No sooner did Sinclair Broadcast Group tell analysts that yes, indeed, it does plan to offer direct-to-consumer versions of its 19 regional sports networks next year, than Comcast’s NBCUniversal possibly stole its thunder, with reports that the media giant is looking to shift its RSNs to its Peacock streaming service, or even sell them off.
Sinclair reiterated Wednesday that it would launch a DTC service for its Bally Sports Networks next year -- it had originally expected to launch it this year but back in February said the debut would be moved to 2022. Yesterday was more like a reassurance that plans to go the DTC route were still on, with Sinclair CEO Chris Ripley talking about a vast untapped market for streaming sports. The news comes as Sinclair is still hoping to gain carriage for the channels on YouTube TV, Hulu Plus Live TV, Fubo TV and Dish Network.
That NBCU was considering a DTC future for its sports networks first appeared in the Wall Street Journal. But it shouldn't come as a shock. Earlier this year NBCU said it would shutter its NBCSN sports channel, and shift programming to Peacock and USA Network. This seems to be a logical extension of that plan.
While NBCU is also considering selling its seven RSNs to the teams whose games they carry, that could be difficult. Except for the New York Yankees, which bought a majority interest in its YES Network from Fox in 2019, teams haven’t been big players in recent RSN auctions.
According to the Journal, NBCU considered testing the idea of streaming its RSNs earlier this year, with NBC Sports Philadelphia, the hometown of parent Comcast. But it scrapped the idea for two reasons -- pricing and customer confusion. The paper said that NBC executives balked because the service would have to be priced differently in markets where there were RSNs. That, they feared, would confuse the service’s marketing efforts.
NBCU and Sinclair aren’t the only RSN owners that are considering direct-to-consumer offerings. As traditional pay TV bleeds subscribers at a steady rate, pretty much every network is considering going off on its own.
Every network has an app in one form or another -- Sinclair launched its Bally Sports app in April -- though at the moment they are all authenticated, meaning that to watch actual games via streaming viewers have to have a traditional pay TV package. But that could be easily solved. What’s harder to figure out is how a true DTC app would be priced. Some pundits believe that a standalone streaming RSN could be priced as high as $30 per month.
At that price, plus the cost of a standalone broadband service ($80) and a monthly Netflix ($15) and Amazon Prime ($13) subscription, a typical cord-cutting sports fan would be paying about as much as their pay TV counterparts with 100-plus video channels.
There also is a wide range of numbers delineating the size of the potential markets for the channels. On its conference call with analysts, Sinclair said it had 52 million subscribers to its 19 RSNs last year, of which 35 million were unique households.
“The 35 million households represents less than half of the total subscribers possible in the RSN teams' geographic territories, meaning the total number of addressable subscribers under the D2C model is theoretically more than double,” Ripley said on the call.
Now, that is making a couple of pretty big assumptions. One: there are another 35 million homes out there that really want to watch games but don’t because they think their local RSN costs too much. Two: there is something that will make most of them either get a subscription to a pay TV service that has the RSNs -- meaning they would have to pay even more -- or they would pay for an app that would allow them to watch the games. Three: The app would be priced at a level that would give the buyer the sense that he or she is getting a bargain, the distributor the sense that they weren’t paying too much for the linear channel; and Sinclair the sense that it was receiving the proper remuneration for its content. That’s a lot to consider.
Analysts have been saying for years that probably only 30% of pay TV customers watch sports. And of the non-pay TV customers that consider themselves sports fans, about 8% say they would definitely buy a streaming sports service, according to a 2020 Verizon Media survey.
But at the same time, RSNs are faced with a double dilemma: a rapidly deciding traditional pay TV customer base and virtual MVPDs like YouTube TV and Hulu that are trying to gauge whether they can do without them. The next few months are going to be crucial for RSNs -- baseball fans don’t usually get ultra serious about their teams until after the July All-Star break. If the vMVPDs don’t see a notable loss in subscribers during that period tied to not carrying the RSNs, that could embolden them to drop the channels altogether.
If that happens, it could influence the next cycle of traditional MVPD carriage deals, where operators could decide to either do without the channels totally or pay a lot less for them.
“That’s why from an RSN standpoint, you have to be able to say you’re going direct-to-consumer,” sports consultant Lee Berke, CEO LHB Media & Entertainment, said. “There is a reckoning that’s going to come to pass and it's coming to pass for every network. You're seeing the strategies being laid out with all the streamers, how they’re laying out programming, how they're categorizing it, how they’re pricing it, how they’re producing content, sports, entertainment and news. When it comes to the RSNs in particular, they are going to have to move in the next few years. And they have to start preparing for it now.”
Berke has been a big proponent of direct-to-consumer offerings for RSNs, but he sees them as a complement to the existing relationship with pay TV distributors, not a replacement. At least not yet.
According to some analysts, pay TV lost about 13 million subscribers in the past two years, ending 2020 at 76.8 million customers, not including vMVPDs, down from 89 million in 2018. It’s expected to get worse in 2021-2022.
“The crunch time is happening for the RSNs sooner rather than later,” Berke said. “It’s imperative that they make these changes and offer themselves up on as many different platforms as possible, which I realize necessitates tough conversations and revamping the agreements, but the time has come.”
One factor that could help offset the cost of standalone streaming RSNs is gambling. On the Sinclair conference call, Ripley mentioned the “gamification” of the app, a polite way to say they are going to eventually make it really easy to gamble on practically anything to do with the game you’re watching. That’s been the elephant in the room ever since the U.S. Supreme Court scrapped the federal law that prohibited states from allowing sports gambling and decided to leave it up to individual states to make sports betting legal. Networks and leagues and casinos have been waiting patiently for the flood gates to open.
According to the American Gaming Association, about 21 states and Washington D.C., have live, legal sports betting, meaning that single-game sports betting is legally offered to consumers through retail and/or online sportsbooks. Six states are classified as “Legal – Not Yet Operational” meaning they have sports betting, but haven’t launched yet, and 13 states are “Active or Pre-Filed Legislation” meaning that bills to legalize single-game sports betting have been introduced or a voter referendum has been scheduled. The prevailing wisdom is that 30 states will have live, legal sports betting by the end of this year.
Maybe gambling will soften the blow for sports channels, especially if they get a cut of every wager that is made through the remote, but it is a very slippery slope. Currently federal law prohibits the exchange of gambling funds across state lines. But if that law -- The Wire Act -- was repealed, it could open up whole new avenues of revenue.
While gambling in many forms has been associated with football and basketball for years, in-game betting to some pundits is where the real opportunity lies. Also called prop betting, it means that wagers can be placed on any number of scenarios that happen during a game, outside of the final score. Baseball, which averages about 170,000 at-bats and 950,000 pitches thrown during the regular season, by some estimates, is seen by some as a huge potential gambling opportunity. But it will still be dwarfed by the amount of money spent by traditional distributors for the networks.
“Sports betting alone is not going to take the place of affiliate revenue,” Berke said.” It could be very valuable, but your affiliate revenues for most any sports network are still going to be the most valuable stream you have. What you’ve got to do is figure out the way to distribute that network in the midst of people changing how they consume content.”
Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.
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