Disney, Warner Bros. Discovery, and Fox Are Teaming Up on Sports Streaming. This Stock Looks Like the Real Winner.

There’s big news from the sports entertainment world. Disney (NYSE: DIS), Warner Bros. Discovery (NASDAQ: WBD), and Fox (NASDAQ: FOX), three of the top players in linear TV, are teaming up to launch a new sports streaming service.

In a press release after hours on Tuesday, the media companies said they reached an understanding on principal terms to form a new joint venture for a streaming sports service, combining content from all major professional sports leagues and college sports.

It’s unclear how much the new service would cost, but it would also offer subscribers to Disney+, Hulu, and Max the ability to bundle it with their existing subscriptions. The service would include content from networks such as ESPN and other ESPN channels, college sports networks such as SECN, ACCN, and BTN, as well as ABC, Fox, FS1, FS2, TNT, TBS, TruTV, and even ESPN+.

A remote pointed at a smart TV

Image source: Getty Images.

What it means for the media industry

It’s understandable why the three media companies are joining forces. Sports has long presented a quandary in the transition to streaming. Sports events bring in high ratings and strong ad revenue for these companies, but the cable audience is rapidly declining, and 40 million U.S. households now have high-speed internet but not pay TV.

The move is likely to hasten the decline of the traditional pay-TV ecosystem. A combined sports service makes sense, as a viewer interested in watching content from ESPN is also probably interested in watching sports content from Fox or TNT. Subscribing to multiple sports streaming services would be frustrating and more costly, and offering everything in one place makes it easier for the customer. It also allows the media industry to bring in more revenue than it would from individual services.

CBS and Paramount+ and Comcast‘s NBC and Peacock have been left out of the deal, but it’s possible to see them joining the new venture. In many ways, the deal looks like the combination that created Hulu, which was initially a joint venture involving Disney, Fox, and Comcast before WarnerMedia took a small stake in it.

Who the real winner is

While the move is likely to benefit all three media companies by creating another revenue stream and tapping into an underserved audience in streaming, the real winner is probably a streaming-based company, and the most likely candidate looks like Roku (NASDAQ: ROKU).

The streaming distribution platform should benefit in multiple ways from the new streaming service. First, by accelerating the transition from linear TV to streaming, it’s likely to create more customers for Roku, which has roughly 75 million active accounts right now.

More importantly, it will lead to more viewing time, especially for content that has traditionally come with a large amount of advertising. That’s especially good news for Roku, as the platform typically takes 30% of advertising inventory from its streaming partners.

The new streaming service will almost certainly depend on Roku for viewership, as its sports audience will probably be limited to the U.S., and Roku is the country’s leading streaming platform. Given the bevy of ad space that comes with sports content, the new service could be a windfall for Roku. A launch date has not been announced.

Why Roku is a screaming buy

Roku is still down sharply from its pandemic-era highs, but the company now seems to be well on its way to being growing and profitable. It posted positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in its most recent quarter, and its revenue growth is starting to pick back up as the digital ad market comes back.

Roku still has a huge long-term growth opportunity as the Connected TV market, or ad-based streaming, looks set for a watershed. Major streaming services have recently launched ad tiers, and the new sports service could be a significant growth driver as well.

We’ll learn more about Roku’s prospects when it reports next week, but this could be a breakthrough year for the streaming platform as Connected TV truly goes mainstream and the new sports streaming service potentially launches, bringing a brand-new audience to the service.

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Jeremy Bowman has positions in Roku and Walt Disney. The Motley Fool has positions in and recommends Roku, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

Disney, Warner Bros. Discovery, and Fox Are Teaming Up on Sports Streaming. This Stock Looks Like the Real Winner. was originally published by The Motley Fool

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