ESPN’s D.T.C. Blitz

0:04Sara Fischer:Congratulations! You made the Varsity, the podcast. My name is John Aranda and I am Puck's sports correspondent and the host of this pod. And today, Sara Fischer rejoins a pod. Sara is, of course, a great media reporter from Axios. And she's been busy recently interviewing executives like Jimmy Pataro on stage. So Sara has some intel on ESPN's recent NFL deal. You know, the one that gave the NFL a 10 % stake in the media company. So we're going to dive into that and a bunch of other topics that will provide a really good outline for where sports media is headed. But before I get to Sarah, today is Wednesday, October 1st, and here's what I'm watching.

0:46Sara Fischer:For me, it's all about MLB. The playoffs are on, and I'm expecting October baseball to be as popular as ever. And that's because, from a business standpoint, baseball is coming out of an extraordinarily successful regular seasons. So let's take a look at the numbers. Attendance is up. More than 71 million fans this season. 71.4 to be exact. That's the third straight increase. TV viewership, that's up too. You know that Sunday night baseball package that ESPN is walking away from? Well, it was up 21%. Fox's MLB games, they were up 9%. So the business is good right now. The business was good this season, but baseball people, they're focused on baseball's labor problems.

1:34Sara Fischer:And for good reason, the sports collective bargaining agreement is up at the end of next season. And the two sides are far apart, which by the way is normal. I wouldn't expect the two sides to be close this far in advance of a deal, but the problem is there's really no middle ground that will be able to bridge the biggest gap between them right now. And that's the gap on the issue of whether there should be a salary cap or not. Baseball owners are jealous at every other American league, the NFL, the NBA, the NHL, all of them have salary caps and that's affecting the valuations of all the teams.

2:13Sara Fischer:So let's look at one of the most recent sales. The Orioles sold for$1.7 billion a year and a half ago. Compare that to the Portland Trailblazers, which more than doubled that price last month,$4.25 billion. The$10 billion Laker deal, well, that's in a different stratosphere. So baseball's owners truly believe that a salary cap will help team valuations in baseball just like they do in other sports. But the salary cap is more than that. The imbalance between the haves, you know, the Dodgers, Yankees, Mets, and the have-nots, the Twins, the Royals, the Rockies, is worse in baseball than in any other sport.

2:53Sara Fischer:Think about that NFL trade where the Cowboys sent Micah Parsons to the Green Bay Packers. Could you imagine the best player in baseball being traded to the smallest market for the biggest ever contract? I certainly couldn't. But for MLB players, the idea of a salary cap is a third rail. They've never had it, and they're not about to start. Plus, there's already a vocal group of players that are already waging a PR campaign against it. Remember when Bryce Harper confronted Rob Manfred in the Phillies clubhouse earlier this year? The question is whether the rank-and-file MLB players feel the same way, which gets us back to attendance and soaring TV ratings.

3:38Sara Fischer:These are coming just in time for the next round of media rights deals in 2028. So the players are going to try to use these kind of business statistics to show that baseball is healthy and a salary cap isn't needed. Sure, valuations haven't looked great and a team like the Twins couldn't find a buyer, but business is good and the sport is popular. So why mess with that? One final point. I do wonder about the why. Why is viewership up besides the new way that Nielsen is counting live viewers? And why are more people attending games? Well, for me, the answer is easy. Games are quicker and they have more action.

4:20Sara Fischer:Check out this stat. The average game time this year was two hours and 38 minutes. This is the length the games were way back in the 1980s. The pitch clock is working. Keeping batters in the batter's box is working. Here's another stat. This year, there were only four nine-inning games that lasted more than three and a half hours. Only four. Just four years ago, that number was 391. Incredible. Okay, let's get to Sarah Fisher. Sarah Fisher, thank you for coming back to the pod. You've been all over the country. I have reports that you were in meeting with media executives in Los Angeles. You hosted a conference in New York.

5:09Sara Fischer:And it's at that conference, actually, you were moderating a panel with Jimmy Pitaro, who, of course, runs ESPN, that I really, really want to get into here. Because ESPN has come out of a, you know, they launched their direct-to-consumer app. And before doing that, they did a couple of unique deals. One is with the NFL, where they essentially gave NFL a 10 % stake in the company in exchange for overseeing NFL Network and NFL Red Zone. And then they were getting out of baseball, and now they're back in baseball, and they're taking over MLB.TV. No equity stake changing hands there. But when you were talking to Jimmy on stage, he was just talking about these types of deals, like with the NFL.

5:59Sara Fischer:You referenced it in your great story about the Premier Lacrosse League. ESPN took an equity stake in that as well. And he more than suggested, he said that that was really a template for the types of deals that ESPN wants to cut moving forward. Walk us through sort of what he means by that and what that could eventually turn into. Yeah, I think it means that in a traditional deal, you have the network distributing the content from the league. And that's as far as the relationship goes. And what we're finding in the streaming era is that some of these networks have an incentive to actually take a stake in these leagues and then give them better distribution.

6:44and they can make money off of the growth of those leagues. Now, it's not going to make sense for every league. If it's a league that doesn't have promise for growth, you're not going to want to take a stake in it. Of course, the NFL, that feels like infinite growth. That makes a lot of sense that they would want to get involved with ESPN and vice versa. But with Premier Lacrosse League, ESPN clearly sees a growth opportunity there. They are going to, as a part of that deal, not only take a minority stake in the league, but they're going to give them better distribution across ESPN's platforms ESPN also has a tiny little 5 % stake in NBA China.

7:18And so basically what I wanted to know from Patero is as you're going into the streaming era, is this going to become more common? We're going to be striking these kind of equity deals with leagues. And he said, yeah, it's something that they're definitely open to. If it makes sense for the fans, if it makes sense for the company financially. The question, John, becomes whether or not regulators think that's OK, whether or not They get worried about some of this. After my conversation with Patero, a few senators, including Elizabeth Warren and Bernie Sanders, sort of pushed back and said, like, this could be a problem for competition.

7:53I think that's a high bar to be able to prove it, but it's clearly caught their attention.

7:57Sara Fischer:Yeah, that always makes me laugh when every couple of years or so on Capitol Hill, they hold a hearing talking about the cost of watching sports. And there are certainly added costs to watching sports when you have to get an Amazon subscription on top of a cable subscription on top of a Netflix subscription. but the whole idea is premise that sports used to be free. Well, you know, the, uh, the MLB.TV, that's never been free. You've always had to pay for that. Uh, the, and, and any, any kind of deal that ESPN ever cut, you have to get a cable subscription for you. You've always had to pay for that.

8:32Sara Fischer:So the whole premise behind the, uh, you know, it used to be free and now it's not always, it's always hard for, uh, the, uh, senators and, and, uh, congressmen and women to, sort of get their head around, it seems. Yeah. And also when it comes to the rising cost of sports, sports are the most costly thing in the cable package. Senators, members of Congress have repeatedly said that they don't want to get involved in intermarket disputes. So if you're really actually concerned about that, then why wouldn't you get involved when the prices go up in the cable bundle? And it's because they don't actually have solves for this.

9:09It's easier for them to leave it to the market and then for PR purposes like chime in whenever they're really frustrated. I do think though one thing I am watching and you know this came about with all the Kimmel stuff is ESPN's Disney you know they still really do need the DOJ to approve that deal with the NFL. They also need the DOJ to approve the acquisition of Fubo. So they do have to be a little cautious around how they frame competition and how they frame their sort of programming efforts in light of that. Because as we've seen with CBS Paramount and others, you never want to get into the crosshairs of regulatory approval with the Trump administration.

9:52Sara Fischer:Yeah. And I really didn't mean to be so flippant in dismissing those concerns. Soon after I started at Puck about a year and a half ago, I took part in one of those hearings on the House side. And it was soon after Peacock had an exclusive NFL playoff game. And so they held this hearing, the House Commerce Committee held this hearing that was basically about the increasing cost of sports. And the reason they held that hearing is because their offices were inundated with calls from their constituents complaining that an NFL playoff game was they would have to have a new subscription. They would have to pay for a new subscription to get it.

10:33Sara Fischer:So, you know, in terms of what these senators are doing, it's a very voter friendly stance for them to take of, you know, people are upset by these increasing costs. And here's where we can sort of, if not take a stand, make it look like we're taking a stand. Totally. It's all posturing, John. I want to get back to some, those are two radically different deals. You know, the NFL and the, and the Premier Lacrosse League, obviously the NFL, if it says, if it wants Jimmy Pitar to jump, it's going to, you know, he's going to say how high, you know, and, and so the NFL is taking an equity stake in, in ESPN, the Premier Lacrosse League, it's the opposite.

11:18Sara Fischer:ESPN is taking a stake in, in a, or has taken a stake in, in the Premier Lacrosse League. Where is that line that you draw? What types of leagues do you think ESPN would be comfortable saying, OK, we will give you, you know, an ownership stake in our company? You only are going to strike those deals where you get, I think it's where you have less leverage, quite frankly, where you're going to let someone have access to your equity. And I think you're only going to invest in networks that you think have startup-like growth potential. Like it would make no sense for ESPN to take a stake in the NHL.

11:58They already have their little streaming deal. They have a distribution, but I don't see that being.

12:03Sara Fischer:And by that logic, too, it wouldn't make sense for ESPN to say, OK, we'll let the NHL take a 5%, 1%, 2%, 3 % stake in us either. No, there's no need. I mean, I think they have leverage over the NHL at that point. So I don't think that that makes sense. I think as other sports become more popular, I think about some aspects of women's sports like Love Bee, you know, where you're getting in on the ground floor, women's soccer. There is a financial upside to that. Same thing like how private equity sees this. That's when ESPN sees it making sense for them to invest. And yeah, if they need something from a league, then it makes sense to give up some of that equity.

12:49One little reminder, too, ESPN is obviously a majority owned by Disney. They have a minority owner in Hearst. Now, obviously, the NFL is a minority owner. So as they explore more deals, it becomes tougher because you need buy-in from a larger sort of ownership portfolio to be able to strike these things. So I don't actually see ESPN doing an NFL-like deal with anyone else, but I do see them taking small stakes in smaller leagues.

13:15Sara Fischer:All right, Terry, I want to stick with ESPN for a second because we are now about five weeks removed from ESPN launching its direct-to-consumer app. Fox, of course, launched Fox 1 its direct-to-consumer app the exact same day. What have you learned from those launches five weeks in on both? I think they've been pretty good. I think that they, I've seen headlines that they've netted a million signups in under two weeks, which is pretty impressive. By the way, that's a high end of what either of them were expecting. Yeah. Yeah. I think we're going to see a pretty strong uptake when the two come together for their bundle starting, I believe, on Thursday.

13:57You're going to be able to get Fox One and ESPN together for$39, which, by the way, John, that's a pretty good deal. Because if you are a sports fan and you stick bunny ears on your television, you're getting all CBS and NBC broadcast for free. And then you get basically everything else you need for 40 bucks. You know, the NBA is now moving out from Warner Brothers Discovery. So you don't really need the cable package for that anymore. Yes, there are streamers that have certain rights, you know, Amazon with football. but you're getting the bulk of stuff now for 40 bucks. That's pretty good. If you were a diehard sports fan and you only paid for cable because of sports, like why are you going to pay a hundred bucks now for the bundle?

14:43And I know that Fox and ESPN, they're not trying to cannibalize their existing cable subs, but I do think their bundle does make it a pretty attractive proposition if you're a sports fan to leave.

14:55Sara Fischer:And you know what's so unique about that too is that back in the day, back in the day, even now, if you are a cable television subscriber and you want to cancel, you can't just call up and cancel. You have to get a truck to come out to take the box, and it takes hours on the phone as Xfinity or whoever is trying to convince you to stay with that bundle that you're talking about or with any of these streaming services. You go online, you click, and you're out. And so I'm particularly interested in the signups are great right now. We're at the very beginning of the NFL and college football seasons.

15:37Sara Fischer:What happens after the NFL season? I mean, it's not going to go down to zero, but is it going to stabilize? Is the growth going to be slowed a little bit there? I think that that's a major part of the consumer acceptance rate of these streaming services. Such a good point, John. And earlier this year, I did with my editor, Christine Wang, a pricing analysis that showed what does it cost to pay for skinny bundles for just six months of the NFL season, as opposed to paying for what you typically get locked in, which is a full year of a cable sub. and then to do in addition to that all the supplementary subs that you'd need to get a full season of coverage for the NFL like you would technically need uh Netflix for example to get access to the Christmas games you would technically need Amazon and there was a price advantage in just subscribing to the skinny bundle or the specialized cable streamer for six months as opposed to the full year.

16:40Now, the question is, how many people want just NFL or want just one sport versus seasonally want the whole package? I think sports fans generally want most things. But for the minority that do want a specific sport, this is an attractive option. You getting it to cancel.

16:57Sara Fischer:Yeah, and like I said, football, you give it up after the season. Me personally, I'm not going to subscribe to anything that doesn't have the Big Ten network. I'm a Maryland fan and Maryland basketball in particular. So ESPN doesn't have the Big Ten rights. Maybe that is something that I'm like, I don't care about their ACC coverage. I just want to see the Big Ten stuff. And so it makes it easier to pick and choose and not get into the inertia that cable subscribers have had to live through for the past couple of decades. Sarah, let me take a quick break. And I want to come back and I want to talk to you about a topic that I just think you and I personally can't write enough about.

17:42Sara Fischer:And that's NBC's battle with YouTube.

17:54Sara Fischer:So Sarah, you and I are talking right now on Tuesday afternoon. We are probably about eight hours, maybe a little longer than that, away from the deadline coming up for when NBC channels are going to go dark or not. They could do an extension. It is a slight chance that they come to a deal in the next couple of hours. But it looks like that is not likely to happen. I've been covering these type of deals forever, for decades. and they always follow the same storybook. And there's a difference in price. They do an extension and they come to a deal. Very rarely do they go dark. And when they do go dark, they come back on almost immediately.

18:38Sara Fischer:This one feels so much different because YouTube is trying to ingest the Peacock programming or so. And that's like the major issue here isn't price. It's about who controls that programming. And Peacock wants to send YouTube TV subscribers back to Peacock so that they can watch it there. And YouTube saying like, no, we're paying for the programming. We just want them to watch it within YouTube TV. There is no meeting in the middle. One is going to win out in this or not. What are you looking at? To you, what are some of the big storylines that you're picking out from this? You're so right that this is bigger than cost.

19:19And it's not just YouTube TV and NBC. A few weeks ago, we reported that YouTube TV and Televisa Univision are also in a major standoff that does not seem likely to get resolved. And it has nothing to do with cost. It has everything to do with the fact that YouTube TV wants to put Televisa Univision in a Spanish language package, a different tier. And so for them, the fight with NBC, the fight with Televisia Univision, these fights represent how YouTube TV wants to rewrite the rules of the sort of pay TV distribution landscape. And they can, John, because they're not regulated the same way. And that is a real big challenge for consumers because what's happening is the programmers don't want to play ball.

20:07I mean, NBC does not really get into a lot of these carriage fights, in part because they're owned by a pay TV provider in Comcast. They very rarely do these big consumer campaigns calling out pay TV distributors for deals not getting done. The fact that they're doing this very active campaign around YouTube TV tells you that they are not going to budge. And I do think we're going to hit that deadline tonight and that NBC channels, which, by the way, it's all the sports, it's all the news, it's all the entertainment. it's all of the Spanish language broadcasting.

20:35Sara Fischer:All that would go dark for more than 8 million people in the U.S. Remember YouTube TV, third largest pay TV provider in the country. Huge deal. And so what we're starting to see now, John, is I mentioned before, like regulators don't typically like to get involved in these intramarket disputes. They're now paying attention. I had a little snippet in my newsletter today that the Congressional Hispanic Caucus is now calling out YouTube TV along with other Hispanic senators saying like, what's going on here? So I think this is going to only get messier for YouTube TV. And by the way, remember when they hit this little dispute with Fox, the FCC commissioner, Brendan Carr, said, Google, do the right thing.

21:22They don't have a lot of friends right now in this administration. I think they need to kind of be careful. The point that you made that I think is so true, NBC, they don't do these disputes.

21:36Sara Fischer:These are disputes that the high cost ESPN is always in the middle of. Fox and its sports rights are always in the middle of. And NBC always figures out a way to cut a deal and move forward. And so the fact that NBC is the one taking the stand on this is completely unique to YouTube TV. And also, within the next couple of weeks, YouTube's deal with Disney is up. And this issue is the exact same issue that they're going to be dealing with Disney. And if you're Disney and you're NBC Universal, you have to make a stand here. Because if you turn around and give Google and it's like three, I don't know what its market cap is now.

22:26Sara Fischer:I think it's over$3 trillion, that much power. That's going to hurt you moving forward. Yes. And by the way, John, I asked Jimmy Patero about this with YouTube specifically, because I think part of what YouTube's trying to do is structure specialized bundles. So like a sports package, that's an add on or a Spanish language package. That's an add on. And whether you get your content put in those bundles matters a lot. If you're a programmer, it dramatically impacts price and how you're going to get subscribers. he said he's open to that kind of an arrangement with YouTube, but they're obviously still in negotiations.

23:08By the way, we should know with ESPN, the new streaming service, the way it works is if you have a pay TV subscription, you can automatically get an access to this new streamer. They've already struck these deals with their pay TV provider partners. Well, they need to strike to deal with YouTube TV first before they can get those 8 million subs authentication into the ESPN streaming service. That's a lot of people. So that's a deal that they like definitely need to strike. And I will be watching that closely as well to see what happens there.

23:42Sara Fischer:And again, YouTube doesn't want to send people back to ESPN streaming service. They want people to subscribe within YouTube. And I do have to say, it would be a much better consumer experience If I'm a YouTube TV subscriber and I'm able to do that, then having to go out and do Peacock on its own or go out and do ESPN on its own. But if you're these companies and you own that programming, it is a line to cross. One area, though, where this really is a similar type of deal that's happened for decades is that NBC has Sunday Night Football coming up. They have the Big Ten football coming up. They, of course, have the Super Bowl and the Winter Olympics and the NBA and everything as well.

24:30Sara Fischer:They're going to depend. They're going to rely on these big-time sports to put pressure on YouTube so that YouTube ends up being the one that buckles and not NBC. Like I said, Sarah and I don't know what's happening right now, but they don't appear close enough to where I expect an extension to be crafted. I think this is one where the NBC ends up going dark and then they, you know, they end up one or the other one has to has to buckle to get back to the table. I totally agree with that. I think you're heading towards a blackout tonight. One more quick break. I want to come back and I want to talk to you about Bad Bunny.