Streaming service Fubo would have faced certain financial ruin if two of its programming partners were allowed to move forward with the launch of a similar sports-inclusive streaming service, according to comments made in open court by the company’s chief executive.
At a court hearing earlier this year, Fubo CEO David Gandler warned that the service, called Venu Sports, would cause it to lose hundreds of thousands of customers — or nearly 30 percent of its current subscriber base — which would have resulted in a loss of tens of millions of dollars in revenue before the end of the year.
That outcome would have resulted in Fubo’s stock price dipping to historic levels, to the point where it faced the potential of being delisted from the New York Stock Exchange, according to court records reviewed by The Desk this week.
The records were released as part of Fubo’s ongoing lawsuit against three broadcasters — Fox Corporation, the Walt Disney Company and Warner Bros Discovery (WBD) — who hold equal ownership positions in Venu Sports. The lawsuit centers on whether certain distribution and financial terms offered to Venu Sports are more-favorable than what the broadcasters offer other pay TV platforms, including Fubo, and whether that behavior violates federal antitrust laws. Fubo carries broadcast and cable channels from Fox and Disney; it offered WBD-owned cable networks to subscribers until 2020.
Last week, a federal judge overseeing the case approved Fubo’s request for a preliminary injunction, which prevents the three broadcasters from launching Venu Sports until the legal case is resolved. The broadcasters had tentative plans to launch the service by the end of this month.
While Fubo and other pay TV systems immediately took a victory lap after the injunction was awarded, the case is far from over, and court records reviewed by The Desk illustrate how the competition generated by Venu Sports had the potential to distress Fubo’s business.
At a court hearing earlier this year, Gandler warned that the launch of Venu Sports had the potential to erode Fubo’s subscriber base by 300,000 to 400,000 subscribers, or roughly one-third of its current customer count. That loss would have come at a critical time for Fubo, because the launch of Venu Sports appeared timed to coincide with the start of the National Football League’s (NFL) regular season, when customers are evaluating different TV services to watch the games and when Fubo typically sees some of its biggest growth.
“Once we lose customers, we’ll have to revise our guidance down…[and] the stock will plummet below $1,” Gandler said.
The New York Stock Exchange (NYSE) requires a company to maintain an average per-share price of $1 to continue trading on the exchange. Gandler said if Fubo’s stock price dipped below $1 per share, the prospect of being removed from the exchange was real, “we won’t be able to service our debt…and we’ll find ourselves very quickly in bankruptcy court.”
Gandler’s comments were backed by testimony from Fubo’s Chief Financial Officer John Janedis, who said the launch of Venu Sports would cause the streaming service to “lose a number of subscribers.”
“That has an impact on our revenue, and ultimately, that would likely lead to insolvency,” Janedis claimed.
Last week, U.S. District Court Judge Margaret Garnett said she found Fubo’s argument to be “credible and reliable” based on Gandler and Janedis’ background, their demeanor during the hearing and “the internal consistency and coherence of the totality of their testimony.” She also said financial documents and projections kept by Fubo as part of its business “corroborates Mr. Gandler’s and Mr. Janedis’ testimony” about the harm that Venu Sports was likely to cause.
Specifically, Fubo provided documents that showed most of its customers “join Fubo to watch sports programming,” then churn out of the service “when their particular sports season is over,” Judge Garnett said. Around 75 percent of all free trials activated by customers “occur during football season, from September to February,” she continued, and most customers “join Fubo specifically to watch…football content.”
Fox and Disney are among several broadcasters that hold the rights to live NFL games during the regular season. Fox airs games on Sunday morning and afternoons, as well as some playoff and championship games (this season, Fox will air the Super Bowl). Disney, which owns ABC and a controlling stake in ESPN, has telecast rights to Monday Night Football. Paramount Global’s CBS, Comcast’s NBC and Amazon’s Prime Video — which are not involved in Venu Sports — have the rest of the regular season rights, except for two Christmas Day games that are scheduled to stream on Netflix.
During a one-year period that started July 2023, internal data from Fubo that was revealed in open court revealed nearly half of all viewing on the service “was for Disney or Fox programming,” the judge said, adding that the number “exceeds 50 percent” during the NFL season.
“After football season concludes, a significant number of customers tend to cancel their subscriptions,” the judge said. “When football starts back up again, a corresponding number tend to reactivate their subscriptions.”
The seasonality trend is not something that Fubo has tried very hard to conceal: The company is required to disclose certain financial information as a publicly-traded company, and executives have spoken openly about how churn tends to increase at the end of football season. Data released by Fubo further illustrates this point, with subscriber counts dipping between the second and third financial quarters of the year — which coincides with the NFL’s off-season.
But Gandler and other executives have long touted Fubo’s resiliency despite the loss of football during the spring and summer months. On a conference call with investors earlier this year, Gandler said its first quarter (Q1) earnings “represented the lowest churn rate for any March on record for the company,” and that the data was “demonstrative of Fubo’s continued ability to grow quickly, efficiently and effectively since our 2015 founding.”
“While these statistics are impressive, when comparing our growth timeline to industry leaders and applying Moneyball metrics, these results are even more profound,” Gandler said. He noted Fubo generated $2.6 billion per employee last year — the same amount earned by Netflix, and slightly higher than what Spotify and Roku earned under the same metric.
“Fubo operates efficiently each quarter, but we continue to be challenged by excessively above-market content licensing costs and other owners’ contractual terms imposed by programmers,” Gandler noted, while referencing the lawsuit that the company filed, which was about three months old at the time of the conference call.
Gandler said around 90 percent of the company’s total revenue was spent “on content,” or costs associated with licensing channels and programming from broadcasters like Disney and Fox.
“The exorbitant fees imposed on us and consequently on our customers are well above the market,” Gandler affirmed. “The same is true of other owners’ contractual terms, such as penetration rates. These issues are at the core of our current litigation against The Walt Disney Company, Fox Corp. and Warner Bros Discovery. We allege that this JV has engaged in long-standing anti-competitive practices aimed at monopolizing the market, suppressing competition and depriving consumers of choice, affordability, pricing, and innovation.”
Comments made in court by Gandler and Janedis showed Fubo’s lawsuit was not merely about leveling the playing field, but was in fact a fight for its own survival.
That fight is far from over: While Fubo may have won a key battle, the war over Venu Sports is far from over. Fox, Disney and WBD have signaled their intention to appeal the injunction —which, if successful, would allow them to launch the service, although potentially after the start of football season. The broadcasters have already filed a motion to dismiss the case, and the judge will consider the motion during a court hearing scheduled for September 12.
