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Sometimes Goliath is just better off writing a cheque. Earlier this week, Disney decided to lend a financial hand to a tiny but formidable antagonist, Fubo. It might seem strange for a media group with a market capitalisation of $200bn to care about a digital pay-TV minnow worth just $500mn, with fewer than 2mn subscribers. But Disney’s move is clever.
What Fubo lacks in heft it makes up for in good lawyers. Last August, a judge sustained a lawsuit the company had filed against a new Disney venture called Venu, which was set to deliver sports broadcasts over the internet. Fubo’s objection was that if it wanted to broadcast Disney’s sports content, say, it was forced to pay for other less desirable programming from the Magic Kingdom. Venu, on the other hand, was entitled to cherry-pick just the parts it wanted.
Faced with the risk that Venu would get put on ice, Disney said on Monday that it would pay Fubo $220mn and extend a $145mn loan that helped the plucky complainant pay some maturing debts. In addition, Fubo will merge with Disney’s own digital pay-TV product, Hulu + Live TV, leaving the House of Mouse with a 70 per cent stake. In return, the litigation is deemed settled and presumably Venu will soon have its own launch.
Fubo’s lawsuit — if pushed to a conclusion in the courts — could have been a game-changer for pay-TV distributors who had previously been forced into buying content packages from the likes of Disney. Instead of possible martyrdom, Fubo decided it was better for its shareholders to make peace. A definitive answer on digital content’s rules of the road will have to wait.
Financially, though, Fubo has been vindicated. Its shareholders will own a third of the company and its shares have risen from $1.50 to $5.50 this week. The digital upstart currently has about $1.6bn in annual revenue and breaks even on an ebitda basis. By combining with Hulu Live and getting operating synergies, it says revenue and ebitda will hit more than $7bn and $550mn, respectively, by 2028.
As for Disney, it will offer digital content through a dizzying number of venues. As well as Disney +, ordinary Hulu, new Fubo, Venu and its dedicated ESPN sports streaming service, it also sells its broadcast service through the likes of traditional pay-TV distributors such as Charter, Comcast, Dish, DirecTV and Altice.
Expect more strange bedfellows, for one simple reason: big media groups still don’t know how consumers prefer to consume content, let alone how to deliver the prevailing service profitably. Amid this messy contest, Fubo is an unlikely winner.
sujeet.indap@ft.com
