Sinclair Broadcast Group is trying to raise as much as $250 million to help fund the 2022 direct-to-consumer launch of its Bally Sports regional sports networks, a product that will be, according to some reports, priced at about $23 per month.
Sinclair has said it would launch a direct-to-consumer version of its 19 Bally Sports RSNs next year, and last month CEO Chris Ripley said the service will include a full slate of games for the channels. Sinclair has not revealed pricing for the channels, but most pundits have estimated it would have to cost between $25 and $30 per month.
According to a report in the New York Post, Sinclair is trying to raise about $250 million for the DTC service, tapping boutique investment bank LionTree to round up potential investors. According to the Post, Sinclair expects to charge consumers about $23 per month for the service.
LionTree declined comment.
But according to sources inside the sports network community, even at $23 per month the RSNs may be priced too low.
The Post, citing unnamed sources in the financial community, said that Sinclair projects that the DTC service would have more than 4.4 million subscribers by 2027 and would break even by 2024. The company has said publicly that it has 52 million subscribers (representing 35 million unique households) to its linear RSNs, but there are more than 30 million homes in its footprint that are potential subscribers to a DTC service.
Sports consultant Lee Berke, president and CEO of LHB Sports, Entertainment & Media, said if the Post is right, the amount of money to be raised and the potential subscriber growth for the standalone service seems shockingly low.
“You get 4.4 million subs after five years of operation,” Berke said. “That still seems low in terms of the results you need to make up for the losses of subscribers on the pay TV front, both now and for the next five years.”
That’s a key observation, because no matter what programmers say is their motivation for going direct-to-consumer, the main catalyst is the rapidly declining traditional pay TV subscriber base.
Cable, satellite TV and telco TV distributors have averaged a loss of 3.7 million subscribers per year over the past six years, according to MoffettNathanson, but the pace has quickened in the past two years. Traditional TV lost 6.14 million customers in 2019 and 6.17 million in 2020, nearly twice the pace of 2017 and 2018 -- when losses were 3.2 million and 3.8 million, respectively. In the first quarter of this year, losses were about 1.7 million, about the same as the prior year.
With pay TV subscriber losses only expected to increase over the years, adding 4.4 million subscribers over half a decade won’t remotely take up that slack.
And then there is the question of scale. After five years, the 19 Sinclair RSNs will effectively have roughly one-third of the subscribers of ESPN Plus, which launched three years ago (2018) and has currently about 13.8 million subscribers. Entertainment-focused streamers have gained even more customers, led by The Walt Disney Co.’s Disney Plus, which launched in 2019 and has more than 100 million customers.
Berke also was skeptical that $250 million would be enough to launch a successful DTC streaming service.
“I know that’s a lot of money in absolute terms, but is it enough in terms of the infrastructure to pull this together? I don’t know,” Berke said.
Sinclair’s attempt to raise cash for its DTC service comes a few days after the NBA Portland Trail Blazers reached a four-year carriage deal beginning next season with Root Sports Network, the regional sports channel owned by Major League Baseball’s Seattle Mariners and AT&T. The Trail Blazers had been carried by NBC Sports Northwest -- which according to some reports is about to be shut down -- and the team said it had explored distribution alternatives, which some have interpreted as been said to be investigating launching its own direct-to-consumer product, but decided against it.
“The thing about the Northwest transaction that is really interesting from my perspective is that you have the Blazers rights moving from a network that reportedly is shutting down over to a network that may or may not be up for sale,” Berke said.
AT&T has said in the past that its RSNs, including Root Sports, were up for sale and later took them off the block. Once part of its DirecTV unit, the RSNs will remain with AT&T after the deal closes next year, and AT&T has said it will continue to license the content to DirecTV and others. But that was before AT&T agreed to spin off its WarnerMedia unit with Discovery, which could further cloud the issue of the sports networks.
Sinclair’s RSNs have been under fire practically since the broadcaster purchased the channels from The Walt Disney Co. in 2019 for about $9.6 billion. The channels, rebranded as Bally Sports Networks in April, are still carried by the major pay TV distributors. But they lost carriage with three key streaming services -- Hulu Plus Live TV, YouTube TV and Fubo TV -- in the past several months. In addition, Diamond Sports Networks, the Sinclair entity that actually owns the RSNs, has been trying to renegotiate terms for about $8 billion in debt over the past several months. Some pundits have suggested that raising money for the standalone streaming option is partially an attempt to show investors that it is serious about eventually going fully direct-to-consumer.
While DTC offerings are rife throughout the content business -- every major network either has a direct-to-consumer option or is working on one -- sports networks have unique challenges, mainly churn.
Berke said that unlike entertainment streamers, RSN customers are much more likely to churn once the regular season of their favorite team ends, or even sooner if the club is out of the running for the playoffs. While many RSNs offer games from multiple leagues -- MLB, NBA, NHL and MLS to name a few -- others only have one major league affiliate, which can make it difficult to keep viewers for a full year.
“If your baseball team is out of contention by July 1, you’re going to cancel,” Berke said. “If your NBA team is out by February, you’re going to cancel. The same with your NHL team.”
While the current RSN distribution model has come under fire recently, its true beauty lies in the concept that everyone pays for the channels whether they watch them or not. In the past, analysts have speculated that only about 30% of pay TV customers watch sports, which means that breaking free of the old model would either require a huge spike in fees, a dedicated streaming subscriber base as large as the current pay TV universe or multiple revenue streams. RSNs are expected to continue to reap advertising revenue through their DTC offerings, although there are questions on how much they will get. And there is the prospect of gamification, which could be potentially lucrative but is still thought to be a few years away.
Berke said gambling could help solve some, but not all of the RSNs' problems.
"The question then becomes does gambling in and of itself make up for the ongoing losses in affiliate revenue," Berke said. "It ameliorates it, I don't think it totally covers it."
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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.