fuboTV Inc. (FUBO) Earnings Call Transcript & Summary

We have to, right? Like I said, we analyze this stuff almost every day, and we're constantly running different scenarios. And if we remove content, it doesn't mean it doesn't come back. If you think back to 2000 and I want to say 21-ish, we dropped Sinclair and we dropped the RSNs. And everyone else ended up dropping the RSNs and then we brought them back. So, I would say that it's a very fluid situation. And I think as content owners rationalize their business models, they'll start to understand the importance of really mass distributing content for maximum modernization.

I mean, so to that extent, you talked about there's more room for opportunity in the content slate. What kind of tools and analytics are you thinking about when you're balancing what you know people use on your service? And if they're not using channels, you could drop them, but also having to balance that when you look at your peer group and thinking about do you want to offer a channel that either your peers don't have? Or the risk that if you cut something that they do have, how do you think about that?

Well, I mean the risk of dropping a Turner or TBS in '21 is quite great. Again, I think we are leaders, not followers. Almost everyone follows what we do including naming features, cool names like Multiview. But, yes, I think, look, as I said, we're constantly reviewing our programs slate. And we look to differentiate particularly around local sports. It's an area where I think we've differentiated ourselves. And even in the fast side, I think we have like 25 or 30 sports channels that we use to sort of really create the sports cohort really to drive advertising revenue there.

You mentioned a lot of the local sports. As you think about some of these sports rights packages that are going more digital over time, what do you think happens to the local sports business? Do you expect any one of the streamers to pick up a local package? Or do you think it's always going to be in some sort of linear kind of distribution?

I mean it's tough to say. I do anticipate that more distribution is better. And I think our view is slightly different as I mentioned earlier, we're in the business of aggregating content, aggregating sports. So, just having a D2C platform to offer some portion of the content is just not enough. People prefer to see everything in one place. And Spotify has done a good job of that in audio. And I think we'd like to do the same thing in video.

Anything you can share on viewership metrics for those local sports relative to some of the more national stuff you have?

I mean, I would say, generally speaking, we're seeing strength. I mean, I think the month of May so far in terms of like when I look at health metrics or vinyls, engagement is exactly where we'd like it to be. This is one of our best months ever in terms of engagement. And it's very important to have a healthy mix of content. And so, we're trying to remove some of the seasonality in the business tied to, obviously, the fall sports calendar. But, yes, I think things are going as well as they can given the situation.

So, in addition to actually rationalizing the content slate and removing channels? You've talked about it before, another lever to pull for profitability is to generate better rates when you renew and you have those renewal schedules. How do we think about the break points you need in scale to show up to a negotiation and be able to either drive rates lower or maybe slow the pace? How do you think about the sub growth you need to do that?

I mean, look, I think we have stated in the past that roughly around 2 million subs is a good number. But given the JV things change. I think as we've stated or I should say we've alleged that the defendants are engaging in anti-competitive behavior. But as much as that may create irreparable harm, I think on the other side, we don't really talk about the positive piece of this. And with some conditioning or some conditions placed upon that JV, I mean, let's not forget, we spent about $1.2 billion in content, of which 92% of that, maybe a little bit more is that subscriber related line of our operating expenses of $1.2 billion. So, you improve that by 5%, 6%, 10%, and you've got a business that's not in bad shape.

Where are we today with your affiliate fee per subscriber versus your peers or versus the average of the industry?

Yes. Well, we don't talk about that often, but we have stated with respect to the lawsuit that we're paying roughly 30% to 50% above market. And that doesn't include the onerous terms that we have in the business, which include penetration rates. And you'll see if you look at packaging from like Comcast or Charter, you'll see that they have multiple packages with fewer channels, and that's not an option that we get. But again, as that changes, I think you can see some significant upside in the financials of the business.

So, I mean, talking about some of the pricing and packaging, you mentioned a few times today that you do have one of the more premium priced products in the industry and the pricing of your product has evolved over time as has peers. As you think about your overall value proposition, how do you think that spread of your pricing versus peers should trend over time?

Well, at the moment, we're probably about between $5 and $10 above our competitor pricing. I think the key here is that pricing is relative. Everybody's pricing is moving higher, just the cost to run a business like this becomes more expensive, sports rights are more expensive. So, I think relative to cable, we're still priced effectively. But again, we're obviously constantly reviewing what that slate is and what the packaging lineup could be. But at the moment, I think we're kind of where we want to be. It's a premium product. I mean, that's for sure.

As you think about where your gross ads are coming from, is the name of the game still showing customers that value prop versus cable and getting people who cut the cord and switch over to you? Or at this point, are you going for people that don't even have a linear option? And so, when the sports season comes around, you're able to just add them for?

Look, I think a lot more people know about the service, I would say, in recent years. And the focus, of course, is going to be on the cable subscriber because there's still 55 million households. If we continue to maintain our share, which is call it 5% to 10% depending on the season, then we should fare, I would say, well. But we've always been focused on reaching customers that are not in the linear ecosystem also. And so, we've got, I would say, a good brand that is both in cable and for those users that are not currently subscribed.

I mean, when I think about your direct peers, maybe like a YouTube TV or Hulu with Live 2 that have a lot of marketing half, especially around sports seasons. Do you get the sense that there is pricing power in this business longer term as those guys remain very much so like foot on the gas to get new customers? Or do you think we need to see some sort of consolidation to reduce the [indiscernible].

I mean I don't know what kind of consolidation you can see. I'm not sure Google is in a position to buy anyone at the moment, and the defendants are certainly not in a position to talk about further consolidation today. So, I think that, look, everyone is trying to rationalize their business. And, we personally have done very well. I would say third quarter, just to give you an example, when YouTube has launched a significant marketing campaign with a very aggressive promotional pricing. We were still able to add, if I'm not mistaken, about 300,000 net additions and I think YouTube had added about 500,000 net additions at that time. So, I think that, again, we're very competitive from that perspective. We have a solid product. We're very focused on product innovation, building out our AI team since 2021 and focused on ensuring that people understand the value proposition of the product which goes beyond what the content offers.

I mean when we think about YouTube TV and what they did with Sunday Ticket, and that seems like a great customer acquisition tool for them. Are smaller sports rights packages something that you would consider bringing on an exclusive kind of rights package to your service?

Yes. I mean, look, I guess we're an aggregator. We don't really focus on exclusivity. Our job is to make sure that we have all the content that a sports fan or household is looking for at different times of the year, and we'll continue to do that. But we haven't seen any significant pressure by not having exclusive content. We actually built the business from the beginning, knowing we would never have exclusive content.

How do you think about some of the timing around the price increases you've done? How do you think about how that lines up versus some of the exclusive content or some of the exclusive sports seasons that are out there? Do you think about the timing of price increases?

Yes. Well, we have to hit our numbers. So, the timing is the beginning of the year because we want to make sure we're continuing down the path that we've set for ourselves in terms of achieving our goals in 2025. So you've seen, I think, 2 price-ups now in the beginning of the year. One was around $20, which is a huge price up last year, which had a significant impact on adjusted EBITDA. And this year, obviously, we're not going to continue to see price up with those absolute dollars. But, yes, we'll continue to price up seasonally.

So, as investors look forward to think about your 2025 targets, how should we think about the dynamic to getting to profitability between cutting costs and some of the cost optimization you've done versus raising the price point of the service from here?

Yes. Look, like I said, I mean, it's tough to see that in the current landscape. I don't think there's a media company that has done or can do a better job than we have, managing cost, let's not forget, we improved our EBITDA by about $100 million on like, I think it was $1 billion of revenue for 2023. We're going to continue to focus on costs. Our revenue per employee is $2.6 million, which, as we stated on our earnings call, I think measures quite favorably to the industry, where a scale player like Netflix does about $2.6 million. We've reached $1 billion of revenue in 7 years. Roku took 17 years to do that and Netflix 10 years. So, we're going to continue to stay focused on our cost optimization plans. But at the same time, we're also focused on advertising technology to drive revenue, and our revenue is growing faster than our sub-growth. I think revenue grew in sort of the sort of mid-20s, while subscriber growth grew roughly around 18% last quarter. So, I think you'll probably see continued focus on cost optimization. Obviously, there are escalators in all these agreements. So, we'll have to deal with that as well. And at the same time, we're looking to bring down and repackage some of our content and the free tier should also help us drive revenue.

Maybe thinking more higher level here, just thinking about strategic options. The company has worked through smaller acquisitions in the past like Molotov. I think Edisn.ai, right? A lot of the initiatives you've had for advertising and marketing technology, of course, come from some of your acquisitions as well. When you look out at the landscape today, are there still smaller kind of attractive opportunities to scale? Or do you think the company is large enough now to really develop the ad tech stack kind of in-house?

No, we don't really need to acquire any assets that are available. I will say almost all assets in this sector are super cheap. I don't know how long that's going to remain, but I'm kind of surprised when I look around and say, "Wow, how cheap". Including us, of course, but that's subjective. Yes. I think that, look, we're in a good position. We have a strong engineering team. We started to release ad products. We're continuing to look at some other technological features around AI and particularly within the DVR platform. We've released our AI playlist service, which I think is pretty cool. Again, these are just sort of small things, and we'll start to focus on small language models to really improve discovery and focus on mostly the data points that we have. And that should ultimately drive engagement, which drives revenue and helps us maintain our acquisition costs.

I mean zooming out here now, as we think about, what is your strategic vision for the company longer term? You mentioned 2 million subs. You mentioned kind of we know what the 2025 targets are. What is Fubo and fuboTV? What is the kind of trajectory for you in your head in the longer term?

Yes. So, I think, I would say, we're focused on really 2 things. One is the super aggregation strategy. In my view, it's very important. We want to build on the 100-plus hours that people are spending on the platform. And that entails both attracting new customers as well as engaging current, I would say, customers that are coming in and out seasonally and making sure we're attracting customers along the demand curve. We can't just have a $100 product. We need to have a free product and then really build on products in between so that we can dynamically move audiences throughout the year, customers throughout the year. And all of that is really supported by a really strong technology platform. And when I say technology platform, it encompasses both consumer-facing features, back-end solutions and obviously, our advertising tech stack. But those are kind of would say, the 2 key components of our strategic plan.

Well, I think that's a great spot to leave it in. David, thanks for joining us.