Disney And Warner Bros. Discovery’s Unexpected Deal Shifts Media Landscape

Summary:

• The recent round of bidding rights for the NBA created a hotly contested race that led to a lawsuit and uncertainty after WBD emerged as the odd man out.
• However, a surprising deal has emerged that may be a catch-all solution that would help WBD, Disney and the NBA as well as be a win for investors.
• Under one agreement, WBD’s “Inside The NBA” will be licensed to Disney in exchange for select NCAA games, while under another the NBA and WBD have found a workaround.
• The deals allow WBD to save face, Disney to shore up a weak spot and the NBA to avoid the court, while also keeping all stakeholders in the fold.
• This type of cross-company collaboration is a rarity, and for shareholders it increases overall brand value in substantial ways.

In today’s entertainment landscape, when streaming comes into the conversation, lately it usually revolves around sports. This sector has become the hottest commodity across streaming for a variety of reasons – events are longer, (mostly) exciting and are the only area to see sizable and sustained growth in the past few years.

What also makes it so buzzy is that these rights are elusive and don’t come around very often … which makes the discussions around them so fascinating to follow. This latest round around NBA rights did not disappoint as Warner Bros. Discovery (NASDAQ:WBD), Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA) and Amazon (NASDAQ:AMZN) all entered the race and the results may be a rare type of deal that pleases investors and stakeholders across the board.

Yes, some more than others, but compared to where we were a few months ago, this could go down as a text-book case of compromise that could serve as a blueprint for others to follow down the road.

So what happened and why is it a good deal for shareholders?

First, as always, some background.

Let me preface all this by saying this deep dive will focus on the WBD and Disney side of the coin as Amazon and Comcast (i.e. NBC) are stories for another day. The big story for them is simply just entering the space – or re-entering, as the case may be for NBC. However, for WBD and Disney, the story has layers and comes at big moments in their company’s overall.

With WBD, the company was nearing the end of its NBA deal and had the rights of first refusal to renew or the right to match should they let the package go to the open market. WBD head David Zaslav chose to let it go to the open market where Amazon swooped in and won the rights. Zaslav thought he could then exercise his “match” clause and edge out Amazon.

He was wrong.

The NBA didn’t see WBD’s offer as an exact match, and they declined to change course, awarding Amazon the rights. WBD disagreed and filed a lawsuit to make the league honor what Zaslav thought was the deal in place.

Should this have gone to trial the league likely would have won, but what WBD and the NBA knew was the discovery process alone could be damaging (especially to the league) so the hope was to figure out a workaround prior.

Enter Disney.

ESPN head Jimmy Pitaro realized while his rights package was never in danger, he still had problems to contend with internally. Namely, his pre- / post-game content left a lot to be desired. For a company like ESPN to not be able to put together a compelling NBA studio show was embarrassing and while nobody would admit it, the situation had become an elephant in the room.

Pitaro’s solution though was genius.

He called TNT Sports head Luis Silberwasser with an idea … what if they licensed TNT’s studio show – the popular Inside the NBA? With TNT poised to exit the NBA they would not have a need for it anymore and the franchise was a well-oiled machine that was beloved by the basketball community.

Under the terms, the show would still be produced by TNT and hosted by TNT talent, but air on ABC/ESPN. In return, Pitaro would also transfer a package of NCAA football and basketball games to TNT to help round out more of its portfolio.

Concurrently, this also allowed WBD to settle with the NBA, which led to a new multi-year deal that includes the rights to use NBA content for new programming across broadcast, online and social as well as an international rights package for the games.

This was a rare win-win-win situation.

Except maybe for Amazon and NBC who probably aren’t thrilled, WBD found a way to stay in the picture, while at the same time strengthening Disney’s package. Still, that aside, if you examine what happened here, it’s a stunning development that lets WBD save face, while giving Disney a massive boost and helping the NBA avoid court.

It’s the type of scenario few envisioned because of the number of personalities involved and a question of if ego could be put aside. The fact that it worked is stunning and others should look to this model going forward as it really does put fans first (for once). The key here was that each side walked away with something tangible it could point to with a board of directors and say “we won this.”

Disney for one, which is coming off a strong earnings quarter, really wanted to build off that momentum and take some spotlight off the Bob Iger succession plan drama. Shareholders will be pleased with Pitaro’s handiwork and should feel great knowing Iger’s team does, in fact, have both a long-term vision and plan.

Inside The NBA is an institution in television and many NBA fans were upset at the prospect of it going out with a whimper. The team of Kenny Williams, Ernie Johnson, Shaquille O’Neal and Charles Barkley are a special mix of talent that have unmatched chemistry and for that to come to ESPN is a massive win as the company ramps up its NBA product in 2025 and beyond. Yes, they have to figure out the talent deals, but the feeling is that the four want to stay … granted, they won’t be cheap.

Also keep in mind this new iteration of the series will air more sporadically given Disney’s package specifics so instead of the weekly TNT style play, here ESPN/ABC will bring out the guys more during key moments (i.e. Opening Week, Holiday games, Play-offs, Finals) that now are elevated even higher.

The other aspect of that deal though is the human side, as the deal stipulates that Inside The NBA will be shot, produced and based out of TNT’s Atlanta studios – meaning the production team that was caught up in Zaslav’s giant game of chicken is expected to be able to keep their jobs.

It’s an easy element to overlook but a powerful one.

This whole thing was an off-ramp for WBD, and they likely understand they were lucky to have this fall into their laps. The whole idea was a shot in the dark by Pitaro that really did make sense – it also makes Disney look great in the eyes of the NBA, as the Mouse House did the league a huge favor.

WBD will crow victory here like they knew all along this would be the result, but they know luck was involved. Zaslav was outmaneuvered, and yet he comes away with a solid consolation prize that he can tout to investors as a win.

And yes Zaslav did have a backup plan as WBD’s Unrivaled deal that I covered the other month was a smart and savvy move that would definitely have helped repair some of the damage done by an NBA exit. The female basketball league backed by and featuring a number of WNBA talent has real potential, but it was also an unknown.

Now though, WBD has both sides of the coin it can offer and stay as whole as possible given the rights transfer upcoming. Credit also goes to Silberwasser for his part here in the deal struck with Pitaro. Like with Disney, it also shows that while Zaslav is running the show, his lieutenants understand their assignments.

Disney and WBD have had a few rocky quarters with investors in the past few years, largely stemming from the decisions of those at the top. Stability is something both leaders are attempting to achieve, and for investors this has to be a welcomed piece of news that can lead to that goal.

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