Good afternoon, ladies and gentlemen, and welcome to the fuboTV Investor Conference Call. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the floor over to your host, Dan Salmon. Sir, the floor is yours.
All right. Good afternoon, everyone, and a good Friday afternoon, which is always the best afternoon. Thanks for catching the tail end of your week with us. We're going to dive in here shortly. We're going to talk a lot about streaming connected TV, and of course, the company run by our guest here, David Gandler, the CEO of fuboTV. David, why don't you just give us a 30-second background on you and the company, then we'll dive into some questions.
Sure. First of all, thank you for having me. I'm very excited to join you today. Before we start, I just want to remind you that during our discussion today, we will make forward-looking statements concerning events and trends that may affect our industry or our company, actual results may be materially different. My name is David Gandler. I'm the CEO of fuboTV. fuboTV is a sports first cable replacement product. What that essentially means is that we carry the live television cable lineup that a traditional television platform such as Comcast or Charter would carry. We carry that over the top, it combines 20,000 to 25,000 VOD assets, along with over 100 live channels and 690 local broadcast television stations.
Fantastic. I can see you're getting used to the public company routine.
Yes, I've been told many times. Many times. Please do not forget. I said, "Okay, I promise." I'm a data guy, so I like to provide data, and that's why it's important.
Good. Well, you just perked up the ears of most of the listeners on here because they love data too. Well, listen, I want to get to the specifics of your business shortly, but I thought maybe we could start with a few high-level questions and comments about the industry.
Just for those who are a little bit more familiar with some of the related stocks in the space, like a Roku or a WWE, let alone a Disney or a Netflix, and just stocks that have obviously been in the public market longer that this group might know a little bit better to help them ease into the fubo story. I would say there's really two big topics that I've been asked about lately as far as it relates to your company and your space. The first is the growth of audience for streaming and connected TV platforms due to COVID, stay at home behavior, the loss of the box office, a host of other reasons.
Maybe could we start there and your views on how audiences have shifted in the short term, and how much of this new viewership you think will stick even after sort of out-of-home life returns to normal?
I think it's apparent that people are spending a lot more time watching, I was going to say television, but streaming services, because you're spending time at home. Many of us are camp counselors this summer, school teachers, running errands, and trying to sort of work in an environment that has completely been unearthed. What we've seen most recently from our numbers is a surge in viewing. What's interesting about fubo's platform, as I said in my opening comments, that we're a sports first cable replacement product. We finished 2019 with roughly about 125 hours of viewing per month per account. With sports sort of leaving the ecosystem somewhere in first quarter, and only about to sort of start up again, it was interesting to see that people were actually spending more time on fubo.
We have at least in the month of April, have seen a surge of roughly about 140 hours. 20 hours of incremental viewing above the end of 2019, which really suggests how much more viewing is taking place for streaming services that are really focused on entertainment across the board. It's a huge shift for us specifically. For the marketplace, I don't think anyone could have imagined this level of engagement in the space. In terms of where I think the market shifts going forward, it's a tough question. What I'd like to see and what we'll be looking at very closely is whether we can maintain a much higher level of viewing across our entertainment networks as we've seen in our entertainment content more broadly.
As sports returns, we would like to see sort of more accretive engagement, whereas you don't see a diminish in the amount of entertainment hours and news hours viewed. That's what we'd like to see. I think I'm hard-pressed to believe that this is the new norm. We are social creatures at the core, and I just don't know anyone who doesn't want to go outside and go to a restaurant or spend some time with friends. I think that clearly there'll be some of that that will have shifted, and will be part of our new DNA. It'll be interesting to see how far or we're able to maintain the current levels, which I think may not be possible. In our case, though, what's different is as a cable replacement service I like to triangulate against Nielsen numbers.
TV viewing, and Dan, keep me honest here, is in the 300-hour range per household. My sense is that the pandemic may have actually helped fubo become more of a mainstream family product versus just come in and watch the sports, which we've been trying to do over the last six to eight months anyway. We'll have to see what the changes are. With all the streaming going on, I think lots of people are talking to their neighbors, their friends. I think while many consumers may not have switched, or I'm certainly sure that they're thinking about it. I suspect for the industry more broadly, Q3 is going to really be an eye-opener for the group.
Yeah. As you noted, beginning to see some of the stay-at-home restrictions start to move off. Of course, the return of sports can be a bit of an inflection point in some of these viewership numbers. This is all going to be a little tricky when you consider that the summer months are usually when TV viewership is at a lower level anyway.
Right
third quarter, I think we'll start to see this, what has stayed, what of that incremental viewing hours has started to stay and stick permanently. The second sort of big topic that we get around streaming, and this is especially of late as there's been some headlines around HBO Max's launch and who they're partnered with for distribution or not. That's the changing among sort of content-oriented players, say, like yourselves or a WWE or a Netflix or a Hulu, the apps versus those that focus more on distribution, the distribution platforms, more of a Roku or an Amazon. Take us behind the scenes here a little bit and talk about how does the dialogue stand between those types of players, in terms of how you share economics, the types of contractual models you use.
Yeah
Maybe what you're seeing, like I said, sort of broadly in this idea of what have always been the two big faction in media, which is basically content versus distribution.
Yeah. That is the eternal question. It has been, and it will continue to be. I think just stepping a little bit back from where we are. I think for your listeners, it's important to note that this is one very large Venn diagram. You've got distribution players that are also content players.
that are also apps, that are also technology companies. You're going to have to be dealing with these companies in multiple areas. It's not very straightforward to say, here's the business model, because there could be other services that companies are buying from one another or delivering to be able to make the economics work on a certain other area of the business. For instance, while we might want to pay an in-app billing fee to some of these platforms, we are also potentially a buyer of advertising. That's just an example to give your audience that there's give and take. I don't know if there's any one way to look at this. It's not as clear-cut as a, "Here's my price list. Here are my services. What would you like to buy?" There's no real menu for this.
A lot of these deals are relatively complex and probably cover multiple areas across product lines in these deals. The other thing I'll say is that, again, just to give your audience a sense of kind of how the distribution changes in terms of content and distribution. You could argue that Roku and fubo are both distributors, right?
We have content. We sell content. We provide consumers a way in which to engage with content. What I always like to do is explain how we differentiate, because that's also a very interesting concept. I would say that companies like Roku and Fire TV or Chromecast, those are our distribution platforms that are closer to the screen.
Yeah.
They are aggregators of apps. Fubo is on the exact opposite side of the spectrum.
What we do is we are sitting right in front of the customer and we aggregate content, and we collect consumer data. That is the sort of difference between the two. In terms of relationship with these companies, I think that the battle between content and distribution, I think it's something that has been going on for a very long time, and we always ask the question, is it content or is it distribution? For us as a smaller company that's just now hitting its sort of growth stage, for us it's important to ensure that there are a significant number of distributors. We've recently announced our partnership with Microsoft and Xbox. There's obviously other relationships that we're developing in the meantime.
The more distributors out there, whether they're TV distributors like the Samsung itself, which has its own platforms, or Hisense, for which fubo has a sports partnership with TVs that they will be delivering to stores. In the summer, with those announcements made at CES recently. Having a number of distributors that are sort of connected device distributors as well as TV manufacturers, the more of these platforms that are available, the better for companies like fubo to negotiate those deals. That type of proliferation, particularly in the U.S., is very important. As we sort of scale our business internationally, I think that there's more room for us to be more creative in terms of ways to work. The key is we're a software platform, and we are ubiquitous across all of these devices, which gives us some really good flexibility.
Excellent. You're right, the content distribution access is always a little bit oversimplified.
Yeah
There's always a group in the middle that do a little bit of both, right? TV networks with in-house studios, things like that. It's a fair point. Once again, lots of Venn diagrams that overlap.
Yep
Nobody cut lines all the time. One more high level one for you, and obviously, core of your service is subscription fees, as you said, a cable TV replacement. Advertising is an emerging part of your business as well. As a digital streaming service, video is going to be your focus, and programmatic tools may be getting more relevant as well. That's another area we've heard about through the past couple of months of COVID, where obviously that increased viewership that we were talking about earlier has been a bit of a magnet for some ad dollars as well to maybe help the connected TV ecosystem hold up a little bit better. Any high-level observations on what you're seeing across the advertising trends in your ecosystem right now?
First of all, just on fuboTV, yes, we are a subscription business. I think it's important to note that for those in the audience that have or are looking to acquire streaming portfolios, I think it's interesting because fuboTV also adds sort of another element to the streaming space. Again, streaming broadly not the SVOD space, which because we don't actually participate in that space. What's interesting is you have the Netflix model, which you know is a subscription model. You have the Spotify model, which is either ads or no ads, meaning you have a freemium model where one can listen to music with advertising, and then upgrade their subscription to an ad-free experience, which is a subscription-based model. It's sort of almost like an either/or.
You have the third model, which is the Roku model, where you get hooked in with this hardware device, and then they obviously monetize via advertising. The fourth model, which is the one that we bring to the table, again, obviously, subjectively, I think I'm very bullish on, is a dual revenue stream. It is a subscription with advertising. That really allows us to drive significant ARPU. The ad component of our business is absolutely critical. You should think of it as how Roku's hardware devices, I would assume is roughly around breakeven or low mid-single-digits from a margin perspective. All the money they actually begin to make is on the ad side. We are very similar. We have a basic pack of channels at the very lowest level.
Obviously there's attachments that we sell, both content and service attachments. The ad part, it plays a very important role in our ability to continue to expand our margins. From an advertising perspective, you're right. The hours have obviously increased significantly during the pandemic. I'm not sure. Well, we as a company were not able to capitalize on that in April because as you know, I think many agencies, and I think even there have been dozens of large advertisers that were on CNBC saying we have to halt everything because we're not sure what's going on. I think there was a three-week period in April where we saw some significant deterioration in advertising. Obviously, ad inventory opportunities were continuing to expand with really very limited fill. That was a three-week period. We saw some green shoots right before the NFL draft.
May seems to have recovered very nicely for us. I don't know if advertisers are just interested in getting ahead of when things start to open up and sort of want to be first to market and take as much mind share as they can for specific product groups. We've seen a very nice impact from an ad perspective in May. In fact, what's interesting is those levels have exceeded $5 per subscriber. We're very comfortable with the way things are going, and as sports comes back, I believe we'll go back to seeing some premium CPMs headed into the third and fourth quarter. It should be from a digital perspective, from a connected TV perspective, more broadly, I think that it's going to be very robust.
What's also interesting is that we're also buyers of advertising, as you know, we're seeing some significant opportunities on the traditional TV side. Which, we're typically, we don't buy TV. We're a company that over the last few years has specifically advertised through digital channels. In real time, in fact, and manages our acquisition costs very tightly. We've seen some major opportunities in advertising on the traditional side, both because there's lots of inventory available, and also we've taken advantage of decreasing rates. I think there, when we talk about customer shifts, about viewing and streaming, I think those are moving towards the sort of connected TV direction in terms of hours viewed. Again, people will have to start commuting to work, so that should impact the number of hours.
On the business-to-business side, the advertising side, I think you are seeing a structural shift. If you think about it makes sense. Companies like fubo, we collect 21 billion data points a month, and growing. There's proprietary data that we have. Obviously, we don't know who the individual is by name, but we can match up IDs of phones matched to connected devices, and sort of we can build cohorts of people for specific ad campaigns. You have the proprietary data, you have the premium CPMs associated with connected devices, and then you also have the addressability. That to me is a very solid recipe for advertisers starting to move dollars.
Not starting to, I mean, this has been happening very slowly over time, but I think given the cancellation of the upfront for many of these advertisers, I think it's going to prove to be a very opportunistic situation for a lot of the connected TV players. We should be very specific that it's the premium inventory that's going to garner the most value out of this because as you know, when you watch an ad on a tier 3 or tier 4 website, you don't typically remember the ad that you saw associated with that content. I think with sports in particular and premium content, that brand value, I think is quite important.
Yeah. No, that's a good point. That's a fair point. I always appreciate when companies that sell advertising are willing to turn around and share insights into the money they spend on advertising as well because you've got to market your own products. I've got to imagine a few of your programming partners are happy to hear that you've been dallying on their linear networks lately-
Yeah
with fuboTV, so.
We'll start nibbling a little bit more.
It never hurts. Let's just sort of continue to drive through here maybe a little bit on some of the things on the business and maybe now just moving to the sort of vMVPD model, the skinny bundle model, as you say, a cable replacement product.
Yeah.
Tell us about your thoughts a little bit on the competitive set that you see here. We've had some players like Sony exit the market. We've had some players like Hulu and YouTube sort of continue to push through and see relatively solid growth. We have some players, some digital products from traditional satellite companies which have run into a little bit more challenges from a subscriber growth perspective lately. When you turn and look around at your most direct competitive set, what do you think some of the most important trends going back and forth are as they relate to your company?
Yeah. Very good question. I do get a lot of questions around how can you compete with Netflix or some of these other groups. It's an important question because we don't compete with them at all, actually. We are a sports-first cable replacement product. We are branded as a sports platform. I think that is our point of differentiation. We carry content, about 30% of our content, sports content is not available anywhere else. When I look at our competitive set, we're actually competing with Charter and Comcast and the satellite guys, and the telcos. If you were to say, where do you compete in your digital space? I would say that probably the only two competitors would be the YouTube TV and Hulu. That's it. There's many reasons for that.
One is no other services carry nearly as much sports programming as they do. Those are sort of the closest. Obviously, we carry more. At the end of the day, we're trying to fight for the 84 million customers in the traditional ecosystem.
The people that are paying $110-$175, in some cases, more money. It's the people that have two, three, four set-top boxes that are paying $8 per set-top box before they even get started buying any content.
I think if you think about the competitive set, for us, it's really around sports. We do not compete with SVODs. In fact, we carry content from all of the sort of major media companies, almost all the major media companies today. My sense is that with the hours viewed, which I mentioned before, exceeding 140 hours most recently. My sense is that if you look very closely at SVOD viewing. It's going to be sub 50 hours. Clearly Netflix being the largest player, I have to believe that the cost of content will continue to grow just given the level of competition in that space with Prime Video and Hulu and Netflix and Apple TV now, or Apple TV+. You have your media companies that are also buying for that type of content.
My sense is that ultimately we're going to come full circle back to the pay TV ecosystem.
It is actually relatively efficient if you think about it. I made a comment before that within the first quarter, the average cost per hour of viewing was roughly about $0.42. Prior to our call, I just took a quick look and just back of the envelope math. I'm now feeling comfortable that we're closer to $0.38 during the pandemic. Now, we'll find out shortly if that's just pandemic-related, then we go down to levels closer to the $0.42. If you think about that, my rough estimates have Netflix pegged at about $0.20 per content hour. That to me says that despite the variation in price, $13 in the U.S. domestically, versus fubo's base package price, which is $54.99, we are providing a significant amount of value.
If you just look back in history, whether it's 15 years ago or 20 years ago, I think cable was offering, I think the price per viewing hour was closer to something like $0.06 or $0.07. Which if you think about it, that's why you had an explosion of people wanting cable, right? It was cheap, it was a lot, it was premium. I think what will probably happen in SVOD versus these live sort of virtual MVPDs, which we play in, is that the cost per hour will continue to decline, and the cost per hour on the entertainment platforms or any niche service, I think, and niches could be big because obviously lots of people have multiple services. It's not a zero-sum game.
I think what'll happen is you'll start getting closer to the $0.30 per hour or more on the SVOD services while the virtual MVPDs continue to decline. I think that ultimately we're going to be back to the bigger bundle, not the skinnier bundle, which I think may be a reflection of what you were saying earlier, how some have experienced some difficulties in continuing to maintain specific growth levels. That's probably because you'll see that content owners will have to continue to increase rates. Right now they only do that at the wholesale level, but as they move further into the direct-to-consumer space, they will have to do that. That's going to be very tough to do because you're completely exposed, right? People know exactly what content you have. Also customers will start feeling more comfortable moving in and out of these services.
We're very early in the S curve. We're at the bottom of a product cycle. Again, this is sort of something that's been happening over the last four or five years. Again, I feel like people are still trying to understand what is it that I want. There's lots of folks that are sitting on the sidelines that have cut cable during this pandemic. I think one of the things you mentioned to me offline was what happened to these people? They dropped off.
The reality is, this is why I'm saying third quarter I think is going to be an interesting quarter, is those people dropped off because there's no sports. You can get entertainment almost anywhere. It'll be interesting to see what happens in the third quarter as sports comes back and typically people start to look at cable packages and streaming packages in the fall. That's where we'll really see what the impact of COVID on streaming, at least on the virtual MVPD side.
Yep. Let's stick with the sports theme, maybe switch over a little bit onto the programming side. As you noted-
Yeah
you guys have more sports than others. At the same time, you've had to make some selections about not having it all, and maybe we'll come back-
Yep
to how pricing plays into this. I really like to ask about sort of two bundles of products. One is, I think what's fair to say is the longtime 800-pound gorilla in cable sports, ESPN and Disney.
Yeah.
Second, one that's a set of businesses that have moved ownership lately, what we still call the Fox Regional Sports Networks, but now-
Right
under the ownership of Sinclair. I don't mean to dial in too much on the ones that you've either not included or removed lately-
I'd love to hear a little bit about those dynamics.
Sure
How you think about it. Secondly, Sports Networks have traditionally, putting aside we've had the broadcast networks where most major playoffs and major national once-a-week games type of things tend to show up there. National Sports Networks carry a load of sort of featured games as well. You've had the Regional Sports Networks that sort of scoop up the rest of that baseball, hockey, NBA-type content. I would love to hear your sort of more broader thoughts on each of those models and how those different types of programming partners play into your thinking with your business.
Sure. I'll start on Disney then first. I don't think anyone would deny it's an amazing company, an amazing content lineup. We have been in touch with Disney since we've launched the platform in 2017, specifically the Virtual MVPD platform. We were a soccer service before then, which launched in 2015. Yeah, it's great content. We're in touch with them all the time. As I've said many times, we are very disciplined as a company. You'll see that shortly as we continue to file our Qs, and start doing some of these calls more broadly. Again, very disciplined company. We have been of the view that we need to grow first, and then do deals as we grow. Because these are very expensive deals, as you can imagine.
It's very easy to be underwater, which I'm sure you know from just some of the research you've done on other publicly traded companies.
We've run a few Excel analyses on it, yeah.
Yeah, I'm sure. Look, I'm very excited to say that we, at least in 2020, are not gross margin negative. That is a very important point that I'd like to make. I've heard myself, many people say that these things are so far underwater, they'll never recover. Again, I can only speak for what we do. It is a very challenging business, but if you can figure it out, it's a very solid business. It's a business that has many levers to pull and a lot of optionality, as I've mentioned to you, in terms of advertising and subscription revenue and attachment rates and things like that. On the content side, as I said, we collect 21 billion data points. We've done a great job growing. Growth, obviously, has not been the key.
We've been really focused on doing the right things, setting up the foundation for the company for its growth stage, which now, as I said, since we're margin positive, that's something we'll be focused on going forward. As for the content partners, we're constantly optimizing. That refers to all content partners. We've gone through one renewal cycle already, which we're very happy with. Our partners have seemed to be very happy with our renewals as well. You're going to see a lot more of this. I think unlike cable, where you got to have everything, I'm of the view that you only need about 70% of the gross rating points. There isn't anybody out there, any consumer out there that watches every network or every broadcast network.
One of the beautiful things about streaming is that once you find your customer base, your demographic, you start to hone in on that group. We would love to have every piece of content, but it's clearly not realistic, or else we'd be at the $120, $110 price point.
It's something that's going to continue to be optimized over the next 24-36 months. I think that what you could see in the vMVPD space, which is the live linear pay TV bundles, is that as they continue — I mean, look at the ones that are performing best are the ones that have the greatest breadth of content. I think over time, there could be additional business opportunities, business models where maybe we're charging for data or some other type of relationships. Again, I'm talking about fast-forward maybe two, three, four, five years from now. There might be some mutually interesting opportunities as we work together. Again, this is a work in progress. There's no hard feelings on either side. Business is business.
We're looking to build a company over the next 10-12 years to be a leading player in the space. Making mistakes early, as you mentioned around Sony, could be very dangerous.
Yeah.
We've taken a disciplined approach, but I can assure you, we're speaking with every media company and content partner out there regularly. As things progress, there'll be partners that come in, partners that come out, as you've recently seen, and obviously that's monitored very closely on a monthly basis.
I think that some of the things you've highlighted here is for better or for worse, the flexibility of the product means the programming lineup is going to be more flexible than what we've seen from traditional packages where it is a little bit more one-size-fits-all. Of course, we have blackouts happen and things like that, and drops do happen, but there isn't a lot of differentiation in terms of the product lineup. I think you're saying that that's important, and even your own product may change back and forth as a result of that. You also mentioned that.
Yeah, it's optimizations, just like A/B testing.
Okay.
By the way, it keeps everybody honest. This is about customers first, consumers first. With big bundles, everyone has to have everything. If you're sitting in a Altice household in New York and you wanted to switch to Fios, the first thing that doesn't come to mind is I wonder if they have this channel because everybody has the same exact channel lineup.
In this sort of virtual MVPD space. Somebody may have a broadcaster, somebody may not. Somebody may have an RSN, somebody may not. Some networks are available, and some are not. There's some work that has to be done, that's why I keep saying it's important to note that we're so early in the game and we're continuing to optimize. At the same time, this is the best thing for the consumer because remember, these deals are 3 years. They're two or three years. No one's doing 10-year deals anymore.
No distributor and no content partner wants to do a deal that long. With that, everyone is forced to, A, build a better product, right? Because that's how you lure consumers in. On the media side, if you want to be part of a bundle, you're going to have to provide high-quality content, right? If you don't, you can't just hide like you hid in the 200-plus channel lineups. You're going to have to deliver value because it's a market that is quite tight. The data's available in real-time, and you also have your own products out there, so we know how to price them. All of these things are actually much, much better for the consumer.
You mentioned how much you're focused in on your audience and the use of data and crunching those numbers to figure out what's optimal for them. As I mentioned before, you've got some national cable networks, the sports networks.
Right
That may be not in regional ones, that may be not in broadcast. As you look across those three models, do the models stick out to you? Do you say, "You know what? We've really got to have the championship stuff, so we got to have the broadcast guys," or, "You know what?
Yeah.
That's too expensive. The value isn't there. Maybe I need a broader sports style of network. I need a national network where I've got a lot of premier stuff.
Yeah
Maybe not the regional things." Are there any broad observations that you have across the offering.
Yeah
of the sort of three styles of programming partners?
Yeah. Our strategy is very straightforward. Come for the sports, stay for the entertainment.
Ideally, sports drives lower acquisition cost, and then if the product is solid and the machine learning recommendations that we build continue to work as they are, we'll start to drive better retention because people are spending more time on the platform. That's just sort of a very straightforward, dumbed-down version of what we do. It makes sense, and it has worked. As it relates to the content partners, again, we are monitoring this on a monthly basis, year-over-year, day-over-day. All of these things are looked at. As I said, we're at the bottom of an S curve. The first thing that happens at the bottom of an S curve is that it's a price game. Who is cheaper? Who's giving the free giveaways? That's who you want to go test first.
Once the pricing game is sort of, we've gone through that stage, the next level is going to be about the 65 or 70 million people that still have traditional cable that can afford it, right? That can afford $110 or $120, and it's going to come down to experience. Level 1 is price, level 2 is experience, as the market starts to mature. From that perspective, I'm worried about price today. I might not be as price sensitive tomorrow because sports commands a premium in general. Whether you go to a hockey game in New York City or you buy a jersey that costs several hundred dollars. Sports fans are willing to pay.
Right. That's what they do. They're passionate fans, and they have a high propensity to consume at very expensive prices. I'm less about price, more about optimization. Everything we've done to date is to prepare the company for sustainable and healthy growth. If something doesn't make sense, we're not going to do it. Because if you notice fubo versus the competitors, we have not given away anything more than a seven-day free trial. We don't have any promotional pricing on the front end because we already feel that we're giving you significant value coming from $120 or $110 to $54.99, and you're not paying for set-top boxes equipment, and we're giving you 4K for free, which is not cheap, which we're the only ones in the market to do that.
Again, we're very early days, and the dynamics are quickly changing, and we're trying to be, I don't want to say reactive, but we're trying to be proactive in a very reactive way because we're following the trends that closely.
You get the data every day, right?
Absolutely
That's the thing that you keep coming back to is we don't need to sit and guess here. We can see it every day.
No guessing
Notwithstanding that you're a national product and maybe those national footprints, some of those national
Well, that's what helps.
Right. That helps.
That's what helps. Yeah.
From the sounds of it, what you're saying is if you were seeing, I'll just pick a city, I'll pick my usual city, New York City, that if you were seeing.
Yep
the product get big traction in New York City, you might look at those Regional Sports Networks that service that market a little bit differently.
Yeah. No, for sure. Look, you know this. We carry AT&T Southwest, we carry NESN.
Yeah
we carry MSG. We're carrying networks.
Yeah.
we're carrying the Comcast Net. We would like to do deals. Just, again, interesting on my end, if we forced ourselves to do a deal on 12/31, you may say we may have looked silly because of the YouTube deal, which they got to cherry-pick networks, right?
You read that they were able to pick the networks that they wanted out of the full suite of networks. Actually, in your city, in New York, which is also my city, I don't believe, and correct me if I'm wrong, that YouTube TV had taken YES Network as part of its offering.
They had them and then they lost them, and that's why I was using your product more at that stage.
Right. Well, that's my point. Things are changing, I don't think anyone could have thought 2 years ago that you could have bought some RSNs and not others.
Yeah.
That's why you have to be very careful right now in doing deals. The thing for consumers, which is great, is there's no blackouts. You actually just cancel and go on.
Yep.
Again, this is all about preparing for what does the next 5 to 10 years look like, that's what we've been doing over the last 24 months.
You mentioned earlier potential other revenue streams. One that we get asked about a fair amount is sports betting. Obviously, various media companies starting to dangle their feet into these waters a little bit more.
Yep
the legalization spreading. What's your take on it? Is that an important opportunity for you, something you want to just stay away from maybe? Obviously when you're leading sports first, I got to think it's intriguing to you, but would love to hear your views on the state of sports gambling and the opportunity there.
Yeah. Well, that's a great observation. Being in the sports space makes it difficult for you to look away. Again, the reason why I'm so excited about what we do is because we're sitting at the epicenter of three major secular tailwinds. The first is subscription. As we said, you know this, that the traditional cable companies continue to lose subscribers. Folks are moving to the streaming space, so that's one trend. The second trend is the advertising trend, which I think is a really powerful trend of advertisers moving from television to connected TV for the addressability and their ability to build attribution models and more effectively spend their dollars. The third trend, I think where we sit very nicely, is on the wagering side. Because at the end of the day, we have 35,000 sports programs, video, right? People are watching. They already trust us.
They come to us to watch these events. I don't think that there's a company that is better differentiated today, of what I know, of what is out there, that could potentially position itself in that space in a very interesting way. I think that becomes the combination of community viewing and the ability to wager. Now, the question for me is, your business, I'm sure it's the 80/20 rule, probably the 20% of users are going to be the whales and spending 80% of the money.
I think we may take a slightly different approach because, again, we're all about sports and engagement, and there's communities around sports, and people watch sports together. It's tribal. I think maybe more of a entertainment interactivity style, maybe something that's more of our approach. Again, I think that entering that space, I don't believe there are many barriers to entry there.
Yeah.
having a point of differentiation, I think is critical, and I think the company that I look at when I think of what fubo might be in that space is, as you know, Sky plc out of the U.K., which was recently acquired by Comcast, had a service called Sky Bet.
Sky Bet was the largest wagering platform, I believe just by volume, in the U.K., or one of the largest, if not the largest. I have to attribute that to its sort of core television viewing platform where people are constantly engaged with Sky. in my position, this is why I always said it's important to own a maximum number of hours in the house or in the home.
we're doing it 145 hours. If my attachment rates at the end of the year, so we look at attachments as sort of consumer relationships, just like Comcast or Sky looks at.
on a base of 300,000 plus, we sold in 300,000 plus attachments on a one-to-one basis. with people watching 145 hours, and if we can get that to 220-250, we should be able to sell in to the home many new products, many different products. I think if you recall Reed Hastings' words, he always said, "We are competing with sleep.
Which was one of his most famous quotes. Well, guess what? We already have 145 hours, which is a ton of hours on a monthly basis. I think, again, this is a very interesting area. We're looking at it. As I said, we're a very disciplined company. It's still very small. You don't have national coverage yet. We have marketing relationships with some players in the space. We'll obviously look to do more very soon. Again, you should look at fubo from a wagering perspective as one certainly interested in the space, certainly looking at it, certainly partnering. As any internet company that wants to be a global player, we will be opportunistic, and we will look for opportunities to figure how we can. This is an adjacent space that plays very nicely into our video strategy.
One more question on sort of the fundamental profile of the business and a couple sort of financial ones to finish up. This last one you've hinted at it a couple times already in noting your model earlier of a sort of base package that's lower margin and then, just apropos of what we were just speaking, adding on, attaching incremental products that help drive that margin up.
Yep.
Just take a step back to review, because you also mentioned this before. It is almost certainly the number one piece of pushback that we get on this business model in general, and you're highlighting that the company is gross margin positive is-
Yep
I mean, we see that in the filings, but that's helpful. Just let me ask specifically about margins. How do you think about your business building and that combination of attach rate a moment ago, plus different packages-
Yep
different incremental margins they can add?
Yeah. we're of the view that the bigger bundle will eventually win, just because of the value proposition in that bundle. That doesn't mean that other media companies will not have their own services. God bless them, they should all have their own services. I believe the majority of U.S. audiences will, or the U.S. audience would prefer to have a one-stop shop, an aggregated service that has all of their favorite networks, all of their favorite programming with AI and machine learning capabilities that recommends the things that they want, and provides them with non-content services that they want to enhance their experience. That, I think is the future for everyone, which is a good thing for media companies because that's been their main business.
They've had certainty around what they're going to make and what they could spend, and there's no real other way to reach 90 million households, right? Even if these guys do really well, they'll reach 20, 30, 40 or 50, but never 100 million homes. So I think the business model, in and of itself, is critical. The attachments, the way we build is that we sell on top of the basic pack, we sell attachments like RedZone, other sports bundles, international sports bundles, other sort of content that you would associate with an extended basic package like cooking channels from Discovery and other content that you readily see on television in an extended basic package. with that, we also sell premium channels like AMC Premiere and Showtime.
the margin profile on tier 2 or sort of anything above that basic tier is to be anywhere between 20% and 60% margin. That's just how it works. on top of that, we have service attachments. Service attachments are things like DVR, family plans, there's other services that we're working on to enhance that experience. Those margins are typically 90%-100% margin. on top of that, we have the ad revenue, which we reflect in our P&L on a net basis post any fees to trade desks or Telaria or SpotX
which as I said, I'm extremely bullish on. That is the build, and then on top of that is some future capabilities that you and I just discussed around potentially wagering or additional digital subscriptions that fit very succinctly into our core strategy around sports and video. That's sort of how the margin builds.
Long term, I think there's a few things I want to mention. One is, I'm sure there's many people that are listening now that think variable models don't scale. That has been misproven by Spotify, that I think went public with roughly around 18 or 20% margins and has, on a quarterly basis, sequentially expanded to about, I think the last one it was like 27% gross margin. In our world, that is something that we're also focused on. We have demonstrated that over the last year to go from negative, whatever it was, like 15 or 16% gross margin to now positive margin, for the first quarter. That will also continue in a very similar way that Spotify was able to expand.
What's interesting is that if you take our current ARPU at the end of 2019, which was roughly $60 and growing, that is a massive amount of money on a per subscriber basis.
I think that number will continue to grow. Just to take a satellite example, I think if you look at some of the 10-Ks that I look at, I think they're averaging, call it $85 per subscriber, maybe a little bit more. We have no truck rolls, no set-top boxes, no satellite dishes, none of that. There's no CapEx in our business. Even if we don't get to a 40%, let's just say, gross margin, we're very comfortable we can still maintain a 15% EBITDA margin just off of like a 27 or 30% gross margin. That's how we think about the business. There's no CapEx, it's all software. Again, we're talking about just the current business the way it is, right? We're not talking about any expansions into adjacencies as you and I just discussed.
Got it.
For sort of the core basic business, without any new ideas that we're obviously going to continue to introduce, I think that's sort of the outlook and the potential.
Excellent. We're coming up on the top of the hour here, so This is an investor call, so we do want to bring it home on a few things related to the analysis of the stock. I think you've given us a ton of help to understand how you see both the ecosystem and your product moving up over time and how it may change and evolve throughout that. You've gone through, it's sort of a, I don't know if we call it a reverse merger opportunity here. You're looking to uplist the stock here likely shortly. What are the things that everyone listening here should know that may be unique specifically to valuation, to capital structure, to your management team, to your board? Everything else besides the business, what are the two or three most important things that you think investors should know about the company?
Yeah. Look, we are a very young company. I think many times people confuse how old we are relative to a Netflix, which is over 20 years old, or a Roku that's 20 years old, or I believe a Spotify that is approaching 20 years. This is a five-year-old company that has moved relatively quickly, in a very disciplined fashion. We are planning an uplisting to a major exchange in the third quarter, again, assuming the macro doesn't change. We've recently brought on board Edgar Bronfman Jr. as Executive Chairman of the company. A person that I believe is extremely high moral character. He's a thought leader in the space, a pleasure to work with, very knowledgeable.
We've recently brought on board Simone Nardi, who's our new CFO as we prepare for that uplisting, who's got a significant background working at public companies and most recently spent his time as the CFO of Scripps Networks Interactive, which is now part of Discovery. worked on the Hulu project in its early days and was a member of GE's finance team. very good pedigree. the company is preparing for that uplisting and we feel that we're in a position where we have the foundation built. We've been extremely disciplined.
from a growth perspective, if you think about how quickly we've grown, 2019, and correct me if I'm wrong here, if you look at all of these sort of major direct-to-consumer companies that are publicly traded today, whether it's Peloton or Roku or Spotify or others in the space, you'll find that their marketing budgets to total revenue hovers somewhere in the 35% range. fubo, in 2019, spent only 21% of total revenue on marketing. So my point is that we have everything set. We're ready to go. And we are looking to uplist the business as we get into that growth phase. And the company valuation just based on, obviously this is an investor call, we should talk about the stock. I don't know where the stock is trading today, but let's just say it's in the 10-ish range. We've got roughly 100 million shares.
I feel like it's very early days. We're at the bottom of an S-curve, and there's a huge opportunity for us, and that's part of the reason why we'd like to take the company public. It is public, but I mean effectively uplist it to access more capital and build relationships with investors.
Awesome. Well, David, we hope we helped a little bit with that today. really a lot of depth that you were willing to offer about the business and we appreciate that a great deal. Thanks again. I'm sure everybody's going to be hearing from you a lot more over the next few months. for now, have a great weekend and thanks a ton for joining us, both David and all the guests listening. Thank you.
Thank you so much. Have a good one.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.