A Major League Baseball logo at Angel Stadium in Anaheim, California, May 22, 2022.
Ronald Martínez | fake images
It's been about a week since disney, Warner Bros. Discovery and Fox announced a new joint venture to offer live sports outside of the traditional cable package, and pay TV distributors are still trying to determine how disruptive the new service will be.
The key question for distributors like Comcast, Letter and DirecTV is whether they will be allowed to offer the same slimmed-down package of linear networks that Disney, Warner Bros. Discovery and Fox announced will be available to consumers later this fall. That package includes ABC, ESPN, ESPN2, TNT, TBS, Fox, FS1, FS2 and a few other cable channels that show sports.
If Disney, Warner Bros. Discovery and Fox allow distributors to offer the same product, in addition to the standard cable package, there will likely be minimal consternation about the joint venture. But it's not clear that's the case, since it may defeat the purpose of its existence.
In 2023, Charter began offering a package of cable networks that did not include sports to reduce the cost of cable television for customers who only wanted news and entertainment. Offering sports only to those people who want to watch them is good for distributors, but it is bad for programmers, who benefit from the millions of households that pay for sports but don't watch them.
Therefore, logically, the new sports joint venture only makes sense if the three media outlets prohibit distributors from offering the same product.
So far, the biggest pay-TV distributors have not spoken publicly about the next package because they are still gathering information about the joint venture plans, according to people familiar with their thinking, who asked not to be identified because the discussions have been private. .
Privately, however, leaders at Disney, Warner Bros. Discovery and Fox have begun to hear complaints from some distributors, who worry that the new slim package will lead to a surge in cable TV cancellations, according to people familiar with the matter. affair.
Terms of agreement
Pay-TV distributors often enter into most-favored-nation agreements with programmers that allow contracts to be replicated among similar partners. It ensures that a company like Disney can reach a deal with DirecTV similar to its deal with, say, Dish.
If the sports joint venture refuses to allow distributors the same terms it offers retail customers, distributors could refuse to offer their networks when carriage renewal agreements end or even sue, according to MoffettNathanson analyst Craig Moffett.
“Distributors have been begging for the right to offer cheaper, slimmer packages, especially packages that would separate expensive sports from cheaper non-sports programming, for at least two decades, and they have hit a brick wall,” Moffett said. . “At a minimum, this would appear to violate most favored nation clauses that prohibit programmers from offering better terms and conditions to another distributor, even if that distributor is a joint venture. [joint venture] of the programmers themselves. “I would be surprised if there weren't some lawsuits.”
Disney, Warner Bros. Discovery and Fox rely on pay-TV distributors for most of their revenue.
And while some will benefit indirectly from the joint venture's potential popularity (Charter and Comcast, for example, could see a boost to their broadband businesses, as the digital app would require high-speed Internet service to get the best performance), others, such as DirecTV, Dish and YouTube TV are more directly in the crosshairs and could lose video subscribers.
Still, early conversations between distribution executives and leaders at Disney, Warner Bros. Discovery and Fox have not been particularly substantive, because limited information has been revealed about the strategy of the joint venture, which has not been formally named or even legally agreed upon. by companies.
“The formation of the paid service is subject to the negotiation of definitive agreements between the parties,” Disney, Warner Bros. Discovery and Fox said in a statement last week.
No leader has yet been named for the joint venture, although one has tentatively been selected, according to people familiar with the matter. Puck reported Tuesday that the favorite is former Apple executive Pete Distad.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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