TV’s New Gatekeepers

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1:30Congratulations! You made the Varsity, the podcast. My name is John Arandon. I am Puck's sports correspondent and the host of this pod. And it's great to have my friend Michael Nathanson back on the Varsity today. As regular listeners certainly know by now, Michael and I are putting on a sports business conference in New York in just about two weeks. The newest news? NBA Commissioner Adam Silver is going to stop by and give a state of the NBA. We can't wait for it. Today's conversation should give you a good glimpse at the kind of topics we plan to discuss. But before we get to Michael, today is Wednesday, September 16th, and here's what I'm watching.

2:08Speaking of Adam Silver, I couldn't have been more surprised on Monday when I woke up to a statement of apology from Steve Ballmer, the Clippers owner who was fined$30 million and banned from the NBA for a full year following an investigation into salary cap evasion. Ballmer apologized and said that he had, quote, sincere regrets. He said that he is committed to, quote, put this chapter behind us and that he told the NBA that he will comply with the penalties that the NBA handed down. The tenor of Ballmer's statement marked quite a difference from a couple of weeks earlier when he described the investigation as a witch hunt and a gross injustice and he hinted at possible legal action.

2:52Anyway, the big news from this is that the worst case scenario for the NBA is not on the table and the league and the Clippers and Kawhi Leonard and Uncle Dennis can now all move on. As for now, let's get to Michael Nathanson. Michael, always great to have you on the pod. Thank you again for joining us. I'm going to see you in two short weeks in New York for our event. And I build this in the intro as sort of, these are the types of conversations that we're going to have in a couple of weeks in New York. And so I just kind of want to start. One story that I've been unable to sort of get my hands around is fox buying roku and now the uh government is sort of looking into it fox says that that's expected and everything's going to close in time uh so a two-part question should fox be concerned that government is is taking a closer look at that acquisition and then explain to me why is fox doing this why does fox uh want to buy roku okay john thanks for having me the first part of the question is i sound like a cynical wall street analyst but when it looks at when i look at this administration fox register review i think they're just doing what they have to do they're looking at you know there's probably been some complaints and challenges but i can't imagine the closeness of this administration to fox that this deal will present a problem right i mean half the cabinet has worked on fox fox news um i don't see it now that's not to say there's not an issue there maybe the issue would be when it comes to advertising being on demand which is the roku channel and 2B, they have a pretty big position.

4:50But when you basically extend out, look at the size of how big Google is and Meta and Amazon's advertising business, how fast they're growing, worrying about the Avon market seems like small potatoes. So I'm not worried about that. I'm just not. Second - So you've been on this pod so many times before And we always talk about, you know, Fox, you and I both gave Fox pats on the back for its streaming strategy, which essentially was no streaming strategy. It was like, let everybody else pay a ton, set up their own way of getting into streaming their own platforms. And Fox is going to come in at the end.

5:35And this appears to be the answer to that streaming strategy. I mean, what is it about Roku that enticed Fox? Yeah, and I'm smiling for those who can't watch this pod. I'll tell you a story, John, and this is also a marketing line for why people should come to the event. Last year at our first in the arena event, we had the NFL and get Roku there. and in the green room the green room before the event the nfl folks walk over to the to joe and roku who run sports and says you know what we have to spend more time with you you guys have done a great job in building awareness in latin america you guys have done a great job in the middle of this country kind of owning you know the operating system i think what has been happening maybe below the radar for many observers.

6:34Roku is, despite my concerns of competition, there's still about 30 to 40 % of all operating systems. In the connected TV world in the US, they control 30 to 40 % of those operating systems. They've also been pushing into Canada, Mexico, Latin America. So they're becoming a significant aggregator in the streaming world. And as more people cut the cord, which I know we'll get to in a bit, The Roku home screen is an important map for folks to figure out what's on today, right? So yesterday, if you turn on the Roku home screen, there'll be an NFL zone that will say, here are the seven games at one o 'clock you can watch and where to find those games.

7:15I think what the NFL and Fox has realized is that as more people cut the cord, Roku has a very important position as a new gatekeeper, a new aggregator. And Fox knows that because they used to own a piece of Roku. they also own tubi and fox one's done well the nfl knows this because more and more of their sports rights are being sold to streamers so i think this is you know you and i spent a long time talking about cord cutting and the cable industry but these are the new gatekeepers right and it's roku it's amazon in terms of amazon fire it's samsung it's lg but there's another crop or folks who are in the middle in the consumer journey and Roku is one of the most important people in that consumer journey.

8:01You know, Michael, I got a firsthand view of why that's important just on Sunday, which was the first day of the NFL season. I have a daughter that goes to college up in Philadelphia, the Philadelphia area. And she texted me and was like, how can I see the commander's game? The commanders were playing the eagles on on sunday and i said that starts at 425 on fox and she responded she goes yeah but what station and i was like it's on fox and she goes well how do i get to fox can i go through peacock i was like no you just go to fox and so the idea of if i had said it's on netflix she would have gotten it immediately if i had said it was on amazon prime she would have gotten it immediately or uh but but for some reason these traditional broadcast networks you know make it a little bit For a 21-year-old who, by the way, I should say does great in school, so she's not a dope.

9:00But she had no clue how to get to Fox. I found that to be fascinating. And that has to be part of why this Roku makes so much sense for Fox. I mean, there's going to be 70 million to 65 million homes in the country that don't enter the NFL through a traditional gatekeeper. right the gatekeepers that you and i grew up with right but your daughter wants to watch the commanders play the eagles she's a sports fan you can tell this summer there are millions of sports fans in america and what fox is realizing and again my nfl you know over here in the conversation between nfl and roku at our event last year i came back and said to roku look I am really impressed that the NFL looks to you as a partner because they've elevated you into that league of broadcast and ESPN and Amazon and YouTube and Netflix.

9:57So I think Fox is realizing the same thing. And as more people access sports through Fox One, as they did this summer with the World Cup, they're moving up the food chain to get this aggregation point. right? You're owning the, you know, the operating system, the customer relationship, and just the navigational tools on the front screen to make this work.

10:21So give me a sense from the end user. How is it that I'm going to be able to watch this going forward? Yeah, well, it's interesting because I have a good Thursday night example for you. that's problematic, right? So Thursday night, you know, I'm a YouTube TV, you know, major supporter, power user. And we're watching the US Open, and Thursday night is the game from Australia, right? It's Rams Niners on Netflix. And John, there's nothing more frustrating than going in and out of YouTube TV and going to Netflix, right? And like, you know, we can't channel surf as we used to do. So I think what we're building towards, and even there's reports about this on Netflix, you know, I always said, watching Netflix does not what they do, not what they say.

11:13But we want to ask our friends, you know, friends of Netflix and Bell has come to our conference. People have to start aggregating feeds, right? There has to be one place that pulls in all the multiple feeds we're getting, all the streams we're getting. So we're in the beginning of seeing that. So to your question, YouTube, the service, so YouTube has a premium service called YouTube Premium. I think it's like 16 bucks a month. You can watch YouTube without commercials and get some other benefits. But they're now putting Peacock into YouTube Premium. So if you want to watch YouTube, Peacock's part of that.

11:52If I want to watch YouTube TV, I'm assuming I'll get Peacock brought into my YouTube TV, but for the most part, I'll have it. Roku will sell a suite of channels you know they'll put Fox one in there maybe I'll put ESPN unlimited Amazon's and channels business too that's one product set the other products that's what Charter has done and we've been very positive on Charter Charter has basically stopped their cord cutting by giving you a package of streaming channels streaming services plus linear channels right in one place you can get everything you need in one place i still think consumers uh aren't satisfied by the offerings they have right now from a user experience standpoint we need like a super aggregator and it's going to be either a charter model youtube premium model amazon channels or roku that's what we're heading john and by the end by the end this decade i think we're going to see 50 million pay tv homes and then 80 million homes or so where people are using some type of aggregator to bring it all together into one place it is a it's a great rebundling that we've talked about uh let me take a quick break uh come back and i want to go deeper into the youtube tv thing you and i i love talking to you about this because i am a recent youtube tv subscriber and a devotee of youtube tv i mean on saturday uh you know i turned it on and the university of maryland logo the terrapin came up and i clicked on it they were playing yukon and football and i didn't know if i was clicking through to btn or peacock or nbs i had no it turns out i was clicking through to cbs sports network who knew but uh it just kind of took me directly there and they made it very easy And what I find to be interesting about that is that when was it that YouTube fought with ESPN and ESPN was off for several weeks and it was over this issue?

13:59I mean, ESPN basically and none of the networks did wanted to YouTube to ingest their programming, having their programming controlled by YouTube. They wanted to control that programming. And essentially, after what was about a three week blackout, ESPN capitulated, as did NBC, as will Fox, as will CBS. Everybody is going to have that's now sort of the standard bearer moving forward. And I think you identified the big question is whether or not Netflix and Amazon Prime, maybe Apple will also say, like, you know, we want to put our programming in there in order to goose the TV ratings of sorts.

14:47Right, we're going to be an aggregator. You know, what's interesting is that, in your example, your daughter knew what she wanted to watch. She didn't really care or investigate where it was, right? She knew what she wanted to watch. If you step back and think about all these companies, Amazon, Alphabet, Meta, Apple, they focus on driving consumer adoption and engagement. Then they worry about monetization, right? They're all about what can we build for consumers to drive engagement. The problem with the businesses that we covered, a lot of businesses were monopolists like cable in the early day.

15:26They didn't build packages that were user friendly or user helpful. They basically, they were monopolists. And I think the pivot we're seeing is you're so pro-consumer because in the end, you'll get products that we actually want. I want to be able to time shift my game. Maybe I just want to get highlights when they come. Maybe I just want to get to the end of it. I watch golf now in a different way than I did four or five years ago with YouTube TV. I think it's so pro-consumer. The content is great, but the delivery systems were not. And now we're getting things fixed all the better. What I'm waiting for, we're still waiting for as a packaging where you get some type of pricing discount.

16:08Well, I don't want the large bundle of stuff, John. I want 8 to 12 channels. and will it pay less for it? That's what we're waiting for, whether or not YouTube TV does it, FUBU slash Hulu. But someone's gotta start kicking channels out of bundles on the linear side to make the bundle skinnier and cheaper, you know, to drive consumer adoption. All right, so we're talking about YouTube TV, and YouTube TV, of course, is different than YouTube. YouTube Premium, yeah. YouTube Premium, yeah. it does make me wonder why would youtube be interested in investing in sports rights on its own paying in order to produce them just when when they get all the the sports anyway coming coming to youtube like like like you said espn unlimited is available on on youtube tv uh and and that's you know i i could have watched i did watch holy cross i think they were playing Colgate in football.

17:08That happened to be on. So many different games that are available on there. It's making me think that YouTube, Google YouTube, is not going to be as big in trying to acquire sports rights as maybe I originally thought. No, I agree. I just want to acknowledge that you're the king of the powerhouse East Coast football teams. You really are.

17:39It's like the good old days. It's like the 1950s American college football. So John, I sent this last time to this pod, and I got some feedback from people in the industry. The amount of money being spent on AI and CapEx has changed the equation for these companies. They don't have to or really can loss lead with sports right now, right? It's better for them to be an aggregator as always have been, a packager. But I agree, I don't think YouTube would be smarter or really should go after the next set of NFL rights or NBA rights. They're best combining the core rights holders now, creating a more efficient package for me, the consumer.

18:25I don't think they have, I mean, they always have the capital, they're incredibly under leverage company, but their priorities are AI right now and data centers. They're not building more sports rights for YouTube TV. They're going to basically bundle those rights, but I don't see them chasing it. I don't. I don't think Apple chases it either. I think Amazon has shown an interest and has done a good job. It's a prime service offering, but for the other companies, I don't see them doing it. I really don't.

18:57You mentioned Amazon. They're also into AI as well. Is it that they just have a different video philosophy than a Google YouTube? Yeah, I think when we see their comments, and again, we had Amazon last year, with Jay at our event last year, it's all about making Prime more valuable, right? so they have an existing subscription model prime and they nothing they do is by accident and it must have determined that this is a prime enhancer in terms of subscriber adoption or value plus their ad monetization as all their ad monetization at alphabet or meta is really really strong so they can use their ad their added connections to underwrite some of these games too I I guess Amazon's not in the YouTube TV business.

19:48They're not packaging other people's rights, and they're selling Prime subscriptions, a very niche-focused, not niche really anymore, but a very focused strategy that they prove, they can prove out with their own math whether or not it's working.

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21:27Hello. So join us for brand new episodes every Wednesday. And revisit The Office rewatch every Monday. Follow and listen to Office Ladies wherever you get your podcasts. All right. So is there a likelihood, this is another two-part question, which by the way, every interviewer says don't do, but you're good with these. Is there a likelihood that YouTube would be able to convince a Netflix or an Amazon to have their programming available via like a YouTube TV? And if so, how would they be able to convince them? Does it just come down to money or a good deal? Or is there a business case beyond that that makes it make sense for them?

22:16So, John, I'm going to turn your question around. I don't know if it's a two-parter, but I'll start with a one-parter. I'm going to flip it around and say, would Netflix ever want to be subsumed by an aggregator, right? Would Netflix ever want to put its service embedded in a YouTube or Amazon Prime? Why, why not? The answer I'd say to you is no, they see themselves as a clear industry leader with viewership and usage that's head and shoulders above their competitors if there is a need they have it's to create more regular tune-in you know it's basically not not be so dependent on you know hit scripted content i see them pivoting and going further into sports this new nfl deal comes we have bella again at our conference but i don't think netflix would ever be under another aggregator maybe they were being aggregated themselves where they basically do a deal for a peacock or paramount plus or max they put it into the netflix tile but i don't think they as market leaders feel the need to basically be subsumed by somebody else especially not amazon nor google at this point yeah especially a google i i would think what about some of the other streamers though is is that a possibility or i mean this is this is their whole reason for being.

23:48This is their whole business. They don't want to give up those subscribers to YouTube. They want those subscribers on their own. Yeah, but with that said, Peacock announced between the last time I was on and now that you can get Peacock on YouTube Premium, right? It's part of YouTube Premium. So I think what is being realized is, look, we probably have hit a wall on the number of people who want these products a la carte, right? Meaning on their own. It's probably better to bundle with someone else. And the folks at NBC, again, that's just to come to our conference, have decided it's better to leverage YouTube and their brand and their distribution.

24:28I think there are over 125 million global YouTube premium users and build Peacock that way. Well, there's probably some, there is a per cap fee they're getting from YouTube. But I think people will realize and have already that there's just a ceiling how many standalone subs we can get maybe we have to build more and more partnerships to get to a higher level and that's what's happening right now right that's what's going to be the next couple years maybe it's roku and fox how they'll roll it out um you know disney is going to collapse or submerge all their products into one disney plus peacock youtube we'll see who goes to netflix maybe netflix plus hbo max we will see i think that's where ahead of time i really do so like you said bella's at our conference and uh we're going to ask this to her directly but when you say you expect netflix to get more involved with sports and i can see that being you know they come in and get a full season schedule uh for the nfl and and try to do that beyond that what do you see what does that mean does that mean the the fifa world cup as they have the women's world cup next next year does that mean the the men's then uh three years after that or what exactly when you say that you expect them to be more involved in sports do you right okay thank you for for asking me to be more more um official with my words so what i mean is they've been clear they want to advertise things when they get an nfl contract won't be the CBS game of the week, the CBS regional games where you have Jacksonville and, you know, and Seattle.

26:13They will go after an A or B package which the NFL will happily build for them. Because I think what they realize is, look, we're not in this business to just build, run a schedule. We need to build tune-in events. They have a Women's World Cup. The Men's World Cup was a smashing success for Fox. why wouldn't you go after and chase it right like the ad support subscription dollars attached to it why wouldn't you so i see them moving into the world of the most eventized sports content right not running the middle schedule but look what they've done already with baseball right they've picked they've picked opportunities to build something that's different so my view is um they're going to be real bidders for packages that are seen as events and what you've described between world cup and nfl a package um olympics who knows what why why wouldn't you chase those things you know they have a massive lead in streaming incredibly profitable business and just keep on you know and i think what they've realized what we've seen is scripted content is really challenging right it's hard to build great scripted content week in week out.

27:29It's really tough. And sports is a more efficient way to build audience. You know, the ROI on it is so much better than rolling the dice on scripted content. Yeah, before the NFL season even starts, you can talk to the Mike Mulvihills of the world and who was the great research he's a president over at Fox Sports, great research executive. He can pretty much guarantee you within what a five ten percent range what the viewership is going to be but yeah we've been in this business forever how many times do you see big bets made on entertainment programming that nobody watches or small bets made on entertainment programming that all sudden become a a really big hit so when you say when you say sports is much more um uh you know you can set your clock to it that's why that there's a there is a a baseline of of hardcore viewers that are going to watch that sport no matter where it goes yeah john you think about we've gone from 100 million ptp homes down 65 but i would argue there's never been a better time to be a sports fan or a sports league or athlete you had you know a great nba files for us new yorkers you had world cup which was tremendous this well done and now these global stars um are identifiable to Americans right like of course if you're living in Argentina you knew Messi of course if you're in France you know Mbappe um you know England knew their team but now we know the same players because of of European soccer so European you know World Cup was great I thought I thought both U.S Open tennis and golf you know in our backyards in europe were fantastic the nfl had a great opening weekend and college football with ohio state texas on saturday i know it wasn't maryland rutgers john but it was a pretty good game and i just think you're living you've seen living proof of why events only go up in value and if i'm a rights owner my job is to create more and more events to create a bidding war for, you know, for my constituents.

29:46Michael, that's like the most interesting part to me. If you look at this from the league side, they have big events that they're going to get streamers lining up to try to pay for. And that includes the playoffs. You see, you know, baseball is doing more with, you know, the, the Iowa game, the field of dreams game, or, you know, you know, the opening night, they tried to, they, they sold to, to Netflix as well. They're trying to do these tentpole events, and that's generating interest among the streamers. But baseball, to use them as an example, is 162 games. And they have spent, they grew up with the whole cable industry, where cable was desperate to show each one of those games.

30:32They wanted all those games. I'm not getting a sense that any of these streamers want anything more than the big events. and all the ancillary stuff, you know, you've heard the term warehousing. ESPN used to buy all the white rights and then warehouse them. They never use them. They have no interest in that. They just want the bigger, bigger events. And what these leagues do with those other rights, I think is a really interesting storyline to be following over the next couple of years. Agree. And it ties into another shameless plug for our event. We have a baseball panel, which is talking about what baseball has done already to kind of improve the on-field, off-field product.

31:15So we have Sam Kennedy, president of the Red Sox, Theo Epstein, icon, breaker of my heart as Yankee fan. And then we have Doc O 'Connor from Arctos and KTR talk about baseball, changes they've made to rules. Like baseball is trying to, you know, they've fixed their product on field. and I want to hear from them what can they do to create more events throughout the season, right? I know in New York we had the Mets-Yankees over 9-11 weekend. That was pretty fantastic. But what more can be done? I don't have an answer for you, John. That's why we're doing a conference. Yeah, by the way, I'm not sure if baseball has an answer.

31:54It's 162 games. That's part of the allure of baseball. But getting... Anytime we talk to another league's executive that's not the NFL, we always bring the NFL as example. Like, look how great the NFL is. And they'd say, you know, it's 18 games. It's 19 weeks. It's a sprint. You know, they just have built, they have a schedule that's really user-friendly for television, national television. Each game matters. And I think, again, Adam Silver is going to be there in a couple of weeks. And, you know, there are 82 NBA games. And then the players have and the GMs and the coaches are all into load management.

32:39And so, you know, they don't want to play all of these games and especially back to backs. I mean, there's been a push among people like Bill Simmons, like hardcore NBA fans. let's call the number of games like i have a 68 game season i have games twice maybe three maybe three times a week uh the owners don't want to give up that gate of course i mean that's a lot of money uh and they also in the rsn system the regional sports network system they didn't want to give up uh the the money coming from the rsn that that pays on a per game basis as well so it It doesn't seem likely to happen, but there are ways to make it less of a marathon and more of a sprint where each of the games really matter, I think.

33:27I agree. It's going to be fun to watch. It really will be. All right. I think it's time to hit our favorite topic. I love talking about this. I've talked about this with you probably for a decade now. That's when we first realized court cutting is a real thing. Yeah. You and I were just both talking about YouTube like it was like some sort of grand new, like we're both devoted fans of YouTube TV. I mean, we pay for the service and we enjoy the service. Is that doing anything in your mind to arrest the cord cutting trend? Yeah, it's 10 million plus homes that's growing, right? unfortunately it's not replacing every single cord cutter but what they've done a YouTube TV I want to see we'll never get the details on their package packages they just created last year or this year earlier new sports and sports news package plus charter the rate of cord cutting all in has dropped from high single digits to mid single digits you know the past year or two right so So the mid single digit's still not great, but we were coming out of a pandemic looking at six, seven million homes a year dropping out of the system.

34:52Now we're looking at two to three million homes dropping out of the system. And we're waiting for Comcast to see if Comcast follows some of the innovation of Charter. So YouTube TV has been a big anchor in terms of stopping the decline. Hulu, Fubo have been merged, new CEO there from Disney. we want to see what they do but you know we're not calling for the end of cord cutting but it's clearly slowing on the margin uh the weird thing is nielsen ratings for what that's worth have stopped declining also for cable networks i don't know that's just a timing thing a methodology thing but uh some of the dire doomsday warnings of how quickly the the floor will be hit where the floor is the floor will be like 50 million we think by the end of this decade.

35:42That's the traditional floor. And then you'll have bundles upon bundles upon bundles of packages that will be not counted in cord cutting, but will probably get you back to somewhere like 100 million homes are still watching sports the way we used to always watch it.