The Vox-Netflix Podquake & ESPN Détente

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1:05Congratulations, you made the varsity, the podcast. My name is John Arand and I am Puck's sports correspondent and the host of this pod. And today, my friend Sarah Fisher returns to the pod. Sarah, of course, is a media correspondent for Axios, and there's so much going on in the business of sports right now, that Sarah and I, we're not going to run out of topics. YouTube and Disney, the future of podcasting, the NWSL's growing pains. Sarah, as you all know, is a regular on this podcast, and I'm always happy to have her on. But before we get to Sarah Fisher, today is Wednesday, November 19th, and here's what I'm watching.

1:43And today, it's all about Major League Soccer's deal with Apple. Now, anyone who has listened to me for the past three years has heard my pessimism about this media deal. And it isn't that the deal that was signed in 2022 is all that bad, really. Apple agreed to pay MLS$2.5 billion over 10 years at a time when traditional media companies like ESPN and Fox were offering the league much less. And as you all know, the march to a streaming future is happening. So in a way, it was a pretty good bet for MLS to tie its fortunes to a company like Apple. But Apple did not prove to be a good partner for MLS.

2:27Apple didn't go out and buy any other sports rights that could support MLS programming, at least not until next year when it grabbed the Formula One rights in the United States. and Apple TV, it didn't grow as much as people expected it to. Let's just say it's not a Netflix or a YouTube or an Amazon Prime. And not only that, but Apple continues to operate on the outskirts of the sports community. We still don't know anything about viewership numbers or subscriber counts. And when I say we, I mean more than just the press. I'm talking about advertisers, sponsors, their actual partners, you name it.

3:07All of them say that Apple is the most secretive company they've ever dealt with. All of which brings us to the news from last week that Apple and MLS redid their deal so that it ends three years earlier than normal. Not only that, but Apple agreed to take down the paywall for MLS season pass. So that means that all the MLS games are going to be available to all Apple TV subscribers. And in my opinion, that's a great move for MLS, as it should greatly expand the amount of people who can actually access their games. The problem with streaming right now is that it's much harder to get casual fans to tune in.

3:48TV spent decades figuring out what kind of lead-in programming works. In streaming, it's all on demand. There's no such thing as lead-in programming. It's harder to get casual fans to tune in. The financials work for MLS too. According to Sportico's Evan Novy Williams, Apple will pay MLS an average of$250 million for the first three full seasons that are left on the deal. Plus, MLS will be able to go to market in 2029, which is not so far after the next year's World Cup. The hope is that the league can use the excitement around the World Cup to increase the interest in MLS and maybe work out a better media deal.

4:31Of course, the idea of re-upping with Apple still remains a possibility. So I'm not ready to say that these moves represent an admission that the Apple deal wasn't working. But it seems plainly obvious to me that this is the best possible outcome for Major League Soccer, and the next three seasons is going to dictate what the next media deal is going to look like. Okay, now let's get to Axios media correspondent Sarah Fisher.

4:59Sara Fischer:Sarah Fisher, thank you very much for joining the pod again. So much going on right now, and you and I have spilled barrels of ink writing about this Disney YouTube battle. And we're going to get into the whole thing, but the first question is, in your opinion, who won? It's a really good question. So if you look at it from the outset, you would think YouTube TV won because Disney has essentially agreed to let its exclusive sports content be ingested by YouTube TV. So that doesn't leave much reason for subscribers to go to its own proprietary apps. But there's an argument to be made that, and this is something analyst Rich Greenfield has told both you and I, John, that Disney sort of always knew that it was moving in this direction.

5:49and perhaps they use their DTC ambitions as a way to negotiate with YouTube TV, knowing that eventually they'd have to concede anyway. But when they conceded, maybe they were able to get a stronger financial deal. So I think it could be, even though this looks like Disney and ESPN are conceding, maybe they knew it was heading this direction all along. And in reality, they were able to use the guise of their d2c ambitions to just squeeze more money out of youtube in this

6:19Sara Fischer:multi-year agreement yeah here's what i find to be interesting about that is it it's hard for me to say that youtube won and disney lost because you can't look at this in in isolation like that as as you know obviously like the uh this started back in august when youtube was uh negotiating with Fox. And it continued in October when it was negotiating with NBC Universal. And it's continued, you know, into November with the negotiations with Disney. And what YouTube has been able to do in those, what is that, three or four months has really changed the whole dynamic of how these affiliate deals, these deals where, you know, distributors carry networks have changed.

7:08Sara Fischer:And one of the biggest complaints that I hear from friends and one of the biggest complaints that I see on social is just how cumbersome it is to go from one app into another app. So if you're watching something, say, on ESPN Unlimited, but then you want to go and watch something on Peacock, you have to get out of ESPN Unlimited, open up the Peacock app and let that done. And what YouTube has essentially done is said, if you subscribe to YouTube TV, all of that content, including the YouTube content, excuse me, including the NBC content, including the ESPN content, is now going to be within the YouTube environment.

7:46Sara Fischer:And it makes it almost like channel surfing back in the day. Exactly. And so if you're reading the tea leaves and you know that this is the direction in which consumers want things to go, you know this, John, the market always wins. there's no point in trying to overly resist. In fact, the smarter thing to do is to leverage your knowledge of the fact that it's probably moving in this direction anyway to try to broker yourself a better deal. And so that could be what happened here. The other thing I'd note is in recent years so many media companies had pulled sports rights exclusively so that they can only be viewed in their apps.

8:26I think about some of the stuff with ESPN Plus but also if you think about the Paramount deal with UFC in which many of those matches are only available on Paramount Plus. What I think is going to happen and what Rich Greenfield would argue is that you're just going to see less and less of that. And moving forward, it's going to actually look like the way the old cable bundle looked for that consumer ease. So yes, programmers have exclusive rights, but they are distributing them through pay TV providers and in one solid environment for the consumer, the question becomes one of economics. Can the programmers demand enough good terms and money to make the economics work out for them so that they're getting paid enough to continue to win sports rights against the very distributors like YouTube TV, which they're competing against?

9:20That's where it's going to get interesting.

9:23Sara Fischer:No doubt. And, you know, you've referenced Rich Greenfield a couple of times today, and he had a comment after ESPN did a deal with Charter. And if you're a Charter subscriber, you know, you have full access to ESPN Unlimited, the ESPN app. It didn't ingest the programming within Charter, but it gave it gave subscribers access to the app. and the way rich viewed it and i think this was a smart way to look at this that's like an old time cable tv deal like but but it now happens to be with that with the with the app so this push to streaming that all the media networks are doing it's still sort of tied into the the old school cable deals that they've been that they've already been doing what it makes it easier to do is if you've cut the cord yeah you can still subscribe to espn unlimited but now if you're going to be part of YouTube TV, you're going to get all of that digital content.

10:25Sara Fischer:And what I find interesting, because you referenced the UFC and Paramount, they're the only ones now whose programming is not ingested into YouTube TV. And you can bet that when that deal comes up, I'm not sure exactly when in the next couple of years, that's going to be something. They can't fight it. I mean, the president's already been set. Yeah, and I think there's a little bit of NFL content from Peacock that does not get ingested in as a part of the deal, but you're right. I think it's mostly all going there because that's what makes it easier for the consumer. You might be able to get access to through your paid TV provider because of these new agreements, but to your point, John, the switching over from app to app, that's what consumers don't want.

11:12Sara Fischer:Now, I am so surprised by this because in the lead up the idea of allowing a 3.5 trillion dollar company in just programming and and seeing uh you know just getting all of that information that's inherent with it is something that uh really seemed to be like a third rail of of of these negotiations and the the networks did not want to let that happen at first and eventually youtube was able to convince them in their own way to make that happen. So I am surprised at how this turned out. Although, like you said, at one point, if you see where the tide is going, you may as well jump in and ride with the tide.

11:54Well, one thing I'll note, John, is that internet companies like YouTube TV are not regulated in the same way that pay TV companies like DirecTV or Comcast or Verizon are. And that means this new era where we are moving towards digital pay TV, you have internet companies that are trying to rewrite the rules of how they negotiate with programmers. You know, traditionally, for example, a regular pay TV company was forced to negotiate directly with local broadcasters, for example. Companies like NBC own lots of local broadcast affiliates. There is a different playbook now in the digital era that allows YouTube TVs to get away with more and to rewrite the rules.

12:39And regulators for many years have not been willing to step in and intervene in these sort of market decisions. They've said, we leave it to the markets because we don't want to be setting rates and things like that. And they've basically indicated that that same thing, that same dynamic will occur here. Now, whether or not they change their tune, because some of these big tech companies are getting so big, I can see that happening one day, but it's not happening now.

13:09Sara Fischer:So what is your sense on that? Is that a coupling? Because at some point they have to be regulated, right? Don't know, John. We don't have an internet regulatory body here in the United States. And we do most of our internet regulation through the DOJ and the FTC. And actually, just today, the FTC lost a landmark antitrust case against Meta for its acquisitions of Instagram and WhatsApp. And Google lost a DOJ case against it for its search practices. And a judge basically gave them a slap on the wrist. So even if the United States' two regulatory bodies were to go after big tech companies for their dominance, including in sports and live sports distribution, we have seen historically that the courts do not take big action against big tech companies.

14:00And I think one of the reasons to be very hard to define the market dominance in an era where there's so much changing in terms of new players, streamers, you know, Meta, for example, when it was originally sued by the FTC, TikTok was a nothing. Now TikTok's massive. So I just don't see a world in which regulators get involved right now, but it doesn't mean that it won't happen in the future.

14:26Sara Fischer:You know, let's stick with regulation because just earlier this week, Sinclair, which owns a bunch of local broadcast channels, said that it wanted to buy scripts and it actually made some moves to where it's going to end up purchasing Scripps, which also owns a bunch of local broadcast stations. There's a rule in the books that says that no one company can own enough local broadcast channels to expand over. I think it's 39 % of US households or something like that. But now we have Sinclair going after Scripps. We have Nexstar and Tegna doing that as well. there are sports components to this, not a ton.

15:14Sara Fischer:I mean, sports is sort of a sideshow to this. But is this something that, well, based on the people that I talk to, the regulations are going to allow, the regulators are going to allow these, both of these to happen. What are you hearing in terms of it? Okay. When we expand national ownership cap that you just described to 39%, That was done through Congress. Right now, the CAC and its chair, Brendan Carr, conservative, believe they don't need to get congressional approval to eliminate that cap. If they eliminate that cap, it's a free-for-all and everyone can basically merge. There are some consumer groups that think they don't have that right and that it should be up to Congress to decide whether or not the cap should get removed.

16:05but ultimately, John, if the FCC removes the cap, allows all these mergers to come through, and it moved to a court case, it's very unlikely that a court would stay that decision and block it. So the reality is we're going to see a lot of local broadcast consolidation. Now, what does that mean for sports fans? It means a couple of things. One, the broadcasters would argue that if they have more scale, they can better compete for sports rights. You know this, but a lot of local broadcasters bid on sports rights. Sometimes at the hyper-local level, we're seeing this oftentimes when regional sports networks move their, when rights get moved from regional sports networks, they move to the local broadcasters.

16:48You know, Phoenix was a great example of that moving with Gray. And then also with some niche leagues, they opt to do local broadcast deals because it just makes more sense for them to diversify their portfolio. I think about, You know, the NWSL, for example, has a major deal with scripts. So the bottom line is, if there's more local broadcast consolidation, the broadcasters argue, they have more leverage to be able to compete against big tech, bigger networks, and thus compete for sports rights, bringing them back to local broadcasts. That kind of matters, John, because local broadcasts, as long as you've got bunny ears, is free.

17:24You know, for so long, so many local sports were tied up in RSNs that were in the cable bundles. so you had to pay for them but with local broadcasts you don't and and that's that's such

17:36Sara Fischer:an issue with baseball uh with and with basketball in particular because the amount of money that the regional sports networks were paying for for these rights was you know it was it brought in tens of millions sometimes hundreds of millions of dollars in revenue per year uh to these teams the local broadcast, even with these mergers, aren't going to pay nearly that kind of amount. So if you're a team and if you're a league, you need to figure out how to make money from or how to make up the money that you're going to be losing from the RSNs in these local markets. No, you need to readjust your expectations because you're not going to pay them out.

18:19And that means that the managers and the front office folks and the players all need having more realistic expectations about the amount that they're all going to get paid. And if they want to make more money on sponsorship deals, what have you, that's their prerogative. But it was a very bloated dynamic that served these leagues for many years that that bubble was bursting, John.

18:47Sara Fischer:So the story that I did when I wrote about Sinclair and Scripps, I took it from the NWSL point of view, And I took it from the WNBA point of view because they both have deals with scripts and now Sinclair is going to come in. And everybody I talked to suggested that a bigger local broadcast company is going to benefit both of those leagues just in terms of reaching more people and in terms of possibly even dollars coming in and interest in it. The one thing Sinclair, a known conservative bent on Sinclair and the NWSL and WNBA in particular are sort of both favored. They're more left leaning than not.

19:34Sara Fischer:I'm wondering if there's going to be any kind of pushback in terms of that. I don't suspect there will be. But that was just one, I don't want to say red flag, pink flag that a couple of people did point out. I can see that, but I don't think it's likely. Remember, Sinclair went for the whole Valley sports push, and there was no concerns about its political affiliation when it did that. So I can't see that being an issue. If it is, it would probably be a one-off incident about, you know, something not being covered at a particular game. But the thing you have to remember is these leagues, and in particular, the women's leagues, despite having made huge, huge strides in terms of their distribution rights.

20:19They don't have a ton of leverage when it comes to some of their distribution partners. I mean, at the end of the day, 2024 is a landmark year for the NWNBA. You had Caitlin Clark and NWSL with record team valuations. But that momentum, even though it's not really dramatically slowing, it's not the same as what it was. And so I don't think they can look at some of these deals and try to push back or get involved. I think they have to take a back seat, wait it out and see how it goes and sort of keep their political cards to their chests.

20:52Sara Fischer:Sarah, you mentioned Sinclair and the regional sports networks, which of course has everybody a little bit concerned. I don't want Sinclair to own my rights. But again, people that I talk to, obviously people that you talk to based on your answer, that has nothing to do with the idea of buying scripts and being a bigger local broadcast owner that will carry programming from women's soccer and the WNBA. But that is another area that caused some angst earlier this week when I was talking to folks involved with both leagues. Let me take a quick break and come back. And I want to get into the Paramount WBD deal.

21:35Sara Fischer:That is, there's so many tentacles with that. And I know you've been covering that pretty closely.

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22:46Sara Fischer:Sarah Fisher, you've been all over this story. Warner Brothers Discovery is up for sale. It's either going to be sold in its entirety probably to Paramount or it's going to be sold in pieces to, I know Comcast has looked into it. Netflix is looking into it. What's going on with Warner Brothers Discovery? What's your best guess and how this all plays out? Yeah, so the company said that it would split itself into two publicly traded entities, one for its streaming service and its studio, Warner Brothers Pictures, and one for its cable networks. And then there was reports that Paramount, which just merged with Skydance, was interested in buying the whole company.

23:32That kicked off a broader sort of bidding process by Warner Brothers Discovery in which it said it would consider bids to be bought as opposed to moving forward with its plan to split itself. Now, there are three bidders that we expect to submit bids ahead of the November 20th deadline, those being Paramount, which has said that it would like to acquire the whole company, so the HBO Max streaming assets, the studio, and all of its cable networks. There's Netflix, which has sort of indicated it's only interested in its streaming and its studios business, and Comcast, which similarly has indicated that it's only interested in the studios and streaming business.

24:12There's a couple challenges, John. One is that if Paramount were to buy the whole thing, they'd need to submit a bid that valued the entire asset at such a premium that it would make Warner Brothers Discoveries board confident that it wouldn't be losing value. Because Warner Brothers board thinks, well, well, if we split the company in two, we could probably reap more value on the public markets on a per share basis than keeping it intact. So if Paramount wants to buy the whole thing, they're basically saying you've got to pony up. Now, to what extent Paramount can and was willing to pony up is the question.

24:48The last bid that they submitted for the entire asset in October was for about$23.50 per share. The Warner Brothers Discovery Board wants something closer sort of$30 per share, and that's a big delta. Also, question of how they would finance it. Axios and others have reported that Apollo Global Management, a large private equity company, has indicated willingness to help them finance some debt related to the acquisition. But would Apollo be willing to finance a bid for$30 a share? I'm not quite sure. Then you have the Comcast and Netflix questions. I mean, Netflix has a very healthy balance sheet, a lot of cash on hand to be able to afford a bid for half of the company.