Breaking Down the Venu Sports Bundle | Sharp Tech with Ben Thompson

Well, I think it was my main reaction to this was irritation with myself that I didn't predict that this was going to come. It seems like a clear holding to me, but I'll let you go first and I'll sort of weigh in on top of it.

Yeah, just double down on that. That's the exact point. They're like, Fubo, and I'm going to say it too, Fubo, we just call it Fubo here. Fubo cannot stop Disney from watching an ESPN streaming service, correct? That Disney does not have a duty to deal. What is happening here is Disney and Warner Brothers and Fox are basically colluding, and that is not legal, right? So the broader we've talked about this before, and this is a bit where one of the challenges of becoming sort of a finely honed business, the sort of bullet train to use our sort of long understanding analogy, is you're not just limited in flexibility in terms of your own decisions and what you want to do, you do become legally constrained in what you sort of can or cannot do as well. In this particular case, Disney in particular, the kings of this, is 'Oh, you want ESPN, the most important channel for a cable bundle? Guess what, you're going to have these 15 other channels, right?' And I wrote about this years ago when I think it was Sling launched the first sort of virtual bundle and they had a very limited set of channels because they wanted again, everyone wants to deliver only the good channels, quote unquote. And so they had the big ones and then they had like Maker TV. What is Maker TV? Well, Maker TV is downstream from a YouTube channel that Disney acquired, and it's like why would they have that? Oh, because to get ESPN you have to also get these 15 other channels from Disney. Again, 15 is not the exact number, but you get the sort of idea. And this is why the true cost of ESPN was never the $10 or whatever you paid for ESPN, it was the cost of all these crap channels that no one wanted that actually drove the value. And you think about it, for a long time when everyone had cable, the actual way to increase your profitability in the cable bundle was a fight between the distributors like a Comcast or a Charter or whatever it might be and the cable companies over what portion of that customer payment do we sort of get. And the way that entities like a Disney would increase their share is by bundling, is by a bundle within a bundle, and so we get more and more of these sort of bits and pieces. And so when Fubo comes along and says we want to do a virtual cable bundle but we only want to do sports, Disney's like, 'Yeah, nope, not going to happen. If you want ESPN, you're getting every single one.' That's right, all the ESPN class. And they all did this, right? The thing with the cable bundle is it actually wasn't like 75 independent companies, it was like five companies that would... and so they were... that's a new market. So these tactics are more transparent in this new pay TV streaming market. And what's happening here is that now after all these years of telling Fubo you can only buy ESPN if you're buying eight channels from us or whatever the number is, we're now going to sell ESPN directly as part of this joint venture that, oh by the way, is going to be cheaper than the product that you've been offering sports fans for all these years, right? So if Disney wanted to let Fubo just sell Disney and then go to Warner Brothers and just have TNT and just do XYZ, they could watch this joint venture no problem. The issue is they're restricting this ability to sort of pick and choose the channels that you want to themselves. And again, you can do that if it's just your thing, you can't collude with other people to sort of do it. And that's it. I think the holding said 60% of sports rights in the United States, so that's real market power, right? So the issue is the collusion. That's why it's not a duty to deal sort of issue. Now the defendants are playing the duty to deal card, they're saying we don't have to sell to Fubo. And basically, again, this is a preliminary holding, it has to go through a case, but I think it's a reasonable injunction in that they're probably going to win because this is exactly what the Clayton Act sort of is about. You don't get to collude to sort of create this sort of entity. And so yeah, if Disney wants to sell ESPN on its own it can do that, it doesn't have a duty to deal ESPN to another entity. It also can't make restrictive agreements with other companies that sort of favor itself and lock other folks out. And so I think it's a pretty clear ruling, it makes sense to me, it seems like the right case. There is a sort of broad-based sense which is like all these companies are sort of in trouble and you know because the cable bundle is sort of falling, and that gets my bullet train bit, right? Like, sorry, would you optimize for this specific use case? Just because that use case is falling apart doesn't mean you get to undo the realities of your optimization, right? It's like the Google and Android thing, right? Google doesn't get to sell Android and push it as being open access and then retroactively lock it down. You don't get to change the terms. And that's why you know you watched that case, I know you said sort of last week that's why they're going to get hammered on it, because they tried to change the terms. And this is a price of sort of optimizing your business as it were. Like, okay fine, you can do that, but then you're locked into it.

Yeah, I mean all their terms and like whatever, you know, they still make a lot of money from cable. Like even though it's dwindled to like half the population, that's still a lot of money. Fubo to be like way cheaper than the cable bundle because they don't want to upset the apple cart before... yeah, I mean number one, there may be contractual restrictions that they can't do that, they can't sell to someone else. But number two, they don't want to because, you know, I think Maker TV has since bit the dust, but the Maker TVs of the world are still driving revenue for Disney. And so this goes back to the Disney Charter standoff from last year, which was really Charter saying, 'Look, your strategy has been very effective. It's been so effective that you're basically taking more than 100% of our TV revenues. So you know what, whatever, that's fine. We're not paying for your crap channels anymore. It's done, it's over.' And that was sort of the big thing at issue here. And oh by the way, you're going around us with sort of your streaming service sort of down the road. And what was the actual service that Charter was sort of pushing? They're saying, 'Hey, go get Fubo.' That's what they were telling. It's like, 'Hey, why not?'

Well, no, but it kind of is all the sports you need because all the other sports are by and large on broadcast, right? So if you get an antenna and then this sort of can fill in the pieces, maybe not a huge market, but you know, I could certainly have seen the attraction.

Right, right, no exactly. That's kind of the irony of this, right? Like I think it is a clear and I trust sort of violation, and also to your point, maybe it doesn't really matter because all things are screwed anyway. This is sort of you see this happen a lot where the natural response to a shrinking industry is consolidation. Like that's what sort of makes sense because you still want to get economies of scale, you still want, you know, and so it makes sense that as the market gets smaller and smaller, the remaining entities should sort of combine. And that does tend to run into antitrust issues, which is like what? But if you zoom out, and I think this is actually a reasonable defense of the joint venture and a reason to be skeptical of antitrust sort of generally, if the market was growing, no one would want to actually be doing this joint venture in the first place. The fact they're trying to do something anti-competitive is actually a function of the market shrinking, and maybe this actually is a more efficient way to serve customers sort of in the long run, and not letting it happen is actually anti-customer.

Well, there wouldn't be if Fubo was driven out of business. Our favorite streetwear streamer. I don't know, the names of these products, Fubo and Venu, it's like what the hell is even happening here? Venu, excuse me. We're just in a strange place. And oh, Venu, that's what it is without the E. I was trying to figure out what that makes. That makes sense.