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- Venu Sports, a streaming joint venture from three media giants, just had a big setback.
- A judge ruled that Venu can't launch in late August, as originally planned.
- Even worse for Disney, Fox, and WBD is that the future of the whole cable bundle could be in peril.
The cable bundle's decline is rapidly accelerating, and a new court ruling has brought new fears that the industry's underlying business model may be in jeopardy.
Venu Sports — the sports streaming service from Disney, Fox, and Warner Bros. Discovery that was set to kick off before football season — is in serious trouble. On Friday, a judge granted a preliminary injunction to FuboTV, blocking Venu's launch, which was slated for late August.
In a 69-page court filing, reviewed by Business Insider, US District Judge Margaret Garnett ruled that Venu would cause "imminent irreparable harm" to Fubo, a virtual pay-TV provider.
In its suit, Fubo argued that it had long sought to offer a skinny, sports-focused bundle to better serve soccer fans. But the media giants that owned the major TV networks wouldn't let them do so without also including non-sports networks — a long-held practice in the industry.
Forced to pay for channels like Disney Channel and CNN to get ESPN and TNT, Fubo's main bundle ballooned to $80 a month — nearly double Venu's $43 initial price tag.
In her ruling, Garnett reasoned that Fubo couldn't possibly compete with Venu's price since it had to bundle non-sports channels — unlike the joint venture set up by Disney, Fox, and WBD.
"For the first time ever, the JV Defendants … are granting a firm a license to unbundled sports content," Garnett wrote in the ruling. "That firm is their own JV."
While Garnett's decision doesn't kill Venu in the crib, the ruling may set it back years, said Bryan Sullivan, a media lawyer and founding partner of Los Angeles-based Early Sullivan Wright Gizer & McRae. Even if the sports streamer wins its appeal, which Sullivan said won't be until 2025, it may not launch for several more football seasons.
"Fubo definitely has leverage after winning this," Sullivan told BI. "Any time that you win a preliminary injunction, you've stopped an operation of a business. So you do have leverage if the other side is willing to negotiate in any way."
Rich Greenfield, a media analyst at Lightshed Partners, expressed a similar sentiment in an August 19 research note.
"A preliminary injunction is an incredibly high bar, illustrating how lopsided the Judge likely views this case," Greenfield wrote.
When asked for comment, an ESPN spokesperson referred BI to its statement issued last week, which is said to also be on behalf of Fox and WBD: "We respectfully disagree with the court's ruling and are appealing it. We believe that Fubo's arguments are wrong on the facts and the law, and that Fubo has failed to prove it is legally entitled to a preliminary injunction. Venu Sports is a pro-competitive option that aims to enhance consumer choice by reaching a segment of viewers who currently are not served by existing subscription options."
But beyond Venu's fate, Disney, Fox, and WBD could have another potential concern if the Fubo case heads to a jury trial: It could mean an end to forced bundling — the business model that made cable TV networks rich.
Say bye-bye to bundling?
Bundling often hurts consumers, in Judge Garnett's view. She wrote in her ruling that the practice results in "mind-bending costs" that "hurt the wallets of sports-loving consumers by making them pay for non-sports channels they don't want." The burden also falls on non-sports fans, who pay over $9 for ESPN and $3 for TNT each month.
Although Garnett wasn't in a position to outlaw bundling, if the Fubo case goes to trial, a jury could eventually find that bundling or tying TV networks is a violation of the Sherman Antitrust Act of 1890. That would unravel the lucrative, long-standing business model of forced bundling.
"What is clear on the current factual record is that bundling has been uniformly and systematically imposed on each distributor in the live pay TV industry except the JV," Garnett wrote.
Garnett's stance has raised some eyebrows in the industry.
"The Court's tone leads us to wonder if bundling will come under further attack as the Venu/Fubo case proceeds to trial," Greenfield wrote in his note.
Fubo isn't the only TV provider sick of forced bundling. Robert Thun, the chief content officer at DirecTV, indicated in a declaration in support of rival Fubo that the satellite TV service would love to offer skinny bundles, but was kept from doing so by the defendants.
"The joint venture partners require that DirecTV offers a large bundle of channels and do not allow DirecTV to offer a smaller sports-focused bundle of channels," Thun declared.
Many months ago, executives at Disney, Fox, and WBD seemed to know that launching Venu could mean a shake-up in the practice of forced bundling.
The discovery process unearthed a frank email from David Espinosa, Fox's president of distribution, in reference to "Raptor," which was the initial codename for Venu Sports.
Espinosa's email, according to the court filing, is as follows: "Large pay tv operators would ultimately get unbundling rights as a result of Raptor. … However, it would take them time to secure and take advantage of that flexibility. In the meantime, Raptor could have an opportunity to attract subscribers and gain scale."
Long before Venu was named or even announced, Espinosa seemed to know that pay-TV providers like Fubo and DirecTV could demand more flexibility in the packages they offer. That would be a big risk, since less successful TV networks would have to earn their own affiliate fees instead of clinging to more desirable channels.
Brian Wieser, a former cable analyst who now runs advertising consultancy Madison and Wall, believes forced bundling may be on its last legs. That would be a loss for media companies that are still trying to squeeze money from the shrinking pay-TV business.
"There is a lot of revenue that comes from forced bundling," Wieser told BI. He added: "It's almost certainly a worse business where individual networks have to stand on their own."
But media companies won't abandon forced bundling unless they're forced to, said Michael Pachter, a former M&A lawyer who now covers entertainment and software stocks, including Fubo, for Wedbush Securities.
"It's never going to happen voluntarily," Pachter said of unbundling. "The cable broadcasters are not going to offer this without a fight."