OTT, Cordcutting Disrupting Televised Sports

The impact of new digital players is just beginning to be felt.
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The increased interest among streaming networks to enter the live televised sports market will cause more fragmentation, challenging the domination of traditional broadcast networks. At the same time, the state of Regional Sports Networks is changing, affected primarily by 21st Century Fox’s sale of its RSNs to Disney.

These are among the findings of Market Intelligence’s “2019 Sports Report,” detailing the business of live televised sports.

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“Live sports content is a highly valuable commodity in the television industry,” the report cites. “The current media landscape is challenging both operators and networks to maintain margins while traditional pay TV subscribers decline and programming expenses increase.”

According to the report, the NFL “arguably” produces the most valuable content on television and with contracts expiring with Fox, CBS and NBC in 2022 (and ESPN in 2021), the increasing interest among OTT players like Amazon Prime to enter the market will prompt new rights packages that reflect new realities.

“There are early discussions around breaking up the AFC and NFC packages for the next round of negotiations, with digital service providers increasingly expressing interest in bidding on streaming rights,” the report said.

In addition, with cable operators continuing to hemorrhage subscribers via cord cutting (many of which are trying to escape expensive sports channels) and the cost of rights packages on the rise, this could have an impact on the value of so-called “linear” (broadcast) vs. digital rights, according to the report.

“An area of interest for the next couple of years is how the leagues will decide to distinguish between linear and digital rights,” the report noted. “The cable bundle continues to lose subscribers, negatively impacting network margins. At the same time, digital rights have thus far been packaged and sold separately from linear rights. If this continues, there could come a time in the next few years where one entity owns digital rights and another owns linear. In this scenario, the value of local linear rights would diminish, at least slightly, as there would be—for the first time in a local market—competition for viewership in protected in-market territory.”

For Regional Sports Networks, there have been several new entrants in the past year, such as ESPN+, YouTube TV, Amazon, Sinclair and FloSports, that have had an impact. But perhaps the biggest effect comes from the sale of 22 RSNs to Disney as part of its $71.3 billion acquisition from 21st Century Fox, according to the report.

“The surviving Fox entity will focus on live sports and news but is exiting the local sports rights business, citing major differences from local versus national sports rights segments,” the report said. “New Fox's more focused strategy will presumably make it a bigger force in the national sports segment.”

Despite the rise in per subscriber costs in the pay-TV market for sports (for RSNs, it’s an average of $13.30 per subscriber, overall, $5.83 when adding in all multichannel networks), the report notes that the costs still pale in comparison to the even higher expense of attending games in person.

“While the cost to access live sporting events as part of channel lineups has increased over the years—and fees within the pay TV industry are head and shoulders above the non-sports channels—the cost to attend games in person is even more eye-popping,” the report said. “From a sports fan's perspective, there is value in paying industry-leading sports programming fees, compared to following a team in person or being disconnected from tuning in.”

The bottom line is that for televised sports, the disruption caused by the increasing number of digital newcomers (including the various professional leagues’ own streaming services) coupled with increased sports rights costs will require viewers and networks to fasten their seatbelts for a bumpy ride.

“Networks are in a predicament as there seems to be no sign that sports rights fees will slow and yet cord cutting and cord shaving is causing most sports channels to bleed subscribers, putting increasing pressure on the bottom line,” the report concludes. “And the fact that most sports rights are wrapped up in long-term deals for many years to come makes it difficult for channels like NBCSN and FS1 to become a powerful competitor to ESPN.”