Menu
Opinion

Weathering climate change in sports media

An epic subscriber drought has struck the media business. Last month, Disney Chairman Bob Iger warned Wall Street that ESPN’s growth projections should be trimmed. This announcement shocked investors and set off an entertainment stock swoon. Ironically, the precipitating statement contained little actual news.

The drought results from three simultaneous multiyear trends. Cord-cutting has withered pay-TV-home numbers, particularly among 18- to 34-year-olds, who consume on average 3.3 hours per day of broadband — 50 percent more than average. Cord-shaving has resulted in millions more parched subscribers downgrading their service, often eliminating high-priced sports, thus pruning penetration of “expanded basic.” Finally, 2.25 million new U.S. household “seedlings” were planted in the last year. These historically would have sprouted into new subs — except for the “nevers,” young new home formations that have never subscribed to video service. Traditional pay TV is shrinking like melting arctic glaciers.

Three million ESPN homes evaporated in a year. That’s a $200 million annual loss to the sports ecosystem in subscriber fees alone, before any reduction in advertising revenue. Collective RSN subscriber losses are of a similar magnitude. Add in other sports-carrying networks, and we have billions in collective lost rights-buying power over time. If the Worldwide Leader in Sports cannot sustain its legendary growth rates, what does that portend for nonsports entertainment companies? Viacom, practically a nonsports pure-play, took a 21 percent, $5 billion market value hit the day after Iger’s announcement, down 35 percent over the past three months. By comparison, others that program sports were less affected in the revaluing carnage, but not completely spared. Fox and Time Warner stocks are each down about 18 percent, though Disney is down just 6 percent over that three-month period.

Declines of this magnitude will not be ignored by the sports-buying community. Yet with over-the-top services like Apple TV and subscription video on demand offerings such as Netflix, Amazon Prime and Hulu Plus, sports programming has never been more vital to linear TV networks and cable/satellite operators. The “bundle” has persisted because of its marketing simplicity advantages for cable/satellite operators and distribution leverage benefits for networks from programming heft. Sports is the critical linchpin holding it together, maintaining near-universal major channel distribution.

But technology change has empowered new consumer freedom of choice. Eighty-eight million homes today have broadband, and 37 percent have SVOD subscriptions. Most disconcerting to the incumbent distributors: 10 percent of broadband homes have no traditional video subscription. The OTT services are enticing. They feature a superior viewing experience: unlimited, custom-curated, commercial-free, critically acclaimed entertainment at a materially lower cost compared with cable/satellite incumbents. But the major OTT services lack (for now, anyway) most live sports.

Nevertheless, the Fox cable network segment just reported seemingly healthy 12 percent revenue growth, on a robust 17 percent increase in affiliate revenue (including Speed rebranding to FS1, RSN increases, Fox News, etc.). So even if sports continues commanding a growing slice of legacy TV revenue, the growth rate of that economic pie is slowing. Sports programmers will have to recalibrate, reconsidering what they buy, how much they pay, and how much more they can charge per remaining sub. This marketplace turbulence will ultimately affect the teams, leagues and other sports creators, disrupting the decades-old growth trajectory and affecting status quo sharing among owners/promoters and players/participants.

For years, I have counseled sports entities on getting what they deserve from their media rights through an immersive approach to the industry. But how do they adapt to these macro changes in the ecosystem? While billions are committed to critical sports media rights in the near term, deals are always coming up for renewal. Fueled by new potential bidders entering the market and live sports’ relative importance, growing live sports values confront the record flood of 400 scripted entertainment series being produced/funded, requiring all participants throughout the media value chain to dynamically re-establish their equilibrium.

For the big leagues and teams and other tentpole sports programming, high demand for the limited rights supply should continue to fuel revenue growth, though at a less robust pace, while marginal/third-tier programming will be cut to save production/programming costs. In this changing environment, how can sports content owners best respond? Here are some key options to consider:

Reallocate your rights: Deconstruct each element of your programming and consider its highest and best use. You don’t have to sell everything you have historically sold in a single transaction to a single buyer. Programmers will continue to look for all that they can get but may have to settle for less, given thinning wallets and seller alternatives. Pro leagues have changed positions on streaming; teams can better exploit new opportunities. Think creatively and progressively about using other platforms (e.g., property-controlled websites, SVOD services, mobile apps) where scale may be less, but where a superfan niche is willing to pay (e.g., league out-of-market packages, property-branded archives or virtual-reality coverage).

Reinvent: Investigate a streaming platform. With abundant programming and substantial audiences, OTT players will begin to look to the unique clout of sports to differentiate and draw new subs, just as cable/satellite have done historically. Expect the industry to search for business models that accommodate live sports. Yahoo is experimenting with an NFL game next month, and the Los Angeles Clippers have indicated a desire to pursue OTT locally.

Reconsider your media partner: ESPN is firmly established as the category leader, but it may eventually follow HBO down the a la carte path per Iger, further eroding the cable/satellite value proposition. Meanwhile, Fox and NBC have bid eagerly to obtain new properties to improve their competitive positions, and CBS Sports Network has placed an emphasis on upgrading its programming and increasing its subscriber base. At the same time, general entertainment networks ranging from TBS/TNT/truTV to USA, Spike and even Great American Country have upped their sports hours, anxious to differentiate their brands from pure linear recorded entertainment plays that have increasingly become marginalized, in an effort to avoid being dropped or having fees reduced. Even traditional broadcast TV, now with massive retransmission consent revenue, is adding more sports and can again be a viable option for teams.

Reduce/reuse: Much has changed in video production. HD can now be shot and edited on a cellphone. Redundancy exists, and not every event warrants the same resources. For example, a typical regular-season major league game has two or three mobile TV production trucks and an in-house video operation essentially shooting the same event. Reinvent the product-creation process, scale operations and combine where possible. Reuse the video content for other complementary and beneficial purposes (“How a sports enterprise can succeed as a content factory,” SportsBusiness Journal, March 9-15 issue).

Reprioritize: Shift resources from shrinking media (print, radio) into social, mobile and video innovation. Be sure that your social media approach is up to date, your website and operations are optimized for mobile, and your apps permit your fans to intuitively experience your programming/product.

Recalibrate your expectations: Accept that the media world is changing, and the changes cannot be ignored. Forecast responsibly and don’t rely upon double-digit media revenue growth to fund profligate spending. Assuming that a new RSN or national network bidder is going to provide untold riches is a risky proposition. Attempt to tie your content costs to revenue (like most CBAs between leagues and players associations).

Resist the urge to panic: Even in these turbulent times, the sky is not falling. Live sports programming remains unique, powerful, limited and extremely valuable. The pay TV bundle, even thinner or diminished in number, will endure as the best available business model and distribution platform for most premier sports rights for the foreseeable future.

While the current drought will ultimately abate, the sports programming landscape is nearing a tipping point. Astute rights owners will strategically prepare for the next wave of climactic industry change.

Ed Desser is President of Desser Sports Media, Inc. (www.desser.tv), specializing in sports media rights negotiations, strategic planning, rights and asset valuations, M&A, and expert witness services.  He has launched many TV networks and distribution platforms, including NBA TV, NBA League Pass and nba.com and negotiated or advised on over $40 billion in sports media rights and transactions.


SBJ Morning Buzzcast: March 25, 2024

NFL meeting preview; MLB's opening week ad effort and remembering Peter Angelos.

Big Get Jay Wright, March Madness is upon us and ESPN locks up CFP

On this week’s pod, our Big Get is CBS Sports college basketball analyst Jay Wright. The NCAA Championship-winning coach shares his insight with SBJ’s Austin Karp on key hoops issues and why being well dressed is an important part of his success. Also on the show, Poynter Institute senior writer Tom Jones shares who he has up and who is down in sports media. Later, SBJ’s Ben Portnoy talks the latest on ESPN’s CFP extension and who CBS, TNT Sports and ESPN need to make deep runs in the men’s and women's NCAA basketball tournaments.

SBJ I Factor: Nana-Yaw Asamoah

SBJ I Factor features an interview with AMB Sports and Entertainment Chief Commercial Office Nana-Yaw Asamoah. Asamoah, who moved over to AMBSE last year after 14 years at the NFL, talks with SBJ’s Ben Fischer about how his role model parents and older sisters pushed him to shrive, how the power of lifelong learning fuels successful people, and why AMBSE was an opportunity he could not pass up. Asamoah is 2021 SBJ Forty Under 40 honoree. SBJ I Factor is a monthly podcast offering interviews with sports executives who have been recipients of one of the magazine’s awards.

Shareable URL copied to clipboard!

https://www.sportsbusinessjournal.com/Journal/Issues/2015/09/21/Opinion/Ed-Desser.aspx

Sorry, something went wrong with the copy but here is the link for you.

https://www.sportsbusinessjournal.com/Journal/Issues/2015/09/21/Opinion/Ed-Desser.aspx

CLOSE