Welcome back to What I’m Hearing+, the Tuesday serving of extra guac on your What I’m Hearing burrito. As Hollywood continues to shed jobs—brutal layoffs at Paramount and A+E Networks just today—streaming bundles have been pitched as a possible solution for the decline of cable television. Yet as Puck’s Eriq Gardner learned by spending a week in a federal courtroom in New York, a judge is asking tough antitrust questions about the “Venu” sports streaming bundle that’s about to launch from Disney, Warner Discovery, and Fox. Today, we’ve got Eriq’s smart, big-picture analysis of a very important case.

But first, a few notes on Netflix’s live sports ambitions from my partner John Ourand…

ESPN and NBC quickly said no, citing their busy sports schedules. ESPN will be in the middle of the college football postseason, and NBC’s resources are stretched that Christmas week, between producing Amazon’s Thursday night game and its own Sunday night tilt. (Remember, Christmas falls on a Wednesday this year.) CBS and Fox also have commitments but kept lines of communication open.

Netflix considered tapping an independent production company, but that seemed like a plan of last resort. If Netflix wants to be in the NFL business, so the thinking goes, why risk its $300 million investment on a less experienced partner? While talks remained dormant for close to two months, Netflix eventually re-engaged with CBS and Fox. And while both remained skeptical about helping a competitor, CBS softened its stance.

The rationale was that Netflix appears more interested in growing its advertising tier than becoming a player in sports media (at least for now). Secondly, even if Netflix were interested, there isn’t anything to buy, given that most of the biggest sports are tied up until the end of this decade at the earliest. (The NFL’s has a “change of control” provision in its CBS deal, but the league never brought up the issue during consultations amid the larger Skydance-Paramount deal negotiations.) Plus, CBS already has produced several sports for other networks, including golf for ESPN and live games for NFL Network.

But CBS certainly wasn’t desperate, either, and the network extracted several key concessions. Netflix will pay CBS an undisclosed amount to produce the games, and CBS will receive local rights in the teams’ home markets: Kansas City, Pittsburgh, Baltimore, and Houston. The games will be broadcast on two CBS-owned stations (Baltimore and Pittsburgh) and two CBS-affiliated stations (Kansas City and Houston), which means that CBS will also pick up ad inventory in those markets. The deal also provides CBS with promotional opportunities within the games.

Netflix also plans to use NFL Network talent, including Rich Eisen, and an outside production company led by former NFL Media producer Mark Quenzel to handle studio programming. Quenzel will serve as an executive producer for the day, helping to make talent and transaction decisions as programming moves from the studio to the live games and back again. Netflix has experienced and well-regarded sports executives, but it doesn’t have an experienced live producer like Quenzel, who left NFL Network after the 2023 Super Bowl. It should help to have a steady hand behind the wheel. As Netflix is learning, sports, like the rest of Hollywood, is a relationships business.—John Ourand

Okay, now here’s Eriq…

Campbell, of course, was incentivized to be unusually candid about the state of the industry. He was testifying during a critical evidentiary hearing in the antitrust suit brought by digital TV provider FuboTV against WBD, as well as Fox and Disney, over their joint sports streaming product, Venu. The new service would offer a bundle of live sports for $42.99 per month—potentially undercutting more expensive rivals. Accused of monopolizing sports TV bundles, WBD has portrayed itself as under extraordinary pressure to innovate in a market that’s rapidly deteriorating. “We need to get to younger people,” Campbell said, later admitting, “Fox and Disney were going to go forward whether we joined or not.”

But the district judge overseeing the federal case, Margaret Garnett, may not be buying it. From the several days of testimony I witnessed—packed with executives, consultants, and economists—it feels like a preliminary injunction might just be on the table. That would represent a major shift from an era of largely unchecked consolidation in the entertainment industry. But in these days of skyrocketing sports rights valuations, Garnett seems genuinely concerned by the extraordinary influence that could be wielded by an alliance of the sector’s behemoths. Her impending ruling could be a game-changer.

Should a court put a stop to Venu’s launch, it could spell disaster for WBD, in particular. Earlier this summer, as my partner John Ourand has relentlessly documented, WBD C.E.O. David Zaslav lost the rights to broadcast NBA games in a botched negotiation that saw the league partner with NBCUniversal and Amazon, instead. (Zaz has since sued the NBA over its matching rights.) Venu, which would allow WBD to package its remaining sports rights with two ostensible rivals, was critical to the company’s streaming strategy. Without the NBA and without Venu, what sports leverage would Zaz have left?

This conflict cuts deeper than a simple squeeze on one company. According to the testimony presented last week, if a consumer were to drop Fubo for Venu, the three partners would initially lose money on that subscription, since traditional distributors pay more in per-subscriber fees than what Venu will charge. There’s one reason these legacy media giants have stepped cautiously into the streaming waters—they still need the life raft of cable.

But with that business declining, they’ve had to get more adventurous. While Venu isn’t projected to achieve profitability until 2028, it may provide leverage in future carriage negotiations. If Fubo balks at the price for ESPN, for example, Disney could recoup some of its losses by wooing subscribers to its own platform. After considering this feature at the hearing, Judge Garnett described Venu as “insurance,” one of many possibly telling remarks.

Fubo’s lawyers have compared these dynamics to the TV industry in the late 1970s, when HBO launched and movie companies illegally ganged up to ensure that the first cable broadcasts of their films were priced high enough. Similarly, the WBD-Disney-Fox joint venture could allow these companies to exercise more control over distributors than they would have on their own. Jonathan Orszag, Fubo’s economic expert, has warned that despite claims of not wanting to cannibalize pay TV, the triumvirate will ultimately benefit from aligning themselves this way. Consumers, he predicted, “will end up paying more” in the end. “On the first day of launch,” he told the court, “it will be a monopoly.”

And who are these elusive cord-cutters and cord-nevers that Venu aims to attract? Obviously, the younger crowd, but Disney and Fox also specified during the hearing that they’re courting “moderate” sports enthusiasts. Fox’s witness, consultant Ed Desser, explained on the stand that these folks are “less likely to tune into sports radio, they’re casual fans, interested in Caitlin Clark, not a heavy fan but interested and knowledgeable, perhaps like your honor.”

Fubo, for one, isn’t buying it. Their legal team at Kellogg Hansen emphasized public statements by executives like Zaslav, who boasted at Sun Valley a few months ago about controlling “about 75 percent of sports” content through Fox, WBD, and ESPN—in other words, the traditional sports crowd. While it seems far-fetched that a die-hard football fan would opt for a package missing CBS, or an Olympics buff for one without NBC, Fubo underscored that combining Venu, Paramount+ (CBS), and Peacock (NBC) costs $58 monthly—a notable discount to Fubo’s offerings. The defendants retorted that Fubo’s package includes numerous regional sports networks, crucial for hardcore fans of specific NBA and MLB teams, but not something that most viewers need.

Still, the existence of Hulu raises the question: Why isn’t a vertically integrated programmer-distributor always seen as problematic? Judge Garnett posed a hypothetical to Fubo’s expert: “Let’s imagine a world where [Venu] doesn’t exist, but Disney gives itself all of its own sports content, plus they license from others. Wouldn’t that product have the same concerns?”

Orszag responded that Fubo might suffer, but such unilateral conduct poses less concern economically. “If they want to launch their own [Venu-like product], they can do so, and negotiate arms-length, but here, they are not really negotiating at arm’s length. There’s coordinated behavior.”

Disney, Fox, and WBD counter that other than getting two seats each on a board to review Venu’s performance, the upstart streamer is set up as an autonomous entity that will be paying market-rate affiliate fees to their parent companies. They also stress that firewalls will protect the sharing of competitively sensitive information. Plus, when it was time for their economic expert, Michael Whinston, to take the stand, he brought up the classic “double marginalization” defense for allowing integration in the supply chain—avoiding mark-ups and passing along those savings to consumers.

Of course, the presumption of some pro-competitive benefit from Venu hinges on the existence of sufficient market competition to keep prices low—a scenario that’s far from guaranteed. Fubo, on the offensive, challenged this narrative with disconcerting discovery documents. One particularly revealing moment came when they unveiled a January email from Fox C.O.O. John Nallen, discussing with a colleague the plans by Disney to stream ESPN on its own, separate from Venu. Nallen remarked to a colleague, “Don’t know why they would want to compete with a platform they are putting $300 million into. Don’t overthink it.”

The proceedings largely focused on establishing the competitive landscape and the potential for irreparable harm should Venu launch, so given the intricacies of antitrust analysis, the outcome might not be as favorable for Fubo as it appeared this past week. It’s always possible that Judge Garnett, a relatively recent Biden appointee, could side with the argument raised by Disney, Fox, and WBD that they have no obligation to license their networks to Fubo in the first place, or mirror her approach on the AT&T-Time Warner merger decision, which dismissed government concerns over increased bargaining friction between programmers and distributors. That said, I think Fubo has the upper hand here.

Regardless, one thing I am very confident about is that the decision should come relatively soon. The NFL season is just about to begin, and many consumers are making decisions on which live television provider to go with. It's hardly a coincidence that Venu has planned its launch for August 23, per the lawyers in the courtroom, nor that the hearing was held now. Judge Garnett, I’m sure, will probably want to beat the imminent kickoff.