While most of the global media and entertainment world is focused on transitioning from legacy pay TV to subscription streaming video, FuboTV is swimming upstream.
The company has earned a $4 billion market capitalization by consistently adding subscribers to a digital bundle of linear networks with a heavy emphasis on sports programming. FuboTV has about 700,000 subscribers and last week raised its guidance to more than 900,000 paying customers by year end.
CEO David Gandler is betting that between 40 million and 50 million subscribers will sign up to so-called virtual MVPDS — internet-delivered bundles of linear networks — in the next five years. He told CNBC he believes his company can serve about 10% of the market.
He spoke with CNBC’s Alex Sherman about the future of media and how he hopes to differentiate FuboTV from the competition in the coming years.
(This interview has been edited for length and clarity.)
Sherman: Today, FuboTV seems like a fairly straightforward product. It’s basically a cable replacement as a digital bundle of linear networks that has an emphasis on sports. But can you describe to me where you envision FuboTV going in the next three to five years? In the future, how are you making most of your money?
Gandler: I think one of the key components of what we’re doing, if you think about it over the long term, is we have an ecosystem of users that are spending upwards of 130 hours per month on the platform. The average customer is coming for an average seven hours per day. It’s a massive number. It’s a number that none of the SVOD services talk about, and I think you know why: People just don’t spend enough time on those platforms. And if you think about where the world is going, and you think about big tech, the key really is to own all the screen time. We’re coming from a position where we actually own the screen time, and we’re continuing to take more entertainment time share. If people are watching 134 hours, it limits watching other content. And what happens there is that we turn our dual revenue stream model, which is subscription based and advertising based — given the amount of data that we’re collecting, we start adding in adjacent revenue streams, like wagering, which fits really well with our sports-first bundle.
As that data continues to improve, and our betting data is talking to the back end of our video, and our first party data continues to get stronger, you could see us continuing to add more and more products to sell. It could be things like jerseys and hats and things of that nature. And far beyond that. It could be things like security systems that you watch through your video. So that doesn’t really matter. The point is that it’s really the amount of timeshare that we own and the data that we have that allows us to continue to sell more and more products. And I think that’s where this can go long term.
In the mid-term, it’s becoming very clear that we’re looking to develop a new category of television, which is tied to interactivity. And we’ve done a pretty good job in selling additional products. We sold about 1.5 million add-ons at the end of the quarter, which is a significant amount. We know that is because you now see YouTube TV also now focusing on upsells. So we feel very good about our ability to upsell customers on products. And we feel good about entering adjacent revenue categories. So that’s sort of kind of how we’re thinking about it. And if you look at our ARPU, our total ARPU per customer today, you’re getting into the $1,000 per year with ads, plus subscription and any additional revenue, which we think will be meaningful, as of 2022, when our [sports] book is launched, so that’s sort of how we’re looking at it.
The last ‘A View From The Top’ Q&A I did was with Roku CEO and founder Anthony Wood. He told me he doesn’t believe interactive TV works. He thinks people want to watch TV and sit back. Why are you confident that people want to actively engage with their television? And does that interactivity take place entirely on the TV or on the phone when you’re watching TV?
Anthony makes a good point, and he’s a phenomenal CEO, someone I respect tremendously. I think we’re sitting on slightly opposite sides of the spectrum. And if you think about the viewer as on one side, and the TV on the complete opposite side, Roku sits somewhere closer to the TV, and Fubo actually sits closer to the customer. So the amount of data that we’re collecting is, I would say, slightly different and gives us a different viewpoint. You might argue, well, how much better is your data than somebody else’s data? And I would argue, you see the beats every quarter. You saw the fact that we dropped Turner, where many pundits said it was game over for Fubo when we did that. Instead, we led all reporting companies in net adds in Q1 and Q2 — which are supposedly our weakest quarters — because we were able to overcome seasonality. So our use of data is probably on par with the best, if not above. What we’re seeing is that people do want to have more interactive experiences. Today, as it’s early days for our platform, we have to have interactions between the mobile phone and the TV. And for many reasons — these are not Fubo-related reasons. These are IP-related reasons. There are very complex broadcast agreements that allow us to do certain things and not other things.
So there’s some complexity around that, around gaming and video, where there’s regulation that we have to adhere to, but I do believe a lot of these experiences will be on TV. They’ll not only be remote control, they’ll be voice-activated. I do believe that we are at the very early stages of an S curve. And I think the product has has a long way to go. And we’ve been sort of at the forefront of driving it.
Let’s talk about the main business you’re in today — bundling linear networks. When I speak with cable/pay TV executives, and I ask them about the business of bundling linear networks, the response I get is there’s not enough margin in this business to make it worthwhile to care about it all that much anymore. They still operate, but the margin dwindles every single year, and they have other better products. So to start with, what is your margin on this business?
There’s a couple things I want to note here. The first is Fubo is just six years old. The expectations are Roku, Netflix, Amazon, even NBC. And so, I’ll take that as a compliment that you’re asking questions of a mature company, which we are not yet.
This is a company that has raised all-in a mere $525 million of equity, and the parent company of your network alone has spent over 100% of revenue on marketing its product, to give you a sense of how much it really costs. So what we’ve been doing is really efficient. And my point here really is the fact that we have no capex, right? Cable companies have hardware installations, boxes, truck rolls — there’s zero capex in our business, it’s all software. The power of that means that we can actually survive on a lower long-term margin.
Our goal long term is to reach 30% gross margins. In terms of your question, the short answer is we’ve been expanding margin contribution now for, I think, four quarters in a row. We’re meeting our objectives. We’re at about 8.3% of contribution margin. But again, it’s growing at a pretty significant clip of 150 to 300 basis points year over year. There’s only so much you can do so quickly. We’ve been executing well above our weight class.
The general consensus among media executives is that we are headed away from a world of bundled linear TV. All the best scripted programming is seemingly going to streaming today that’s outside of the bundle. And many people just assume it’s just a matter of time before all of these basic streaming platforms have live sports on them and the best live sports. What gives you confidence that this idea of bundled linear programming is going to stick around for the long term?
It’s a great question. I am extremely confident of the future of television. And again, I’m a guy that looks at data. You know, a lot of the pundits, they talk about theoretical situations. They don’t really fix in on data points. And so we can break this down very simply. We’re averaging about seven hours of viewership per day versus the gold standard of Netflix, which we believe is roughly around three hours per day. That is the gold standard. I can’t imagine any SVOD service getting more viewership than Netflix, at least to the best of my knowledge.
So that’s the first thing. People are watching live channels. 89% of viewing on Fubo is live. Live channels are doing a great deal of work and heavy lifting for all of the big network brands. There’s a whole problem of discoverability on a lot of these platforms because you just don’t know which thumbnail to click on. If you go to USA [Network], you know it’s got great characters. So that’s where you go. If you want to watch lifestyle, you go to HGTV, and you can watch a lot of the programming around Home and Garden Television. So, if you look at the data, and you see the data sets around YouTube TV, Fubo — people are watching. So we cannot just disregard actual data points.
Your point, though, is correct. Networks are moving content away. Right now, they’re testing. But the reality is, when you look at the number of hours viewed, you couple that with the increasing churn rates, you introduce the fact that we haven’t seen any price increases yet…
Media networks generate a ton of cash. So while I believe that this type of testing will continue, I do not think there is a world that customers will be OK with having six or seven [streaming] services. Which, by the way, is a bundle. Because today, you’re buying WarnerMedia [HBO Max], you’re buying Peacock. You’re effectively buying a bundle with a much weaker experience because now you have everything across multiple platforms. And you have yet to really start to see any price hikes. If you look at a very recent Deloitte survey, 52% of customers say they’re frustrated because they have to subscribe to multiple services to find what they’re looking for. My gut says we are going from bundling to unbundling to a form of rebundling.
But if we’re heading back to rebundling, and it’s a rebundling of streaming services, how does FuboTV fit into that? Because even the cheapest subscription to FuboTV is over $60 a month. Isn’t FuboTV simply too expensive to add on to your bundle of streaming services?
Well, you’re looking at it a way that I wouldn’t look at it. Not saying you’re wrong, but I look at it as Fubo being the gateway to television. Then you’re adding on other services — the services that are $4.99 and $6.99, and $8.99. You know: Showtime and HBO. That’s where the world is really headed. Because our product capabilities, our infrastructure, all of these things are significantly better than what you’re going to get on a on an SVOD service. They don’t build the way we build. And so I think your concept is correct. It’s just a question of which service is a gateway, and you can’t believe that just one very thin SVOD service is going to be the future of television.
Just to make sure I understand what’s you’re saying: You think where we’re headed is most Americans will purchase a live linear TV bundle plus a handful of streaming networks? You think that’s the future?
What I’m saying is that Fubo or a bundler like Fubo will be the core TV experience. We have over 30,000 VOD assets. So we will have a combination of linear channels in the hundreds, and we will have VOD assets in the tens of thousands. This will be the core viewing experience where all of your data, all of your personalization, all of these things are collected and services to you in a way that you will find enticing and engaging.
But what you’re describing as the future ends up looking like what already exists today, right? People end up paying $100 or so for TV per month and they’re getting a bunch of live linear channels. I just want to ask once again to make sure I understand. You are saying that the future of television is still buying a bundle of live linear channels, yes? Is that correct?
We are, we are. Remember, it’s not just live channels. Live viewing is the experience people prefer on our type of platform. But when we started the company, less than 1% of people were using DVR. Today it’s over 5%. So these numbers are changing daily. It’s a very dynamic business. And as you know, the cost of content continues to increase, whether it’s sports, as you saw — 100% increases with the NFL — or even the fact that TV series….I mean, you’re going from a world of a million dollars per episode not too long ago to world where each episode costs $3 million to $6 million and up.
But doesn’t that mean that the price of FuboTV will also rise? Perhaps significantly over time?
Well, let’s talk about what it is today. Today it’s still significantly cheaper than your cable subscription. I don’t think we can argue there. And if you think about what Discovery has done [merging with WarnerMedia], it effectively bought or is buying half the TV bundle. It will now own WarnerMedia, Scripps and Discovery. Those three groups are more than half the cable channels in one bundle.
So obviously, companies like that are finding value in the type of content that’s produced from these networks.
Well, maybe. The other argument is that they have to merge because they’re subscale in a new world versus Amazon and Netflix. So the only way to compete is to put all these content assets together because they see the writing on the wall that linear TV is dying, and that the way forward is something different. And in this new world, they’re not particularly advantaged. Right?
The only thing that I would argue or push back on there is you’re saying linear TV is dying. You know, I think for your viewers or or the folks that will read your stories, I think the key is when you refer to linear TV, it’s almost that you’re referring to live television via cable or satellite. If that’s what you’re referring to. I don’t think any one has would disagree with you. I think the streaming environment is a very different place where the experience is quite different and people are actually enjoying the services that we and potentially others provide.
Except that when you look at your competitors providing a similar product to you — whether it’s Hulu with Live TV or what used to be called DirecTV Now — their customer totals are going down. People are canceling when they raise prices. So, they don’t seem to be particularly appealing products.
Yeah. Well, that’s the beauty of business. If you were to say that about our business, that would be a difficult question for me to answer. That’s a great question for investors. Why is Fubo, a company that appears to be extremely small, that has raised a mere $525 million of equity, that has been public for less than 12 months….Why has it been the leader, at least in Q1 and Q2, in terms of net additions?
Well, you tell me. How, today, is Fubo differentiated from your competition of other streaming services of linear networks?
We are appealing to the right customer. We have Multiview. We’ve been first to market with 4K. We’ve been delivering 4K since 2018. We’re offering a service that’s a little bit different. Again, it’s still early days, but you know, our growth rates suggests that people will continue to subscribe. Most importantly, don’t forget, the NFL, for the next 10 years will be on linear television, even though you’ll see concurrent streams on network streaming platforms.
Let’s say ESPN says, OK, we’re gonna go direct-to-consumer with our entire lineup of content. Anyone who wants ESPN can get it and we’ll charge, say, 19 bucks a month. Or let’s say something more simple. Let’s say ESPN moves programming like Monday Night Football over to ESPN+. What do you think that does to your business?
It’s tough to say what it would do. Right? Because these are all theoretical conversations. I think the reality is the NFL deal that we know exists today until 2033 ensures that the NFL will be on television on broadcast television and cable. So we shouldn’t think about these things theoretically.
Fine. We don’t need to talk about cable. Broadcast TV is available for free. So I can see the NFL without signing up for Fubo already.
You’re making my point here. So why are people signing up? I mean, they are because they like the experience. They like the user interface. They like having all of their content in one place. You’re right, they could actually get it for free via an antenna, but they don’t do that. So again, this is really about creating an experience that people really enjoy — an experience that brings together all of their favorite content and allows them to stream it in ways that they like that’s high quality.
What do you think is the upper limit for how much you can charge for a bundle of networks?
Our long-term plan was $80 on the subscription side, and about $15 to $20 of ad revenue per customer. So the way we look at it is about $100 of monthly ARPU on those two products combined, which is over $1,000 of annual ARPU. It’s a pretty significant number that allows us to achieve the types of levels that we want. And again, customers, you’ll see over time, as streaming services start to charge more, because that’s what they inherently do — that’s what media companies do — it’s much harder and harder for people to keep four or five streaming services. And if you have four or five streaming services, you’re pretty much paying at least $40 a month. When I say streaming services, I’m referring to SVOD services specifically. And if you have four or five of those, you’re already at $45 or $50. So you’re getting there. You’ll get there anyway.
From a content standpoint, when you compare yourself to Hulu with Live TV or YouTube TV, at least in the old conception of what I thought FuboTV was going to be, the idea was you were going to differentiate on sports offerings. But it seems like you’ve made the decision not to carry a bunch of regional sports networks. You’re not carrying the bundle of Sinclair RSNs, for example. Is that a change in strategy on your part, or is it only a matter of time before you guys start to carry more?
We’ve said that we are sports’ first platform. We’re the only ones today in the U.S. to carry NESN. We’ve got Madison Square Garden in New York, AT&T Southwest, Marquee, which is a Sinclair RSN in Chicago, and a number of others. So, again, time is on our side. We’re trying to build our platform and scale it in a way that makes sense for customers. We’re learning about the data that’s coming in and making really informed decisions. So our goal is to get the right package in front of the right customer, and we’re doing our best to continue to optimize the bundle.
You have about 700,000 subscribers. How many subscribers do you realistically think Fubo can get in the next few years?
My sense is that if you think about our virtual MVPD share, we’ve gone from about 2.6% two years ago to around 6%. So if you believe in the next five years that the virtual MVPD space is going to be 40 million, or 50 million, then we think anywhere between 3 million and 5 million is probably a fair number.
A quick gambling question, because I know that’s one way you plan to differentiate. There’s a YouTube video out there I’m sure you’ve seen demonstrating latency comparisons where Fubo lags live TV. Obviously if you’re going to match up gambling to live TV, it has to be virtually instantaneous. How do you solve this problem?
This is not rocket science. The reality is we control our video pipeline. And many years ago, we were way ahead — almost at the edge — but it didn’t pay off a lot of dividends because the problem is when you try and be too close to the edge, meaning to real time, there are buffering events. There are things that we just don’t control on the internet, the CDN, the delivery to your house. And so what we found was backing off a little bit provided us the best service we could give to people. Now, over time, as the infrastructure of the internet gets better, we will bring that latency forward. We also had no mechanism, a monetization mechanism, to have that reduced latency. So in terms of gaming, I think the one thing that people misunderstand is you don’t place bets every millisecond. Like that is just a misconception. What people do is they bet on a foul shot, they bet on a penalty kick, they bet on a tennis serve. So what we could do is we can start with what DraftKings did. You start with who will win the game. Then you can say who wins the half, then you can say who wins the quarter? Who wins the drive? And so you can continue to add more and more markets during the game without having to be at zero latency from the first second. Again, our goal is about casual gaming, to introduce interactivity, to be able to create a more engaging service. It’s not about allowing people to robo-bet every millisecond.
Bundling digital networks is a product within larger companies, whether it’s Dish’s Sling or DirecTV Now or Hulu or YouTube TV. Long term, does it make sense for FuboTV to be a standalone company? Or does this company make more sense within a larger media company or technology company?
I think you’re asking a very important question. I believe, if given the opportunity, and again, as you know, as a CEO of a company, it’s your fiduciary responsibility to do what’s best for all shareholders. So, speaking on behalf of the company and my vision for this company, I could say that if we continue to operate independently, we’ll continue to grow and develop a category defining company. We should also remember there are over a billion pay-TV customers globally. And I think we are one of only a few companies that are well positioned to take advantage of this opportunity. So I think we’d be a pretty strong standalone company.
When you say “category defining company,” what does that mean?
What that means is you have Netflix, which is an SVOD service. They produce TV series, they aggregate TV series from other media companies. Then you have Roku. It’s a hardware company and AVOD service. Spotify has gone from being a music service to now an audio service. And then we’re in this next category of live TV, and sports first.
So I think that, in and of itself, is an interesting place to be. And as we continue to develop product features like Multiview, and 4K, and now this gaming opportunity that we’ve just previewed recently in our earnings call, I think these are all things that are moving us in this new direction.
One possible way I can imagine future differentiation — and we’ve seen many distributors go this route — is original content. Would you consider this if you eventually have the balance sheet flexibility for it?
We had a very good showing with Conmebol, which is the South American World Cup qualifiers. It was the first time for us producing content, very difficult to do for your first time, and I think we did a very good job. The numbers proved to be strong. Our top line revenue is very important, because it’s a very predictable revenue stream. So I do believe that there’s an opportunity to go upstream over time. You see this with Spotify, moving into audio, buying podcasts. You saw this with Netflix, in the early days, moving to production with “House of Cards.” You see this today with Roku. Why wouldn’t we, growing our top line revenue the way we are at over 100% year over year, why shouldn’t we consider it?
As you consider it, are you considering sports-related original content?
You know, obviously, that’s an area where we believe we have an edge given our product capabilities. And I think that’s an area that, you know, we’ve already started to dip our toes in. We have our own network that we’re testing a lot of MMA fighting on. If we see opportunities that that makes sense, we will look at these things in a very measured and disciplined way as we have been in a very short public life. I don’t see a reason why we wouldn’t consider it.
