The Aggregation Flywheel

One of the key concepts I keep coming back to in Asymmetric Investing is the aggregation of demand as a durable differentiator for businesses.

Simply put, the companies people choose to interact with are where the most value is created today. And that’s where you’ll find winning investments.

Amazon, Netflix, Facebook (Meta), and Google (Alphabet) are perfect examples of this dynamic, leading investors to 10x returns over the past 10-20 years. What I’m investing in is the next generation of aggregation winners.

What’s powerful about aggregation is how it creates a flywheel for companies that’s visible before profits emerge and the stock market realizes the opportunity.

More subscribers lead to more revenue, which allows a company to buy/build better content, which leads to more subscribers, which leads to better content, which leads to higher prices and more subscribers.

The idea of aggregation isn’t mine. I’ve “borrowed” this from Ben Thompson of Stratechery, who wrote “Aggregation Theory” a decade ago.

I want to dig into the positive flywheel loop (or lack thereof) today because this is what I think most investors miss. One company I’m high on — Disney $DIS ( ▲ 0.63% ) — is a perfect example of this flywheel being built before our eyes, and another — Fox $FOX ( ▲ 0.46% ) — is doomed before it gets started.

Disney’s Sports Flywheel

Last week, ESPN launched its streaming service, and my early take is…I’m impressed.

Content was easy to find. I like getting access to articles and alerts about my favorite teams included in a subscription, and the integration with fantasy football seems compelling.

I also like that sports betting, which is a big business for ESPN, hasn’t been shoved in my face (yet). As Thompson highlights above, even for ESPN, the incentive is to make users happy.

As nice as it is to have a good app, ESPN streaming will only be a success if it can attract the kind of content consumers crave. This will attract customers and keep them from churning.

The number one content magnet is the NFL, followed by college football, then the NBA, and everything else falling well behind those three. ESPN has the best rights package with all three sports, particularly after the recent deal to acquire the NFL Network. And if we’re comparing ESPN to non-tech companies, it’s head and shoulders above the rest, which I’ll expand on in a moment.

The risk ESPN has dodged is that Netflix, which has the biggest subscriber base of over 300 million users, doesn’t have much interest in being a sports streamer. Outside of a holiday NFL game here or there and the World Baseball Classic, which will be customer acquisition and churn mitigation events, Netflix won’t be a “must-have” for sports fans.

So, for the aggregation of sports fans, that puts ESPN up against Max, Paramount, Peacock, and Fox in sports streaming. And they’re all significantly smaller than Disney’s streaming footprint today ($WBD ( ▼ 3.44% ) includes HBO cable subs, Max, Discover+, and more, all in one number, so take their total with a big grain of salt). I haven’t included Fox below because Fox’s streaming service only launched last week. They’re literally starting from ZERO in 2025!

From a starting point, ESPN can lean on the best sports rights, the second-largest streaming service to bundle with (Disney+) behind Netflix, and a core linear business that’s still profitable.

If it’s successful, ESPN will turn a stagnant linear business with ~60 million subscribers generating ~$20 per month in revenue into a growing number of streaming subscribers paying $30 per month, plus advertising.

A Nearly Zero-Sum Game

Streaming isn’t like cable. A company can’t get into the cable bundle and suddenly reach 100 million subscribers with the flip of a switch.

On the internet, customers have to be acquired. And that requires a customer acquisition magnet.

I think ESPN could dominate quickly because of how weak its competitors are both in sports rights and financially.

It’s difficult to directly compare the companies involved, but the following charts should lay out the financial picture in the industry.

Warner Bros Discovery has been losing billions and is now trying to save itself by splitting into a linear TV company and a streaming company. Sports rights are going with the linear company, which may mean they will be open to the highest streaming bidder in the future.

Paramount recently merged with Skydance and has a declining, unprofitable business. CBS is an asset and has an NFL deal, but Paramount+ is a small, low-cost streamer with questionable economics.

Peacock is another player, but it’s playing from behind. With $1.2 billion in revenue and $101 million in EBITDA losses last quarter.

Fox’s decision to get into streaming shows it doesn’t like the future of broadcasting. This sounds crazy, but Fox, Fox News, and everything else the company does is less profitable than ESPN!

This is ESPN’s competition.

They’re all weak.

None has the money ESPN and Disney do to win a deal they want to win. And this is how the flywheel takes hold.

The Flywheel Takes Hold

The starting hand for ESPN is strong, and I think we will see the linear+streaming service hit growth mode this year. And that’s when the flywheel really takes hold.

Here’s a look at the number of subscribers, price per month, and sports content for each service. We don’t know what ESPN’s streaming subscriber number will look like, but I think we will see it be bigger than ESPN+ before the end of 2026.

What I want you to note is the content of each service and the price. Ask yourself, which service would even a casual sports fan subscribe to first? And which one would they cancel first?

Do you pay $30 per month for ESPN (maybe less with a Disney bundle)?

Or are you one of the 1-2 million people who prioritize the UFC?

Is cycling enough of a draw to Peacock?

Maybe you love Big Ten football, so Fox is a draw. And if that’s true, why not pay $40 for ESPN bundled with Fox One instead of limited content on Fox One for $40?

No matter how you look at it, if you like sports at all, ESPN is the service you have to have. It was the same for cable, and it’ll be the same for streaming.

But now ESPN’s advantage isn’t just how much it can charge cable companies in carriage fees; the number of subscribers matters too.

If ESPN has 30 million subscribers at $30 per month, that’s $10.8 billion in revenue per year from the streaming service.

Let’s say Fox gets to 5 million subscribers at $20 per month. That’s just $1.2 billion per year.

If a new sports rights deal becomes available next year, who wins? ESPN or Fox?

The answer is pretty clear, and that’s how the flywheel gets going.

This isn’t a hypothetical. This is exactly what happened to Warner Bros. Discovery this year. They lost the NBA because they didn’t have the financial wherewithal to beat out bigger companies.

And it’s critical to build scale now.

The NFL can opt out of its rights deals after the 2029 season. If ESPN has 100 million subscribers by then and the most revenue in sports by far, and WBD, Paramount, NBC/Peacock, and Fox all have fewer subscribers and are struggling financially, who will the NFL choose to sell rights to?

And if ESPN gets more NFL games, it becomes even more attractive to subscribers. This is the aggregation of demand.

This isn’t cable TV, where each station gets distributed to the same number of households. Reach will matter!

The Uphill Battle For Competitors

Just to hammer home the point, I think each of the competing streamers in sports is in a tough spot.

Max Is Out!

We don’t have to belabor the point. WBD and Max are out!

They lost the NBA deal and are struggling to survive. I think this will be a floundering company (or two) for a long time.

Fox’s Doom

Fox is interesting because they finally decided to get into streaming.

But it’s too little (sports rights), too late.

I think Fox gets a fraction of the subscribers ESPN does for its service. And many of those subscribers may come from bundling with ESPN, which will offer Fox One for $10 per month.

Combining NFL games with Fox News is an odd combo, and I think this may be Fox’s Blockbuster Moment, and not in a good way.

Don’t be surprised if they’re the WBD of the next NFL deal, left out in the cold.

Peacock’s Uphill Battle

Peacock should have a lot of the advantages given its cable parent. But Comcast is losing cable subs and broadband subs as it tries to get Peacock off the ground.

But Peacock has a third of the subscribers as Disney+ and generates less revenue per sub.

The NBA deal could help, but at what cost? Peacock isn’t profitable today, and the NFL and NBA deals will be $4.5 billion in costs for the network and streaming service.

Peacock has the backing to survive, but it doesn’t have the subscriber base or growth to win more sports rights deals and thrive in streaming.

Paramount’s Gamble

Paramount+ has a chance to survive, but it’s betting on combining the NFL with a bunch of niche services. Paw Patrol, UFC fights, and South Park are strange bedfellows.

You have to have content that draws users in, and the UFC does that. So does the NFL.

But the next step is being able to raise prices, and I don’t see Paramount’s content adding up to ESPN’s $30 per month.

How We’ll Know ESPN Won

ESPN is in an asset accumulation phase, not unlike Netflix in the 2010s. And then suddenly, in 2020, Netflix decided to lean into operating leverage and stopped increasing its content budget at the same rate.

But subscribers kept coming in because Netflix had the best/most content, and Netflix ratcheted up prices because it had the scale of content it needed.

The result was a drumbeat of higher operating profits.

We will know ESPN is on a similar path if we see subscriber numbers steadily grow for its streaming service.

That will give ESPN the financial firepower to win any rights deal that comes up, which will lead to more subscribers.

Higher prices will come eventually, but for now, the game is subscribers choosing ESPN’s streaming service over the competition.

In time, the balance of power will shift from supply (sports leagues) to demand (the streaming winner). I think that will be ESPN and could make Disney a 10x stock over the next decade.

More Developing Aggregation Flywheels

The theme of the aggregation flywheel is a theme in Asymmetric Portfolio stocks:

• Zillow: Users are choosing Zillow’s app over competitors, which means realtors have to use it too. In this case, the realtor is the commoditized supplier Thompson talks about in aggregation theory.

• Uber/Lyft: Clear aggregators and the flywheels could accelerate if they’re the main point of demand for autonomous vehicles. Companies like Tesla and Waymo don’t want to give that control to the aggregator, but they may have no choice.

• Spotify: More people listen to music and podcasts on Spotify than any other source. So, artists have to be there, and they’re paying Spotify to reach new listeners and promote their tours.

• Hims & Hers: Healthcare doesn’t have an aggregator today, but Hims & Hers has a chance to be just that. The company has over 2 million subscribers choosing to interact with the platform, and more specialties are being added each year to serve more people.

• Google AI: Where do people choose to interact with an AI? Google search is the answer for most people, and if that continues, Google will have the revenue to continue investing in better models and improved distribution.

This will be a theme I cover for years to come because the combination of more users and the ability to generate more revenue per user has proven to be a powerful combo for tech companies.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.