A funny thing happened as regional sports network owner Diamond Sports careened toward bankruptcy this winter: Sports-centric streaming service Fubo added its 19 RSNs to its offerings.
“People tried to discredit us when we were attempting to license the RSNs. Pundits—bankers and other journalists—were saying, ‘Look at what these guys are doing, [Diamond] is about to go bankrupt, what they are doing makes no sense,’” Fubo co-founder and CEO David Gandler said in a telephone call. “Hopefully people will understand—and we know a lot more than they believe we do—is regardless whether it’s Diamond or not, baseball will play. We weren’t buying Diamond sports; we were licensing sports content from baseball.”
Still, in a time where the dialogue is focusing on the inevitable end of RSNs, which Diamond’s bankruptcy only amplifies, Gandler’s move met with skepticism on Wall Street earlier this year. But maybe even more surprising is that Fubo’s RSN gambit is working.
The multichannel video programming distributor (MVPD) expanded its subscriber base 22% while also increasing the average revenue generated by each subscriber in its first quarter, which was announced last week. Much of the credit is given to the presence of RSNs on Fubo’s regional offerings, which reduced expected churn from World Cup and NFL fans canceling their service.
The availability of RSNs offering local sports, especially entering baseball season, “allowed us to give people an option to stay on the platform, and so from that respect, the crossover into the RSNs was actually much stronger than we anticipated,” Gandler told equity analysts on Friday’s earnings call. In particular, areas where Fubo offers Diamond’s Bally’s Sports-branded channels allowed the company to raise prices between $11 to $14 per subscriber, a move that came just after a universal $5 price hike. The results impressed: Wall Street rallied Fubo shares as much as 88% after last week’s earnings announcement.
All this suggests cord-cutting may not spell death for RSNs. It could mean people like their bundle of sports, news and entertainment, but they just hate the cable companies.
“Customers are spending 100 hours plus per month on the [Fubo] platform, relative to a Netflix… which is 50 hours,” Gandler said on the phone call. “All this speaks to customers who want more content, not less content.”
Sports plays a central role in Fubo’s pitch to get people to subscribe to its package, which starts at around $75 for more than 150 channels, including ESPN, FS1, MLB Network, along with local RSNs, including NESN in Boston and SportsNetNY in New York City.
“There is a primacy of sports that we have taken to the next level, which is the primacy of your local team,” Gandler said. “Most people still want to get their local team and the World Series [and] NBA playoffs all in one place.”
Carrying an area’s local RSN is a strong offering for Fubo. While there are millions of out-of-market fans around the country—think: a Dodger diehard living in Chicago—they are just a small part of any market compared to the demand for the local franchises. “The strategy we undertook is the complete opposite of what YouTube did with Sunday Ticket,” Gandler said, noting DirectTV peaked below 3 million subscribers when it held the NFL out-of-market offering. The number of fans still using cable who desire the other major sports that are the mainstays of RSN programming is at least 10 times Sunday Ticket’s audience, according to the company.
Yet Gandler says Fubo has no issue with teams pitching their own product directly to consumers; he just believes Fubo offers an easier way for them to reach fans. “There’s an actual cost [to teams running their own platforms], and an opportunity cost,” Gandler said. “The real cost is you have to develop a team that specializes in streaming and a team that understands marketing. You can hire a third party to do that, but it never turns out to be very strong way to deliver a high-quality, premium experience.”
The opportunity cost is those resources that could be directed elsewhere, as well as the fact that Fubo continues to rate highly on customer service markers, such as JD Power & Associates surveys. Good customer service, he says, lowers costly customer churn. “We’re offering consumers a product they love, fully aggregated, at a fair price. For sports fans who spend hours watching college football, baseball and basketball and other events, even $100 is not a lot to pay.”
To be sure, Fubo and its 1.29 million subscribers aren’t enough to reverse the bloodletting for RSNs as people drop cable TV en masse. Especially since Fubo isn’t carrying stations like Diamond’s at the same fees enjoyed with cable; Fubo dropped Diamond RSNs in 2020 when the price got too high. And while investors have been buying Fubo shares the past week on strong volume thanks to the good results, there is still a long road for Fubo to reverse investor skepticism. Its recent share price of $1.85 is still well below its peak of $44 reached in late 2020. Fubo’s market cap is $530 million.
Yet Gandler, who compares Fubo today to Netflix 20 years ago, believes in what the business could become. A key is to evolve into more than just a re-transmitter of other peoples’ content. The executive points to its Edisn.AI division (Fubo acquired the fan engagement platform in December 2021) as a way for Fubo to add value, from enhanced data and analytics during games (and news and entertainment) to deeply personalized services for finding programming to, eventually, replaying specific types of plays across multiple cloud-recorded games. The landscape for consuming content is far from settled, he says.
“If you think about the [media] ecosystem, everything’s in flux. You have companies getting into advertising and companies trying to bring many brands under one app—everyone’s trying to figure it out,” Gandler said. “Streaming is hard, and hopefully one day people will understand we’re executing very well in a very complex environment with very little visibility.”