New era at ESPN, Netflix’s latest sports play, streaming profit

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Five things you need to know

Amazon cut more than 100 employees from Wondery, the podcast company it acquired for about $300 million. This is the end of the "Serial era" of podcasting.
South Korea's top music mogul is returning home to respond to a government investigation into his behavior.
David Ellison finally closed his deal for Paramount. His new board includes Oracle CEO Safra Catz and former Paramount Pictures boss Sherry Lansing.
Another sign of trouble at Microsoft's gaming division: It canceled Contraband, a game in development for four years.
Nexstar, the largest TV station operator in the US, is in talks to acquire rival Tegna. Station owners have been salivating over potential deals under the new Federal Communications Commission.

Sports enters its streaming era

When Major League Soccer and Formula One couldn't get TV networks to pay enough for their media rights, they turned to Apple. When the National Basketball Association's talks with Warner Bros. Discovery reached an impasse, it recruited Amazon (and Comcast). And after Major League Baseball was spurned by ESPN, the league is hoping Netflix and Apple will boost its payday.

Leagues and their representatives have used technology companies to inflate the already gargantuan sums of money they collect for the rights to show their live games. The cost of airing sporting events has soared in recent years because it is the only kind of entertainment programming that can still command a large, live audience. The NBA just tripled its annual rights fees, while the NFL is in line for a massive pay increase when it chooses to have its next negotiation.

The leagues have sought larger paydays as their traditional partners, broadcast and cable networks, have shrunk. Regional sports networks, a huge source of cash for the NBA and MLB, are collapsing. In order to secure the large sums of money they want, the leagues have had to divide the rights among a wider pool of bidders.

Traditional media companies like Walt Disney, Paramount Global and Warner Bros. remain major players in the sports ecosystem, but there is a limit to how much they can spend. Amazon, Apple, Netflix and YouTube have a lot more dry powder — should they choose to use it.

Sports have, until recently, been the only thing holding the linear-TV bundles together. While customers can access all the entertainment they want via streaming, many of the biggest sporting events have still required some kind of pay-TV package. But between technology companies buying sports rights and traditonal sports heavyweights like ESPN and Fox launching new streaming services, that is no longer the case. This shift will only hasten the demise of the cable and satellite businesses.

ESPN's new era

The traditional media companies have downplayed the emergence of the tech companies, noting that leagues would still rather put their games on linear TV — and broadcast in particular. Cable and satellite are still a more reliable delivery system than streaming. Conventional TV networks can still deliver a bigger audience than most streaming services.

Just scroll through the Twitter feed of Fox Sports' Mike Mulvihill and you will see regular testimony to the power of broadcast, as well as questions about declining ratings for racing and wrestling on Amazon and Netflix, respectively.

"The strength of broadcast in sports has been demonstrated again and again this year," he posted on July 29, referring to Fox's ratings for a women's soccer tournament.

ESPN has the best portfolio of rights it's ever had, Chairman Jimmy Pitaro will tell you. Pitaro is about to release an app that he is pitching as the first stop for any sports fans. It will encompass fantasy sports, gambling, scores and highlights. It's also the first time the Disney-owned company has ever made all of its live sports available online to people who don't pay for cable.

While ESPN has the largest portfolio of sports programming of any company in the US, the network can't spend like it did when cable was in 100 million homes. That reach enabled Pitaro's predecessors — George Bodenheimer and John Skipper — to seek just about every deal they could. They faced stiff competition from CBS, NBC and Fox, all of which were flush with cash from the pay-TV business.

ESPN will still splurge on the sports that matter most. Pitaro just closed a deal to buy media assets and more games from the NFL, in exchange for a 10% stake in ESPN, and nearly doubled the network's annual outlay for NBA rights by committing to a new deal that averages $2.6 billion a year. He also agreed to plunk down $1.6 billion over the next five years for major events from World Wrestling Entertainment.

Yet even Pitaro would acknowledge that ESPN has to be a little more selective. The network opted out of a deal with Major League Basebell earlier this year, believing it would be better to pay less or lose the rights entirely. Pitaro pulled out of the bidding for Formula One because the sport wanted a larger increase than ESPN felt was reasonable. And ESPN is about to sacrifice some of its rights to the Ultimate Fighting Championship — if not the entire package.

ESPN isn't alone. Warner Bros. bailed on the NBA when the price got too high and picked up the French Open, while Comcast has shed certain live events, like the French Open and some WWE rights, to help pay for its NBA deal.

The Netflix riddle

While consumers still spend more time watching live sports on traditional TV than the internet, that will change over time. Consumers already spend more time watching TV on streaming services than broadcast and cable combined.

Amazon is the only tech company thus far to establish itself as a proper heavyweight alongside the traditional players. It has the rights to the NFL and NBA, two of the biggest sports around.

Apple and Netflix are a little harder to read. Apple likes to secure all the rights it can in order to dictate the customer experience. This need for control helps explain the rights it has and those it doesn't.

MLS and F1 were both struggling to find a new home until Apple stepped in to offer more than any of its competitors. That afforded the folks in Cupertino a lot of leverage. Apple couldn't come to terms with the NFL, which, like the iPhone maker, is accustomed to dictating terms. YouTube picked up the rights to the NFL's Sunday Ticket instead.

Netflix has been reluctant to spend too much too quickly. The company initially said no to sports. Now it's dabbling and says it only wants big, loud events. But just as the company started with a few original shows before becoming one of the biggest studios in town, there is no question Netflix wants more live sports. It could use sports to boost viewership and expand its nascent advertising business.

To wit: Netflix participated in a profile of its sports guru, Brandon Riegg, complete with a quote from co-founder Reed Hastings.

Netflix is kicking the tires on a deal with Major League Baseball that would include the Home Run Derby. Negotiators flirted with the NBA, though they never got too serious. The company spoke with the United States Golf Association about the US Open and is one of the contenders for UFC rights.

UFC will be the next big test of the market. The mixed martials arts league has said it is in the final stages of closing its next media deal, for which it is seeking $1 billion a year. Though the UFC has said its wants to remain in business with ESPN, which has all of its major rights in the US, its owner TKO Group has held talks with Netflix, YouTube, Amazon and Paramount, among others.

Netflix and Disney are already partners with TKO on WWE, while Paramount's new owner David Ellison has been spotted ringside at the UFC in recent months.

The NFL, meanwhile, is in the process of creating a new package designed for a streaming company like Netflix or Apple. It clawed back four games from the NFL Network as part of its deal with ESPN and may look for more as part of its next negotiation.

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Streaming profits are way up — Wall Street is unhappy

Disney last week reported a profit of nearly $1 billion from streaming through nine months of its fiscal year, reversing years of losses. Its shares fell.

Warner Bros. reported a profit from its streaming business and strong results from its movie studio. Its shares also fell.

Paramount reported a narrow profit from streaming in the first half of the year after a loss a year ago. It also welcomed a deep-pocketed new owner. Its shares tanked Friday.

So, what gives? Wasn't Wall Street demanding that these media companies cut their losses from streaming?

Each story is a little different. Disney plans to stop reporting the number of subscribers for its streaming service, which fueled concerns that they won't be growing. Disney+ and Hulu didn't add many new customers last quarter.

But these companies face similar challenges. They all reported sales growth of 1% or 2% — compared with double digits for Netflix and the big tech companies. They are suffering from the rapid decline of the US TV business, which is losing paying customers and advertising sales. Disney and Warner Bros. also issued forecasts that spooked some investors.

South Korea's latest pop sensation

A couple years ago, Hybe and Universal Music Group announced plans to create a new girl group, recruited globally and trained in the South Korean style.

It sounded a bit contrived. The companies would conduct a global talent search and film it all for a Netflix documentary. The group, Katseye, didn't immediately find an audience.

But that changed in April with the release of Gnarly, a word used to describe everything from fried chicken and boba tea to a new Tesla, as Ashley Carman explains:

So far, the track has accrued over 166 million streams on Spotify while the music video on YouTube has been viewed over 62 million times. On TikTok, users have feverishly re-created the song's signature dance moves, driving additional reach.
The popularity of Gnarly, alongside another new track, Gabriela, has propelled Katseye to No. 12 on Bloomberg's Pop Star Power Rankings this month.

The No. 1 movie in the world is…

Weapons, which grossed about $42 million in the US and Canada this weekend. That's another hit for Warner Bros. during a slow period in August. It edged out Freakier Friday and the third weekend for The Fantastic Four: First Steps.

Deals, deals, deals

Investors are trying to force one of South Korea's largest media companies to sell its local movie theaters.
Spotify shares jumped after the company said it would raise prices in several territories.
Roku introduced a new paid streaming service.
Two of the three Paramount co-CEOs are leaving. They will be paid $18 million each for their trouble.
Companies that sell film equipment are the latest casualty of the Hollywood recession.
The New York Times is getting in business with popular podcaster Pablo Torre.

Weekly playlist

Shakira's concert at SoFi Stadium confirmed two things: She remains a great live performer, and SoFi is one of the most maddening concert venues on the planet.