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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Media moguls have been reduced to reinventing the wheel. Or more accurately, reassembling it. On Tuesday, three titans — Disney, Warner Brothers Discovery and Fox — announced yet another streaming service. The trio will provide their live sports content via one streaming platform.
Sports-as-a-package is already widely available. It is the backbone of traditional linear pay TV. The new joint venture gets at the heart of the dilemma of modern TV viewership.
Streaming is no doubt the future. But a fragmented marketplace renders any single streaming service unprofitable. Stapling disparate services together heralds the ultimate package: M&A consolidation.
The new deal could speed up the move away from traditional cable TV while copying cable TV’s bundling model.
To see why this is required look at Disney’s sports network ESPN, one of the biggest puzzles in media. It generates about $16bn of annual revenue and $3bn to $4bn of ebitda. But those formidable numbers are slowly melting away. A decade ago there were 100mn pay TV households. That figure has dropped to 70mn. ESPN charges distributors $8 or $9 per month per subscriber, whether they want the sports channel or not.
In a world of streaming, consumers can more easily opt out of paying for programming they don’t want. Disney has debuted a standalone ESPN streaming service but it knows there may not be an audience big enough to support spending billions of dollars on sports rights. The valuation multiple now ascribed to ESPN may be too low for Disney’s business, which includes theme parks and the movie studio. But ESPN’s annual cash flow is too valuable to give up in a sale or spin-off.
Earlier this week, the commissioner of the National Football League said that a streaming-only Super Bowl would not happen soon. The prediction reveals how vital legacy television remains for content producers.
Yet the broadcaster showing this year’s game, Paramount, is traditional television’s most distressed provider. A relative minnow, it has an enterprise value of just $25bn. By evaluating takeover bids, it recognises that even offering one of the world’s most watched sporting events does not ensure it can survive independently.
Bundling digital services could help to solve that problem. Offering packages of TV services is not a novel concept. Hulu and YouTube have live TV options while Amazon Prime offers access to multiple channels. Like them, the new sports streaming companies hope that there is safety in numbers.
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