mean, sure, ESPN's great, but if there was someone else on board too that had some complimentary sports, what about that? So he went to his boss, which is Disney CEO Bob Iger,

and they kicked it around, and the decision was, let's go to Fox. We should say that Fox and the Wall Street Journal's parent company share common ownership. Fox has the NFL. Fox has some baseball. Fox has a lot of college football. It's a perfect fit for everything we have, and maybe they would be interested. So ESPN's Jimmy Pataro goes to New York to discuss his idea with Fox.

In fact, the meeting took place in the building you're sitting in right now at 1211 6th Avenue. We might have to start sending reporters down to monitor the lobby to see who's coming and going so we can get the scoop on these stories earlier. So they sort of began going over sort of the basics of how this might work. And as they talked, you know, they thought, well, this is good. We got a lot of stuff here. But, you know, could we add someone else? Is there someone else who can bring something to the party?

Meanwhile, Fox was already in talks about teaming up with another media giant, Warner Brothers Discovery, which owns TNT Sports. So one of the reasons they zoomed in on Warner Discovery was because those guys have, they share rights to the NCAA tournament with CBS. So March Madness. Five seconds left. Boyd drives. Scores! So that and NASCAR, they have a lot of NASCAR. And they have some baseball. First pitch swinging.

And first pitch crushing! And hockey, too. I shouldn't leave out hockey. Those things made them more appealing as a third partner. And lo and behold, those guys said, yeah, that sounds interesting. So then they got involved in the talks too. Over the past few months, ESPN, Fox, and Warner Brothers Discovery have been quietly drawing up plans for their new venture. And what they announced last week is a single streaming service. Each company will own one third of the service and it will be independently managed.

The service, which has yet to be named, is expected to launch this fall three companies own, existing channels, and putting them into one streaming service. And you will get all the ESPN channels. You will get the Turner channels. You'll get Fox and Fox Sports. You'll even get ABC because ABC has a lot of sports in it. But the feature will be sports. You will log on to this thing and it will tell you what live sports are happening right now. Maybe they'll even be like a screen of some game that's going on. All this is still being worked out, but I talked to one of the partners about it

and that's kind of their vision. So I think they all think they can have their cake and eat it too. But can they? That's next. Travel better with Air Canada. You can enjoy free beer, wine, and premium snacks in economy class. Now extended to flights within Canada and the U.S. Cheers to taking off this summer.

More details at aircanada.com. Need a great reason to get up in the morning? Well, what about two? Right now, get a small, organic, fair trade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. Last Tuesday, executives at the NFL were in Las Vegas getting ready for the Super Bowl when, to their surprise, news broke of this new streaming service. The sports leagues were kept in the dark. Literally, a lot of sports people didn't know about it until we at the Journal were able to break the story about 45 minutes before it was announced.

And so they were caught off guard. And sports leagues don't like to be caught off guard. So there was certainly some initial, what the heck is this? You guys are all doing this and you don't even think a courtesy phone call? Come on. Especially the NFL. You know, that's sort of the rub. It wasn't just the NFL that was caught by surprise.

So was the NBA. The National Basketball Association is in negotiations right now with ESPN and Warner Brothers Discovery over future broadcast rights. This new streaming service could potentially change the dynamic of those negotiations. streaming service could potentially change the dynamic of those negotiations. But the companies say they will continue to negotiate independently with the leagues. This body, this platform is not going to be negotiating sports rights. All this is is a transmission service. Now, that's what they're saying.

But of course, the sports leagues are going to be like, okay, well, you know, we're going to be on you and we're going to make sure because, you know, no, we don't want to negotiate with some three-headed monster. At the same time, if you're the NBA or some other league and you feel like there's something funny going on, you still have plenty of options. You got NBC, you got Amazon. You know, there's always someone else around to bid up sports rights.

So there should be some questions. There should be some concerns. And if I were the league, of course, I want to make sure there's safeguards. With three major broadcasters like these guys teaming up, could that raise antitrust issues? like these guys, teaming up. Could that raise antitrust issues? I mean, the three companies certainly vetted this with antitrust lawyers and experts, and they seem to think there isn't because everything will be at arm's length. But anytime you've got three competitors getting in bed together, particularly on something as specific as sports, someone can say, hey, are they trying to corner the marketplace? Hey, is this good for consumers

or bad for consumers? And those companies will argue, oh, this is good for consumers because now they have a lower priced option to get sports if they want it. They don't have to subscribe to this big bundle to get some sports. From an industry standpoint, there might be concerns. Certainly, there's already been some griping from some cable operators and a sports streaming service, Fubo, as well, put out a statement questioning this and, you know, seeking to, you know, wanting to sort of flag it to regulators. Fubo, which offers its own sports streaming service, says it has concerns about the new venture. The company said it's worried that the new service would command a

significant portion of all sports content that could shift the market in favor of ESPN, Fox, and Warner. What's your takeaway? You know, the truth of the matter is most of the people who cut the cord or are not subscribers, you know, the cord nevers, you know, at the best, they're light sports fans. So the viewers are right where they always were. They're in the cable bundle. The audience has shrunk so much for all these platforms except for sports. So that's sort of the thing. It's like in a weird way, they are acknowledging the business is changing, the meteor is coming, the iceberg is coming, all that stuff. And at the same time, rather than wait for it to melt slowly while they develop things, they seem to want to throw hot water on the ice and melt it a little

faster. And we'll see if it works for them. That's all for today, Monday, February 12th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by David Marcellus, Isabella Simonetti, and Jessica Tunkel. Thanks for listening. See you tomorrow.