Fubo CEO Gandler Says Sports TV Fee ‘Bullying Has Got to Stop’
Overlooked in the sports streaming upheaval is that Fubo is one of the better-managed businesses in the market.
In their most recent quarters, much larger Paramount, Comcast, Fox and even Disney’s ESPN all reported weaker advertising revenue, reflecting both a slumping media ad market and the effects of widespread cord cutting. Yet in its latest results announced last week, Fubo’s ad revenue rose 14%, outpacing the double-digit growth in its subscriber base.
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It’s a sign not only that Fubo has a legitimate business model, but that the company ultimately is a benefit to everyone in the sports rights industry, says co-founder and CEO David Gandler.
“The problem everyone needs to solve is the friction and fragmentation one—that gets lost in the shuffle,” Gandler said on a phone call. “We execute very well, but we don’t get any credit for it due to all this anticompetitive behavior.”
The behavior Gandler cites is now the basis of a federal lawsuit against Disney, Fox and Warner Bros. Discovery over a planned sports-only streaming bundle the trio will roll out later this year. The lawsuit remains sealed, but Gandler allows the broad goal of the lawsuit is to level the licensing and fee playing field between Fubo and other licensees of sports networks.
Disney and the other defendants will answer the complaint, deny wrongdoing and seek the complaint’s dismissal. Expect the defendants to depict Fubo as a willing partner in contracts that it now portrays as illegal.
Like a traditional cable bundle, Fubo offers packages of channels to subscribers, but with a series of value-added services, too, like a cloud DVR and AI-driven ways to hunt for content across networks (such as to follow a favorite sports star). The company emphasizes its sports offerings for a simple reason: It is the primary motivator of its subscriber base. The continued growth of that base—now 1.62 million homes with low subscriber churn despite its lack of contracts—belies the idea that consumers don’t want to pay for programming when their favorite team or sport hits its offseason.
So far, Fubo says its success comes in spite of the channels and rights holders the company believes should be its allies. For one, Gandler says, “Wholesale prices to Fubo are higher than their [channels’] direct-to-consumer prices today.”
With that, Fubo says it pays about $200 million annually in fees to carry stations it sees little evidence people care about—filler like Disney’s National Geographic and FXM. Those are stations other bundlers such as Spectrum have been able to drop in recent years, but which Fubo says it still must buy with ESPN.
The premium Fubo pays also comes with more restrictions than other services. For instance, Fubo says it is prohibited from compiling highlights of games for its cloud DVR service, but YouTube TV gets to.
Some channels Fubo can’t access: It says it hasn’t been allowed to license stations like WBD’s TNT for its bundle, for example. It also was denied a chance to pay Disney for the rights to ESPN+, then saw Disney give Charter Communications ESPN+ at no cost a month later, Gandler says.
“We just want to compete fairly. Last year we paid out about $1.2 billion in fees, but we have to get something in return,” Gandler said. “I understand we execute well, so they think we can handle it, but the bullying has got to stop.”
Reaction to Fubo’s lawsuit against its much larger frenemies has been termed “sour grapes” by some or spun as another example of a righteous upstart doomed in the rough-and-tumble world of capitalism. But the executive cautions there is both a near-term and long-term financial impact to others if Fubo fails at what he termed a “duel to the death” with the yet-to-be-named sports streaming joint venture.
The near-term effect is that undercutting Fubo means networks will be replacing the high level of fees they collect from Fubo with the lesser revenue of their direct-to-consumer services at a time when Wall Street is increasingly intolerant of declining revenue from broadcasters. The longer-term problem is that fragmentation of the sports viewing experience is only continuing. Siloed streaming services won’t solve the challenge of reaching consumers to the extent traditional cable did at its peak.
If a stand-alone streaming app could reach, say, 80 million American homes—a mark only Netflix has attained, “all they would have achieved is higher marketing costs, because you have to maintain relevance in the market—remind people where to find everything,” Gandler said. “But then you lose the casual [price sensitive] subscribers who like to know it’s there to watch the U.S. Open or a sport they may not watch often. So you lose the casual fan, and you never reach that 80 million subscriber mark. The math doesn’t work.”
While the Disney-WBD-Fox JV might be able to attain critical programming mass—the trio controls about 54% of U.S. sports content, according to Citi research cited by Fubo—it’s unclear how committed Disney is to the venture in the long term. Disney CEO Bob Iger expressed more enthusiasm to investors last month for a standalone ESPN service planned for 2025, noting it will feature content and services they won’t offer to the JV with Fox and WBD.
There are also signs Wall Street doesn’t believe in the JV: Shares of Fox and WBD—along with every other sports-reliant broadcaster but Disney—are down sharply since the JV was announced.
A potentially more significant, if harder to gauge, ramification of fragmentation is that siloed services make it harder to know if advertising and marketing efforts are working. Marketers won’t pay a premium if they don’t really know who they’re reaching, as seen in the recent crash in the print ad market after Apple and Google eliminated the ability of mobile phone apps to gather user demographic data.
The insights into consumer behavior and marketing provided by services that can be seen across individual streaming services will be able to provide data that advertisers will pay a premium for. It’s a key reason why retailer Wal-Mart, for instance, announced two weeks ago it will buy TV maker Vizio. Such insights are a reason Fubo has been able to boost its ad revenue while others are in decline. Better audience insight supports ad rates, which in turn benefits everyone: the networks and the leagues who enjoy multiple bidders for their broadcast rights.
So what would a Fubo service look like if the company were to win its legal fight for lower pricing and loosened restrictions? Presumably, it would be cheaper to the consumer, if rights fees are trimmed down, with more ways to surface programming to sports fans that would probably help lesser watched channels and leagues.
As Gandler sees it, Fubo probably would be able to craft better-targeted bundles that can scale up and down depending on whether preferred sports are in season or not. That way NBA fans, for instance, would see a price savings when hoops season ends but remain paying customers on some level, drawn by Fubo’s “super aggregation strategy” that soon will include a fee-free tier of streaming channels as well: Experience shows people like a bundle versus a la carte streaming.
“We just want to compete fairly,” Gandler said. “Ultimately, that will benefit the media companies. We look forward to hearing what the Department of Justice has to say, and we’ll do our best to keep fighting the good fight on behalf of our customers.”
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