Disney: How the Fubo Sports Deal Became a Game Changer

[content-module:CompanyOverview|NYSE:DIS]

The Walt Disney Co. (NYSE: DIS) surprised investors with a groundbreaking deal in the consumer discretionary sector with struggling live sports and TV streaming provider FuboTV Inc. (NYSE: FUBO). In a transaction that turned an adversary into a partner, Disney will merge its Hulu + Live TV business with FuboTV’s sports-focused streaming platform to create a combined virtual multichannel video programming distributor (vMVPD). The new entity will operate as Fubo but will be 70% owned by Disney.

Fubo will operate the newly formed Fubo and Hulu Live + TV businesses to a combined 6.2 million subscribers. FuboTV will also drop its earlier antitrust lawsuit against Disney, Fox Co. (NASDAQ: FOXA) and Warner Bros. Discovery Inc. (NASDAQ: WBD), the planned launch of Venu Sports, which was scrapped after the announcement.

Breaking Down the Deal: $220 Million Cash Payment and $145 Million Loan

In addition to the new entity, Fubo will create a new Sports & Broadcast service that includes a combination of Disney's sports broadcasting networks ABC, ESPN, ESPN2, ESPNU, SECN, ACCN, ESPNEWS and ESPN+. The combined service will stream over 55,000 live sports events annually. Disney Fox and Warner Bros. Discovery will pay Fubo a $220 million cash payment to settle litigation.

Disney will also provide Fubo with a $145 million term loan in 2026 as part of the transaction. If the transaction fails regulatory approval, Disney will pay a $130 million termination fee.

Did FuboTV Get the Better End of the Deal? Not Quite.

While it may seem like FuboTV got the better end of the deal as it gains Hulu + Live TV and $220 million cash with a $145 million loan next year, Disney gains an extra 1.7 million subscribers in addition to the 4.6 million existing subscribers to Hulu + Live TV.

 Having a combined 6.3 million subscriber base enables it to leapfrog past vMVPD competitors like Sling TV (2.09 million subscribers) to second place behind Alphabet Inc. (NASDAQ: GOOGL) YouTube TV with 8 million subscribers.

Keep in mind MVPDs are typically traditional cable, satellite and fiber-optic providers, of which Charter Communications Inc. (NASDAQ: CHTR) is the largest with 13.3 million subscribers. A vMVPD distributes its content via streaming without requiring cable or satellite infrastructure.

This Deal is a Defensive Move as Well as an Offense Play

[content-module:Forecast|NYSE:DIS]

In case you’re wondering why Disney cares about 6.3 million subscribers when it has 153 million Disney+ subscribers. Keep in mind the difference between a direct-to-consumer (DTC) on-demand subscription service and a live TV service.

Movies and series content on Disney+ is a different animal compared to live TV and sports. 

With the latter, Disney also captures advertising revenues from an engaged audience, especially since 70% of adults in the United States watch live sports. Due to bandwidth and rights issues, Disney+ doesn’t stream live sports. However, the bigger issue is who is entering this lucrative market.

Amazon.com (NASDAQ: AMZN) Prime and Netflix Inc. (NASDAQ: NFLX) are both trying to grab market share in live sports and encroaching on ESPN’s audience. The deal enables Disney to fortify its hold on live sports engagement and enables FuboTV to gain against rival YouTube TV by offering an expanded content selection. It also enables ESPN to diversify its distribution without having to rely on declining cable TV packages and bundles.

Higher ARPUs and CPMs with vMPVDs and Live Sports vs On-Demand Streaming

Disney+ generates around $15 billion annually, with 153 million subscribers paying between $8 to $15 per month. The combined Hulu + Live TV/Fubo average revenue per user (ARPU) could generate around $80 to $85 a month versus $8 to $15 per month on Disney+.

Based on these rudimentary calculations, the new Fubo service could generate an additional $4.5 billion in annual subscription revenues from the existing 6.3 million subscribers. This doesn’t include the advertising fees they would receive.

The quality of advertising dollars greatly improves with live sports, which helps Disney diversify its streaming revenue business, which has finally turned profitable. Live sports audiences are highly engaged and attentive, which commands higher advertising rates. Live sports CPMs can reach $50 to $200 compared to on-demand streaming CPMs of $10 to $20. Keep in mind that Disney+ has an ad-supported tier, which helps subsidize memberships. Fubo’s live sports programming features commercial breaks. This helps to grow tariff-free revenue streams.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here