This should be an epic time for sports on TV: This week Monday Night Football the Super Bowl rematch in February set a viewership record. The first NBA tournament of the season promises to become a lucrative new competition. College football’s massive conference realignment and a greatly expanded playoff next year should draw big viewership. Even old-school Major League Baseball saw a viewership renaissance this summer, thanks to major rule changes that shortened games.
Overall, spending on sports rights is projected to jump from $15.3 billion this year to $22 billion by 2027, according to data released by consulting firm Parks Associates at the recent “Future of Video” conference in Los Angeles.
“Sports has never been more valuable,” sports startup investor John Kosner said at the conference. Kosner, former ESPN senior executive, co-founder Micromanagement Ventures with former NBA commissioner David Stern.
“It’s live, you have to watch it live,” Kosner continued. “Athletes have to rest, so there are natural areas where you can put advertisements. Sport is the only (program) that will offer everyone’s attention live, and that will only grow in the future. It’s not part of the mix, it’s going to drive advertising.”
Media companies that depend on sports rights to retain audiences are shrinking fast in a rapidly changing environment. Not everyone will be able to afford the rising prices of those rights in the future, or perhaps even continue to pay for those they have already ordered.
Even Disney, the traditional media giant that owns ESPN and ABC and is the best-placed Hollywood company in the competition for sports rights, filed an SEC 10K filing on Wednesday saying it will cut spending on cable, broadcast and streaming programming from $33 billion to 25 billion dollars. next year. That’s a whopping 24% reduction. The company will also produce less emissions for the same money, as it pays more to cover inflation and new labor contracts.
It’s a similar situation for smaller Hollywood media competitors trying to finance sports on top of everything else they’re doing in a tight time, executives said at the conference.
The situation is even worse for the endangered species of cable known as regional sports networks. Warner Bros. DiscoveryWBD exited its small group of cable sports channels, and Sinclair’s Diamond Sports filed for bankruptcy. Others limp. In markets such as Phoenix and Salt Lake City, teams have acquired local players or made deals with local broadcasters.
“I think the RSN model is going away,” Kosner said. “Business remains good in big markets like (Los Angeles) and New York. But I believe it is a form that is disappearing.”
The problems started when virtual cable providers like YouTube TV and Hulu + Live TV became more popular. The so-called vMVPDs needed national, even international sports rights, not just local ones. At the same time, RSN’s traditional home, local cable operators, have been cutting channels or moving them to more expensive third parties to save money.
All of this is starting to put pressure on long-held expectations – especially by leagues, teams and athletes – that sports rights will continue to grow.
In a research note Tuesday, MoffettNathanson senior analyst Michael Nathanson said one takeaway from a week of meetings with West Coast entertainment executives was that “the question remains whether we’re finally seeing signs of a (sports rights) bubble starting to burst.”
Industry sentiment suggests the NBA is increasingly positioned for a lucrative renewal of its TV rights, currently the largest package in negotiations, Nathanson said. The league’s new in-season tournament promises to become a new digital package that could be sold to bidders that could include NetflixNFLX.
Disney is expected to renew its NBA rights, Nathanson wrote, while Warner Bros. Discovery may not, given its $43 billion in debt. But a third, digital-only package licensed to one of the tech giants, and perhaps even a fourth, to NBCUniversal is also possible.
But for all the other leagues that have rights negotiations to come, Nathanson wrote, “Outside of the NBA, we’re starting to see some warning signs that the days of locking in significant raises for each renewal (are) not continuing, especially for those sports stuck more in the middle.”
It’s the same story in many other corners of entertainment these days, with more-in-the-middle outlets and content being squeezed between rising costs, fragmented audiences and deep-pocketed competitors.
Those deep pockets are the tech giants with streaming operations – AppleAAPLAmazonAMZN, Alphabet’s YouTube, even Netflix. They hug more and more some sports, although they do so in less than traditional ways.
Last weekend, Netflix debuted its first live sports event, the Netflix Cup, which paired Formula 1 race car drivers and PGA golfers in a golf tournament. Previously, he focused on so-called sports content “on the shoulder”, such as extremely popular Drive for survival, about Formula 1 races. More live events are expected as Netflix explores ways to attract sports audiences without necessarily embracing traditional live sports rights.
Amazon took a different approach and is now in the second season of its Thursday night NFL streaming offering, paying $1 billion a year for poor matchups most weeks, but still growing ratings as it innovates in how the games are presented.
“Amazon Prime sets the bar” for innovation and fan experiences, Brightcove saysBCOV SVP Marty Roberts, whose company provides streaming technology for the NHL, English Premier League and other major sports. “It’s four (video) streams, all simultaneous, all synchronized to the frame. Announcers talk about every song, data comes live. We’re talking to different teams that say, ‘I want that,’ well, maybe it’s not in your budget.”
Alphabet used its first season of the NFL Sunday Ticket Package to drive YouTube TV subscriptions. He reportedly paid $2.5 billion a year for seven years.
For all of those investments, it’s important to note that they’re mostly either for the NFL—by far the most popular television program—or for events that aren’t part of traditional TV rights, like the Netflix Cup. Sports deals for tech giants are meant to attract huge audiences, or give near-unique control to the distributor, or both (see the comprehensive deal Major League Soccer signed with Apple TV+).
One big domino is about to topple: Disney has admitted it will spin off ESPN from its fading cable package and make it available on streaming, with high-profile ESPN leagues and games finally on the lackluster ESPN+. Disney CEO Bob Iger also sought financial, distribution and content partners to help secure ESPN’s spin-off as a stand-alone entity. The results are likely to reverberate across the sports TV scene.
“How they distribute (ESPN streaming) in the market remains a question,” said Mike Levy, senior vice president of global rights acquisition for FloSports, which operates 20 sports-focused streaming channels. He estimated that streaming ESPN, without the subsidies provided by its presence in the cable package, could cost $30 a month.
Hardcore fans will certainly pay for it, but they may not have the wallet to pay for other companies’ sports offerings, like the bundle of NHL, NBA, and MLB games that WBD’s Max just added for free, ahead of a $10-a-month fee in early January.
“There will be a segment of fans that will absolutely be super served,” Levy said. But “I don’t know how any of this becomes profitable. I don’t know about business models for Amazon, Apple, YouTube. I think these models are challenging.”
That’s why most in Hollywood expect mergers, other consolidations, and even outright shutdowns of smaller media companies in the coming months. This has implications for sports rights and sports leagues and players. It’s a tough time, Kosner said, especially for anyone not affiliated with the NFL.
“The Pac-12 (College Athletic Conference) exploded over the weekend,” Kosner said. “My alma mater, Stanford, will play in the Atlantic Coast Conference. Everyone will have to work harder. The NFL is taking more money out of the system at a time when there is less in the system. It will squeeze everyone else.”
LightShed partner Rich Greenfield speculates on Paramount’s uncertain futurePARAGRAPH All in all, suggested in a note on Tuesday that its valuable collection of sports rights would not be enough get the tech giant to buy the entire company.
“While investors are talking about all the sports rights that a tech platform could acquire by buying legacy media, assets, we’re not sure exactly what their appetite is for sports rights and we strongly believe that these companies are focused on waiting for the sports rights deals to expire and simply licensing directly what they want,” Greenfield wrote.
Paramount Global, which is looking to sell, according to controlling shareholder Shari Redstone, would likely save billions by shuttering its streaming service and shedding the “in-the-middle” rights it has aggregated for Paramount Plus, including European Champions League football and March Madness college basketball, Greenfield wrote.
The leagues themselves could take on more content production and distribution, but that’s not a cure-all for the challenges ahead, Brightcove’s Roberts said.
“Running a (direct-to-consumer) business is not for the faint of heart,” Roberts said. “In terms of fan engagement, what is your data strategy? How do you connect it back to your ticketing system? Some teams underestimate how difficult it is to work with data in a privacy-compliant way.”
Michelle Gable, director of media and entertainment for the NFL’s Los Angeles Rams, agreed that new audience paradigms are challenging teams as much as the new economy. Younger fans, for example, tend to prefer watching highlights, fantasy sports previews, shoulder content and similar programs instead of just a four-hour game. Teams have to adapt and give the fans what they want, multiple times a week.
“Fandom is everything,” said Gable, the former Snap executive who paired the Rams with a live in-game Snapchat feed from SoFi Stadium this season. “This brings a different and immersive element to the game. Last year we turned fans into Na’vi of Avatar in agreement with Disney.”
And especially younger users want a better mobile experience. Even if they’re watching the game on TV at the same time, they want a unified experience that brings together game feeds, stats, merchandise, social sharing, betting information and more.
It’s all another area of uncertainty at a time when little is clear in the business of televised sports.
“We’re in a bunch of transition and it’s not entirely clear where it’s going to go,” Kosner said.