A Major League Baseball logo at Angel Stadium in Anaheim, California, May 22, 2022.
Ronald Martinez | Getty 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 providers are still trying to figure out how disruptive the new service will be becomes.
The key question for distributors like Comcast, Charter and DirecTV is whether they will be allowed to offer the same narrow package of linear channels that Disney, Warner Bros. Discovery and Fox will make available to consumers later this fall. This package includes ABC, ESPN, ESPN2, TNT, TBS, Fox, FS1, FS2 and a handful of other cable channels that present sports.
If Disney, Warner Bros. Discovery and Fox allow distributors to offer the same product in addition to the standard cable package, consternation over the joint venture will likely be minimal. However, it is not clear that this will be the case as it could defeat the purpose of its existence.
In 2023, Charter began offering a package of cable networks without sports to reduce the cost of cable television for customers who only wanted news and entertainment. Offering sports only to people who want to watch sports is good for the distributors, but it's harmful for the programmers who benefit from the millions of households that pay for sports but don't watch them.
Therefore, the new sports joint venture only logically makes sense if the three media companies prohibit the distributors from using the same product.
So far, the biggest pay-TV providers have not commented publicly on the upcoming package as they are still gathering information about the joint venture's plans, according to people familiar with their thinking who asked not to be identified because the Conversations are confidential.
But privately, executives at Disney, Warner Bros. Discovery and Fox have heard complaints from some distributors who fear the new thin package will lead to increased cancellations on cable TV, according to people familiar with the matter.
Pay-TV distributors typically enter into most-favored-nation agreements with program providers, which make it possible to reproduce agreements between similar partners. It guarantees that a company like Disney can strike a deal with DirecTV that is similar to the deal with Dish, for example.
If the sports joint venture refuses to give distributors the same terms it offers to retail customers, the distributors could either refuse to transfer their networks under carriage extension agreements or even sue, said Craig Moffett, an analyst at MoffettNathanson.
“Distributors have been begging for the right to offer cheaper and thinner packages for at least two decades, particularly packages that would separate expensive sports programming from cheaper non-sports programs, and have hit a brick wall,” Moffett said. “At the very least, this appears to violate the most-favored-nation clauses, which prohibit programmers from offering better terms to another distributor, even if that distributor is a JV.” [joint venture] the programmer himself. I would be surprised if there were no complaints.
Disney, Warner Bros. Discovery and Fox all rely on pay-TV providers for the majority of their revenue.
And while some will indirectly benefit from the joint venture's potential popularity – Charter and Comcast, for example, could boost their broadband business since the digital app would require high-speed Internet service for optimal performance – others, such as DirecTV, Dish and YouTube TV could be more directly in the crosshairs and lose video subscribers.
Still, initial discussions between distribution executives and executives at Disney, Warner Bros. Discovery and Fox were not particularly extensive, with limited information disclosed about the strategy of the joint venture, which was neither officially named nor legally agreed to be taken over by the 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 head of the joint venture has been named yet, according to people familiar with the matter, but one has been tentatively chosen. Puck reported Tuesday that the leading candidate is former Apple executive Pete Distad.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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