Sinclair Broadcasting Group CEO Chris Ripley offered a little more insight into plans to launch a direct-to-consumer version of its Bally Sports RSNs next year, adding that the offering will likely include a full slate of live games and be priced high enough as to not upset its MVPD partners.
Bally Sports has about 19 regional sports networks across the country. While the networks have struck carriage deals with most major traditional MVPDs, it has drawn some attention after streaming services YouTube TV and Hulu Plus Live TV dropped the channels last year. Dish Network dropped the RSNs in 2019.
Sinclair first said it would launch a direct-to-consumer version of the RSNs in 2021, but later extended that timeframe to mid-2022. At the JP Morgan Telecom, Media & Communications conference Tuesday, Ripley offered more insight into the plan.
Sinclair has long said while the RSNs have about 52 million subscribers, mainly through traditional MVPDs, that represents about 35 million unique households, or about half of the homes in the markets of the teams it represents.
“That, plus the growing fandom of people outside the pay TV bundle, which our research points out to be quite significant, the demand for the direct-to-consumer offering is quite large,” Ripley said at the conference.
Ripley touched on the issue of pricing, which most analysts see as the key factor in the success or failure of a DTC offering. While the Sinclair CEO wouldn’t give specifics, he mentioned that it would be a “substantial difference” between what traditional MVPDs are currently paying and what consumers would pony up for the standalone channels.
Sinclair is currently working out the details of the DTC offering, including the exact games, whether they would focus on monthly or annual pricing, all of which will be revealed closer to the launch date.
Ripley said the industry is already moving toward a hybrid of linear and DTC distribution, and Sinclair is no different.
“The pay TV bundle has become a multi-platform, app-based experience across distributors, then you’ve got the direct-to-consumer experience which is natively app-based and modern in terms of the user experience,” Ripley said. “That hybrid environment is where we’re going to move to on both sides of our business over time. The key component on how we view the pay TV bundle and direct-to-consumer is really a pricing difference. There will be a substantial difference in prices of what the distributors buy on a wholesale basis versus what a retail customer would pay for a direct and unbundled offering.”
Ripley wouldn’t get into pricing details, but said it would be high enough so as to protect the existing MVPD relationship.
“We will give pricing protection to the distributors to preserve the concept of wholesale pricing into bundled offerings versus retail pricing,” Ripley said. “There will be significant difference there in terms of what the value proposition is for distributors.”
Some analysts have predicted that a direct to consumer offering that included all of the games would have to be priced as high as $25 to $30 per month, more than four times what Sinclair charges monthly for its priciest RSN, Bally Sports Detroit, which costs distributors about $6.85 per subscriber, according to Kagan, a unit of S&P Global Market Intelligence.
But according to sports consultant Lee Berke, president and CEO of LHB Sports, Entertainment & Media, even at that price point, Sinclair fails to address the main issue – attracting new subscribers to combat the shrinking pay TV universe for RSNs along with the loss of most vMVPD distribution.
Sinclair, like other RSNs, is faced with the unenviable task of trying to appease the segment that is generating most of its revenue -- MVPDs -- while attracting streaming subscribers who want to pay less. It’s not an easy situation, and it is particularly tricky for sports networks. While entertainment streamers like Disney Plus, Netflix, Amazon Prime and HBO Max can manage through enormous scale to charge between $10 and $15 per month for service, RSNs, which have high sports rights costs and live programming that is not always year-round, have to charge more just to break even.
“The problem with that is, it’s not necessarily a consumer-focused strategy,” Berke said of a $25 to $30 price point. “If you please the distributors and yet the fans don’t purchase the service, then what have you done? As I see it, you haven't really solved anything. The problem isn't that the distributors are upset. That’s a symptom of what is going to happen by going direct-to-consumer. The problem is that the universe is shrinking.”
For sports nets, the answer is in part by offering DTC customers more. Ripley said engagement with its authenticated apps is driven by games, but also by VOD and editorial content created by Sinclair.
“It's not just about putting the games over the top, it’s about the platform you create around that,” Ripley said, adding that as the business moves more toward digital distribution, opportunities around ticketing, social media and gamification become more important.
“If you think about where this is headed, there’s been a lot of talk in the video game industry about creating a metaverse around various game experiences,” Ripley continued. “This is no different. The winner here on direct-to-consumer sports will have a metaverse.”
But the real game changer could be sports betting. Bally Corp., the gaming giant that purchased naming rights to the Sinclair RSNs last year, began beta testing its mobile sportsbook, Bally Bet, in Colorado earlier this month. The company expects to launch the service in three additional markets this year and in other areas in 2022.
Ripley said the opportunity around sports betting is huge, adding that the company is working on a “Watch and Play” experience that would allow viewers to bet on games while they’re watching them. Ripley called gamification the third major prong of sports rights monetization and would eclipse advertising revenue, and maybe even subscription fees, once it hits its stride.
Ripley added that early versions of a “gamified experience” could surface next year, while the overlay of sports betting would depend on which states allow it.
“In four or five years you’re gonna be in many, many markets where you can have a real time gamified experience while you watch, play the game within the game,” Ripley said. “When that becomes widespread, that’s when the real economic opportunity becomes quite significant.”
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