Hollywood Moguls Try a Quarterback Sneak

Sitting in Pat McAfee’s studio in Indianapolis Feb. 14, NBA commissioner Adam Silver engaged in an extended conversation about the state of streaming sports.

McAfee, whose show is simulcast on ESPN, brought up the recently-announced joint venture between Disney, Fox, and Warner Bros. Discovery seems like a game-changing development. “We knew nothing about until it got announced,” McAfee said.

“Neither did I,” Silver responded dryly.

Indeed, multiple sources tell The Hollywood Reporter that the major sports leagues were all caught off guard by the announcement of the joint venture, though executives at the media companies endeavored to reach out and loop them in a few hours before it was revealed. The same is true of the cable and satellite companies that pay to distribute ESPN, TNT, TBS and Fox.

One of those distributors, FuboTV, would even sue to block the JV from launching.

The surprise by their league and distribution partners underscored how quickly the deal came together, sources say, adding that discussions did not kick into high gear until late last year.

The JV was announced, fittingly, in the days leading up to this year’s Super Bowl, and sources on the ground in Las Vegas say that it was the talk of the press room, with league officials pressing journalists and other attendees for any new details on the plan.

But it’s formation was also something of an audible — to use a football term for changing strategy mid-play — by the rights holders, all of whom were thinking about how they would take their valuable sports rights to streaming.

Warner Bros. Discovery launched its own sports tier, called B/R Sports, last fall, with plans to put it behind a paywall in the coming months. On WBD’s earnings call Feb. 23, streaming chief JB Perrette suggested that the new JV could supersede that offering.

“As it relates to what does that mean for the existing B/R sports that are on Max: Look, we’ll have more to share with that over the coming months as the we get closer to launch,” he said when asked by a Wall Street analyst. “But obviously, it’s incredibly compelling to be able to say that we’ll be able to take the incredible entertainment offering that is on Max, along with the great aggregated, simpler, more compelling consumer offering of the joint venture to put those two together and offer them in a compelling fashion to the subscribers.”

And Disney, which has been planning to bring its flagship ESPN product to streaming for some time, still plans to do that in 2025 … but this new bundle will launch this year, beating flagship ESPN to streaming by many months.

“It is a different product,” Iger said of the dedicated ESPN streaming offering, adding that it will “have many more features and provide a more immersive experience for the sports fan,” including betting integrations and other feature content.

Fox, meanwhile, has strategically been sitting on the streaming sidelines. While CBS and NBC have made almost all of their live sports available on Paramount+ and Peacock, respectively, Fox kept its games exclusive to those paying for TV through cable, satellite, or vMVPDs, preserving its “optionality,” to use a phrase favored by Fox Corp CEO Lachlan Murdoch when asked about streaming sports in earnings calls.

Now, for the first time outside of a major TV bundle, Fox’s games will be accessible to consumers, a major strategic pivot for the company as it seeks to reach the “60 million odd households that currently don’t participate in the bundled cable and pay television ecosystem,” as Murdoch explained to analyst’s earlier this month.

WBD CEO David Zaslav, on his company’s earnings call, described a product that disassociates the sport from the legacy TV brand it’s on: “Today when people are thinking what channel should I watch? What channel is my sport on? You will be able to go to this new product, this new app-based product and if you if you love the baseball playoffs, you’ll watch all of them, and you’re not thinking ‘what channel is it on?'”

It’s a risky bet, for both the channel owners using sports to build their media brands, and for the leagues, which have long relied on the channel owners to bid competitively for their rights.

There’s one group that clearly isn’t worried about the joint venture: Disney, WBD and Fox. And for what its worth, Wall Street largely seems to agree. “We believe such fears are overblown and that the joint venture, if priced correctly, could add some new pay-TV customers,” S&P Global’s Naveen Sarma wrote Feb. 21, adding that the data from the venture could help inform Disney as it prepares its full ESPN launch.

“Given that a skinnier, sports-focused vMVPD has never existed, it is obviously hard to know what the impact will be,” Lightshed TMT’s Rich Greenfield wrote Feb. 13 “As we talked about last week, it is possible that consumers may not care and this is DOA or that it never even launches.”

But there’s no question that the joint venture is a significant pivot in strategy by all three companies, beating Disney’s ESPN streaming launch to the punch, placing WBD’s Max sports offering in question, and bringing Fox into the streaming fold for the first time. “Our traditional Pay TV market will remain our dominant customer base for some time to come,” Lachlan Murdoch told analysts in a Feb. 7 call. “This unique new platform opens up a new market for us, one that we at Fox have not accessed before and that we’re excited to participate in.”

And there’s no question that cable and satellite companies, not to mention spots leagues, will be watching what happens closely.