Why the Fox-YouTube TV dispute is destined to end sooner rather than later

Another year, another highly publicized carriage battle right on the precipice of football season. It’s a tale as old as the cable bundle itself.

But times have changed. No longer are content providers that hold the live sports rights holding distributors over a barrel. Whereas for years, companies like Fox and Disney could compel distributors like Charter or DirecTV to comply with their terms and their rates, lest the distributors risk imploding their entire video businesses, now is much different.

Take one look at the messaging from Google’s YouTube TV amid its ongoing carriage dispute with Fox, and you’ll see why. Streaming has given distributors an out.

Prior to content providers launching streaming apps that included their premium live sports content, there was only one way to watch your favorite football team: the pay TV bundle. And for many consumers, depending on where they live, that meant subscribing to one of the few cable or satellite companies available in your area. There weren’t any other options. If you were a sports fan, you subscribed to the bundle.

This dynamic gave maximum leverage to the companies that owned live sports rights. “If you black us out, your subscribers will be forced to switch to your competitor to watch the game. Your business will crumble.”

But streaming has opened up other avenues to watching sports. No longer can companies like Fox and Disney leverage their live sports content in the same existential way. As of last week, every premium live sporting event in America, particularly the NFL and college football, can be accessed via a direct-to-consumer streaming app. In other words, consumers now have options.

So when we go and read YouTube TV’s statement regarding Fox, it becomes clear why this new dynamic erodes leverage from the content providers. In the event of a blackout, YouTube TV is actively encouraging its customers to subscribe to Fox’s new streaming service, Fox One, something that could not have been done until last week. Further, YouTube TV is going so far as to offer a $10 discount on its monthly subscription if Fox goes dark, which should help quell subscriber losses in the interim and subsidize the cost of a Fox One subscription should a consumer go that route.

For ages, distributors were always perceived as the bad guys in carriage battles. But now, streaming services have given them a leg to stand on.

It’s this very dynamic that allowed Charter to negotiate some great concessions from Disney during that hotly contested negotiation this time two years ago. During those negotiations, Charter was able to credibly threaten to exit its thin-margin video business entirely, encouraging customers to sign up for virtual distributors like YouTube TV or Fubo to access Disney’s content, while keeping those same customers on board for its lucrative broadband internet business. As a result, Charter was able to negotiate a carriage deal that included Disney+ at no extra cost to its subscribers. It has employed the same playbook during subsequent negotiations with other companies to bundle their streaming services. Other distributors have followed suit.

YouTube TV isn’t in this exact position since its business is purely video. But it has the corporate backing and financial might of Google, which can credibly threaten to hold out for longer than, say, a Sling TV could under similar circumstances.

The reality is, the leverage in these negotiations has drawn close to even. There’s still the threat of subscriber loss for distributors during blackouts, especially when important programming like the NFL isn’t accessible to consumers. That’s even more of an issue when a YouTube TV subscriber could, for instance, cancel and subscribe to Hulu + Live TV instead.

But distributors have the means to slow those losses now by encouraging and subsidizing streaming subscriptions for blacked out content. Those maneuvers can buy time. And time is the best leverage distributors have.

Stick with me for just a moment. ESPN is charging $30 per month for its new direct-to-consumer streaming service. That’s about double the estimated $15 per month it charges distributors for each subscriber. If we apply that same multiple to Fox’s streaming service, which charges $20 per month, we can estimate that the company earns about $10 per subscriber per month from distributors like YouTube TV.

With YouTube TV boasting nearly 10 million subscribers, making it one of the largest pay TV providers in the country, Fox would hypothetically be sacrificing $100 million each month it stayed dark on the platform. That’s over $1 billion in lost revenue each year. In other words, it’s too much money to sacrifice for very long, especially as the realities of cord-cutting continue to shrink its core business.

So here we are. YouTube TV can’t feasibly keep Fox off the air long-term without losing ground to competitors like Hulu + Live TV or Fubo. Fox can’t afford to lose the revenue it gets each month from YouTube TV’s 10 million subscribers. Both sides know this. Both sides need each other to keep their businesses healthy.

So despite some sabre-rattling between each company’s communications departments, a resolution is likely to be reached sooner rather than later.

Does that mean Fox will be available for Saturday’s game between Texas and Ohio State? Not necessarily. If one side decides to get frisky, it could leave customers searching for options this weekend. But the likelihood that this dispute drags into the start of the NFL season two Sundays from now, when consumers will really raise hell if they can’t access Fox? That seems like a long shot.