Disney-Fox-WBD sports bundle fears are overblown: S&P Global

As streaming competitors digest the news of a joint sports streaming venture involving Disney's ESPN (DIS), Warner Bros. Discovery (WBD), and Fox (FOX, FOXA), S&P Global believes investor fears may be overblown concerning bundling services' position against TV packages.

Yahoo Finance Entertainment Reporter Alexandra Canal breaks down the details and what "skinny bundle" offerings mean for ESPN.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

- Let's stick with the streaming space because we got a lot to talk about. Warner Brothers Discovery ESPN and Fox reaching an agreement for that joint sports streaming venture that we've been talking about leaving investors questioning the fate of pay TV. But there's a new report out from S&P Global saying that fears may be overblown.

Yahoo Finance's Alexandra Canal has the details for us. Ali, a little overblown, I guess, at this point?

ALEXANDRA CANAL: Yeah--

- From their perspective.

ALEXANDRA CANAL: From their perspective. And there's been a lot talk about what this skinny bundle means for the future of linear TV, especially because all of these companies, Warner Brothers, Discovery, Disney, Fox, they have a lot of exposure to linear networks. And that bundle does help fund a lot of those streaming initiatives.

So the fear here is that are we going to pull customers away from that pay TV bundle and could that impact profitability? Which is one of the reasons why we sometimes see the shares move lower on the heels of these streaming centric announcements. But S&P is arguing that these fears are overblown and that the joint venture, if it's priced correctly, could actually add pay TV customers. So it all comes down to pricing. If it's priced too high, it's not going to appeal to the cord cutters. If it's priced too low, that could potentially cannibalize existing pay TV users.

So S&P is anticipating a price point between 40 to 50 bucks. But it's important to remember that this is a skinny package of linear TV networks, and consumers will only have access to games and packages that these companies have the rights to.

So if you're a pay TV subscriber, you're likely a pay TV subscriber because of sports. You see the value in having access to the full slate of content. You probably aren't going to opt in for this skinny bundle because you want as much content as possible. If you're a cord cutter, you probably either don't care about sports or you just don't want to pay that high price point.

So I think there's an interesting argument here that it all comes down to what ultimately this is going to be priced at when you think about who this is going to attract the most. And there's a lot of unanswered questions here, not only with pricing but also with FTC, antitrust. Obviously, we have that Fubo lawsuit. So a lot of question marks and answers that these companies are going to have to ultimately come up with.

- Well, I have another question mark for you. What does this skinny bundle mean for Disney's flagship ESPN service as well? I mean, that's set to launch in 2025.

ALEXANDRA CANAL: Yeah, I think it could potentially give Disney some really interesting insights into who the customer is, who wants to pay for an over-the-top sports streaming bundle? What the price point could potentially be, which is another reason why if it's priced too low, that could be a net negative for Disney because it potentially puts a ceiling, a cap on what that pricing could be.

But Disney could also see some interesting insights when it comes to marketing, when it comes to consumer demand. So this could be a pretty good test, I think, for Disney as it plans to launch that ESPN flagship service in 2025.

- And so Ali, it's going to be a test here for Disney. But also do you think it's a test, right? For the broader industry as well just in terms of how successful this is going to be, what it's going to do for future bundling, and really giving us a better idea of what the consumer at the end of the day is interested and willing to pay up for?

ALEXANDRA CANAL: Absolutely. It all comes down to demand, right? Are customers going to be interested in something like this? And if they are, who is that target audience?

Then you think about the companies that are left out of the bundle. You have Paramount, you have NBC Universal. This could potentially hurt them in the long run because the assumption is that the ABC and Fox affiliates, they're going to get paid for being a part of this skinny bundle. So I think that's why we heard that one rumor, that one report that Peacock and Paramount Plus are potentially thinking about joining forces.

So this is going to lead to a lot of interesting moves among all of these companies and potentially more consolidation.