The knock on-effects here are profound. On a B2B basis, one has to wonder why MVPDs would continue to pay contractual rates. Of course, they don’t have a particularly clear legal argument to refuse them – hence work-to-the-rule. But if I were John Malone or Charlie Ergen, I’d look at these decisions and just refuse. Disney, WarnerMedia, and NBCUniversal are making the right decisions for themselves, but these decisions aren’t exactly in good faith of the contracts (and plans) they set over the past few years. The good news here is that (entirely reasonable) renegotiations would, in theory, allow MVPDs to materially reduce their programming costs. The bad news is that reductions in in Pay-TV revenues would only encourage Hollywood to move on from it.

But most important is the consumer side. From 2010-2019, the perceived value of Pay-TV eroded because (1) better, lower cost substitutes emerged, and (2) Pay-TV pricing continued to increase. even though the quality and volume of content available in the Pay-TV bundle grew. What’s set to happen from 2020 onward is quite different. Pay-TV will, for the first time, get rapidly worse on an absolute basis as it is undermined, underfunded, and eventually defunded.

What’s more, most of what’s available in the Pay-TV ecosystem will be available elsewhere via better experiences and at lower prices (and often earlier, too). Again, this is different than 2010-2019. Netflix and Amazon, for example, had later content rights to Pay-TV titles. Hulu, meanwhile, only had next-day rights to a small number of currently airing shows and the last five episodes that aired. Hulu, HBO Max, and Peacock will have full rights to most in-season shows, plus the full stack of prior seasons. These services will also have many shows, such as The Big Bang Theory, that have never before been available in SVOD and could only be watched in a random airing order on various linear channels at various times of the day. In addition, this OTT trio will boast exclusive new originals that, for the most part, are better and higher budget than anything available through the traditional system.

This means that Pay-TV decline estimates are wrong. It’s not about escalation or curve modelling. The floor will suddenly start falling out. This is almost impossible to model correctly; there’s probably no equivalent example in media where all partners not only rapidly change distribution channel and halt investments, but also try to pivot from B2B to B2C monetization.

What about Sports?

The strongest counterpoint to this thesis is that the bundle will remain in place to access live sports, and that it’s already the only thing households are really thinking about when buying a subscription. If true, it wouldn’t matter that much of the rest is being harvested. However, I think there’s more frailty and tunnel vision here than many assume.

For one, the very companies (Disney, NBCUniversal, and WarnerMedia) accelerating the decline of Pay-TV also tend to be the biggest sports rights holders (they own ESPN, NBC Sports, Turner Sports). This means those that own the most powerful sports networks have both an awareness of the impending challenges in Pay-TV and a willingness to lean into them. You can’t logically cut off one gangrenous arm and pay no attention to another arm suffering from the same malady because it has less rot.

To point, 22 months ago, Disney’s Head of Direct-to-Consumer, Kevin Mayer, told Recode that the company isn’t contractually prohibited from making ESPN available direct-to-consumer, but it just didn’t make business sense. There was an obvious unsaid modifier in this claim: “yet”. With ESPN distribution now south of 80MM households, down from nearly 100MM, it’s obvious this time is fast approaching. And you can bet Disney would rather pull the trigger early than try to perfect the timing.

Indeed, it’s impossible to imagine there’s a better time to make this transition. Disney will almost assuredly never have more D2C buy-in from the street than it does today. The next three years will see a substantial number of key sports rights come up for licensing, and the company is rapidly accumulating experience in D2C. It’s fair to say the technical experience may not be there yet, but the adoption curve of a true D2C ESPN wouldn’t be as rapid as Disney+. Disney+ is a new product with new content; ESPN is just the old thing sold in an incremental fashion. Almost all subscribers (and an even greater share of consumption) will still be via traditional TV. My bet would be that by the end of 2020, Disney will announce plans to launch D2C ESPN in 2021. To this end, Disney CEO Bob Iger recently told Bill Simmons that in the future “ESPN will be far more of a direct-to-consumer product,” having previously said, “If you’re running a business in a dynamic world…and you try to maintain any kind of status quo, you will become irrelevant.”

In positioning HBO Max as a rebundling platform, AT&T has already begun suggesting that it will soon offer an OTT/D2C Turner Sports subscription add-on. It’s hard to imagine “New Fox” isn’t planning something similar with FS Go, and NBCUniversal with Peacock/NBC Sports (perhaps launching February 2022 around the Olympics).

It also seems likely that the next round of sports deals will be mostly non-exclusive – if a linear-predominant platform, such as TNT or Fox, buys the rights, it’ll have to share with an online-only platform, such as YouTube TV or Amazon Prime, or otherwise demonstrate clear scale in its digital products. As a result, we’re looking at a world in which the “last stand” of Pay-TV will soon be available outside Pay-TV.

(Related: It’s often argued that Fox or TNT or NBC Sports, etc., doesn’t have the rights for a direct-to-consumer sports offering. This was true at the time most major sports deals were struck, but these deals are frequently reopened to allow for things like sports betting, social integrations, new camera angles and devices, etc. Many have already been expanded to allow for, at additional or different fees, true D2C. And for the skeptics, consider the reverse logic. You’d have to believe, for example, that the NCAA or NBA, having sold 5­–15 year rights to their leagues before the collapse of Pay-TV, would just throw up their hands and say, “Shucks, well, TNT didn’t buy D2C rights, so I guess we’ll have to wait”. Or that having purchased these same rights, TNT would say, “Yeah, well, I guess go ahead and sell these rights elsewhere even though we bought the long-term — and highest priced — rights to the old system”.)

All of which is to say that we talk a lot about the progressive, predictable, or even accelerated decline of Pay-TV and what its asymptote might look like. Does it level at 50MM households? At 55MM? At 45MM? Late 2021/early 2022, to me, looks like the point in which consumers will wake up and see that Pay-TV isn’t just a zombie business and delivery model, it’s a zombie product — and one that is increasingly deprived of fresh meat. There’s no model for this decline, but it certainly won’t look like a simple acceleration of the past decade’s trendlines.

Matthew Ball (@ballmatthew)