With major media rights deals done, how will networks grow revenue?
Five months after ESPN signed a deal that gave it the rights to make MLS games available directly to consumers, the network’s executives still don’t know what that offering will look like. It’s the same story with ESPN and the NBA’s plan to offer an over-the-top service. Only two weeks after finalizing the NBA deal, ESPN doesn’t know what the service will look like, what content it will carry, or even what it will be called.
“We still have to sort through the details,” said Norby Williamson, ESPN executive vice president of production, program scheduling and development.
This push to grab rights for platforms and services that don’t yet exist underscores the pressure faced by sports networks these days. They need to continue expanding their businesses during a time when most major sports rights are tied up well into the next decade.
ESPN’s strategy in the coming years will focus on new platforms — so much so that ESPN President John Skipper
|Turner’s and ESPN’s new deals with the NBA took one of the last remaining major sports properties off the table.
“We have to think about other business models,” Skipper recently told reporters. “We’re not far along on any of them. But we do think about how we might capture more money direct from the consumer.”
When ESPN and Turner signed deals worth $24 billion to lock up the NBA’s rights
Media writer John Ourand and Executive Editor Abraham Madkour discuss the NFL's Thursday night package with CBS and the NFL Network as well as the league's overall ratings strength.
The NFL is certain to command a princely sum for its “Thursday Night Football” package, and the Big Ten Conference is expecting a windfall when its deal comes up in 2017. International soccer rights still don’t do long-term deals; the EPL, for example, will negotiate a new deal next year.
But the networks’ strategy of expanding their business by picking off sports rights — like Fox with the U.S. Golf Association, NBC with NASCAR, and ESPN with Wimbledon — largely is at an end until at least 2020 when the NHL’s rights are up with NBC and the whole rights negotiation process starts again (see charts below).
Inside the offices of each network, executives have different points of view about the best ways for their media business to grow:
■ Already a leader in the digital sports arena, ESPN sees a main area of growth coming from its digital business.
■ As the most-viewed TV network in prime time for 11 of the past 12 seasons, CBS Sports is placing its biggest bets on the continued growth of its broadcast business to drive revenue.
■ Just 14 months since the launch of Fox Sports 1 and Fox Sports 2, Fox Sports still believes in the revenue potential of cable sports channels.
■ Thanks to exclusive deals with properties such as the Olympics, NHL, EPL and Formula One, NBC Sports Group aims to grow by marketing and building up those sports.
“Different networks grow in different ways,” said Jon Miller, programming president for NBC Sports Group. “It’s all about developing deeper forms of fan engagement.”
The digital push
Since around 2010, the cable industry has been pushing TV Everywhere, which allows its subscribers to stream channels on any device. Networks launched apps like WatchESPN and Fox Sports Go, which enabled the country’s biggest sports events to be live-streamed to authenticated users.
|ESPN is focused on its digital business and adding value to that inventory for advertisers.
“I’m sure that each network and each distributor is thinking about unique ways to distribute their content,” said Gary Stevenson, president and managing director of MLS Business Ventures, who negotiated the league’s over-the-top deal with ESPN. “They have to be looking at how to get unique content to consumers when and where they want it.”
Advertisers slowly have been spending more money on digital. Burke referenced such a move last month on Comcast’s third quarter earnings call. “There is clearly a shift to digital,” he said. “You can’t talk to a marketer or an advertising agency that isn’t talking about shifting dollars to digital.”
For ESPN’s Skipper, though, those dollars aren’t shifting quickly enough.
“We need to be able to increase the value of our digital inventory, then figure out how to sell it better,” he said. “All of the video inventory on ESPN.com and mobile is not sold out and it’s sold for lower CPMs [than TV]. We’ve got to get those CPMs up. To our point of view, a digital video impression on SportsCenter.com should be just like a 30-second commercial on ‘SportsCenter’ on television.”
Of course, most of ESPN’s revenue growth over the next several years will remain rooted in cable. In fact, ESPN makes about the same from annual increases in its affiliate fees as networks like NBC Sports Network and FS1 make in total. Distributors pay ESPN around $5.50 per subscriber per month — a fee that rises around 5 percent every year.
ESPN has long-term contracts with most of the major distributors, meaning that revenue is fixed for many years.
That’s a main reason why Skipper is so eager to figure out how to make more money from digital.
All TV networks have a foot in the digital business, from Turner Sports’ management of the NBA’s digital assets, to CBS’s recently announced All Access over-the-top product.
But while networks like CBS Sports and Fox Sports are active in the digital space, they believe they will see the most revenue growth from broadcast (thanks to retransmission consent fees and ad sales) and cable (thanks to affiliate fees and ad sales).
“Digital is important because you want to make sure that your content is available to fans wherever they want to consume it,” said CBS Sports President David Berson. “We’re obviously always looking at expanding distribution and utilizing new technologies. But to be clear, the lion’s share of consumption is still on television.”
Similarly, Fox Sports has launched digital businesses, from the direct-to-consumer Fox Soccer 2Go to the TV Everywhere product Fox Sports Go. FS1 general manager David Nathanson said these products are set up to be complementary to Fox’s core television business.
“As we’ve seen growth on Fox Sports 1, we’ve seen download growth of the Fox Sports Go app, viewership growth in the number of streams viewed, particularly from marquee events like postseason baseball,” he said. “It’s extremely complementary to our rights and something that we focus on as we produce our product.”
Television still matters
Both Berson and Nathanson believe the traditional television business has much more growth potential over the next six to eight years than digital. While both media companies run broadcast networks, cable channels and digital platforms, their focus is different.
Of the two, CBS Sports is most focused on its broadcast channel. Fox Sports is more focused on its cable sports
|Fox is bullish on increasing affiliate fees for its Fox Sports 1 and Fox Sports 2 networks.
“We have a different perspective and strategy than others in that we firmly believe in the broadcast business and our broadcast network,” Berson said. “We feel that we have a solid model, and we’re thrilled that we’ve been able to quietly extend with our rights partners for a long time.”
Broadcast television still commands the biggest audiences and top ad rates, Berson said. As other networks have gotten into bidding wars for live sports rights, CBS has remained more disciplined. The network outbid others for the rights to “Thursday Night Football,” signing a one-year deal with the NFL and holding an option on a second year. In addition to CBS’s $275 million offer for the package, it was the strength of CBS’s broadcast schedule, particularly on Thursday night, that convinced the NFL to go with the network. It’s no surprise that “Thursday Night Football” was the top-rated show all seven weeks this season.
Big ratings like these bring in more advertising revenue and position CBS for retransmission consent negotiations.
Fox Sports’ focus is on its cable sports channels, which have room to increase distribution and affiliate fees. FS1 is in 85 million homes, and FS2 is in 45 million, according to Nielsen. FS1’s affiliate fee range from around 25 cents per month for distributors like DirecTV that have older deals, to more than 50 cents for distributors such as AT&T and Cox that have newer deals.
That’s the kind of affiliate fee growth — going from $255 million per year to a potential $510 million per year if every distributor signs a new deal — that Fox Sports expects to see over the next several years.
Relying on growing affiliate fees has proved to be a risky strategy, as distributors have pushed back against big increases. For example, Fox Sports was looking to get as much as 80 cents per subscriber per month for FS1 when it launched.
Still, Nathanson sees a lot of potential in the cable network’s growth prospects and believes viewership during the MLB playoffs shows the channel’s potential. The channel’s top five shows and seven of its top 10 are 2014 MLB postseason games, topped by the NLCS Game 4 that had 5.092 million viewers.
“We’re uniquely positioned because we’re brand new,” Nathanson said. “Everything we do is new and an opportunity to grow.”
FS1 will start carrying NASCAR races and U.S. Open golf next year. Its coverage of the World Cup starts in 2018.
“Our hope is to see growth in our distribution in terms of the number of homes we reach, growth in terms of the quality of that audience, the length of tune-in of that audience, the demographic makeup of that audience, growth in terms of the number of advertisers both in terms of diversity but also in terms of the amount that they commit to us,” he said.
Turner Broadcast System President David Levy said long-term deals, like the ones Turner has with MLB, the NCAA tournament and the NBA, give distributors comfort that the high-rated programming will stay on Turner’s channels for a long time.
“It helps in negotiations with MSOs because they know what they’re looking at; it gives them security,” Levy said. “It also gives our ad department the opportunity to sell longer-term packages.”
Marketing what you have
Burke made news during Comcast’s earnings call when he said NBC is likely to move some sports to USA Network. It’s not a leap to think that means that some NHL playoff games or the start of some Formula One races will move from CNBC to USA, which is in about 3 million more homes.
|NBC’s “Sunday Night Sports Report” focuses only on sports that have relationships with the network.|
But Miller said NBC has no firm plans yet — at least none that he was prepared to talk about publicly. Besides, he said NBC Sports Group is focused on other areas for growth.
“We continue to invest in our properties to make them grow,” he said. “When our partners are successful, we will benefit in their success.”
Owned by the country’s top cable operator in Comcast, NBC Sports Group has a large portfolio of national sports channels, regional sports networks, broadband sites and streaming apps. But when asked where NBC Sports Group would place its focus, Miller did not mention any of those platforms. Nor has NBC been collecting OTT rights.
Rather, Miller spoke about putting the company’s marketing and programming muscle behind the league partners with which it has deals.
For example, he pointed to NBC Sports Network’s NASCAR studio show, “NASCAR America” that it started producing more than a year before the network produces its first race. He also mentioned the channel’s “Sunday Night Sports Report,” a show that focuses only on the sports that have relationships with NBC. These shows, along with NBC’s companywide marketing initiatives around its biggest events, are part of the network’s strategy to focus on its league partners’ business as a way to increase its revenue.
|MEDIA RIGHTS: WHAT'S AVAILABLE NEXT?|
|The Masters||CBS, ESPN||Year-to-year|
|NFL Thursday Night Football||CBS||2014|
|Conference USA football championship||ESPN||2015|
|Big Ten football championship||Fox||2016|
|Conference USA||CBS Sports Network, Fox||2016|
|Big Ten||CBS, ESPN||2017|
|American Athletic Conference||CBS, ESPN||2019|
|PGA of America||Turner||2019|
“We want to get people familiar with the idea that NBC Sports is the new home for NASCAR,” Miller said. “We have developed our studio programming specifically around the properties and fans that we serve. It’s important to know what you’re not, and we’re not all things to all people.”
NBC has won much praise for its coverage of the EPL, using multiple platforms to make every game available and producing studio shows around those games. The problem is that NBC Sports Group has built the EPL up so much, it has made the property more attractive to other bidders like ESPN and Fox Sports. Negotiations on a new deal are expected to start next year.
“It’s like running for Congress,” Miller said. “You spend two years trying to get elected. Then as soon as you get elected, you turn around and start campaigning all over again.”
For most other rights, though, the campaigning by the networks has stopped until the next decade. The focus turns to executing on their respective growth agendas.
|MEDIA RIGHTS DEALS LOCKED IN FOR YEARS|
|Mountain West Conference*||CBS Sports Network, ESPN||$116 million/7 years**||2019-20|
|NHL||NBC||$2 billion/10 years||2020-21|
|PGA Tour||CBS, NBC||N/A/9 years||2020-21|
|NFL||ESPN||$15.2 billion/8 years||2021|
|MLB||ESPN||$5.6 billion/8 years||2021|
|MLB||Fox||$4.2 billion/8 years||2021|
|MLB||Turner||$2.6 billion/8 years||2021|
|Australian Open||ESPN||N/A/10 years||2021|
|NFL||DirecTV||$12 billion/8 years||2022|
|NFL||Fox||$9.9 billion/9 years||2022|
|NFL||CBS||$9 billion/9 years||2022|
|NFL||NBC||$8.55 billion/9 years||2022|
|Pac-12**||ESPN/ABC, Fox/FSN/FX||$3 billion/12 years**||2022-23|
|MLS**||ESPN, Fox||$600 million/8 years***||2022|
|FIFA World Cup***||Fox||$450 million-$500 million/8 years||2022|
|FIFA World Cup***||Telemundo||$600 million/8 years||2022|
|MLS||Univision||$120 million/8 years||2022|
|WNBA||ESPN||$72 million/6 years||2022|
|Wimbledon||ESPN||$480 million/12 years||2023|
|NASCAR***||NBC||$4.4 billion/10 years||2024|
|NASCAR***||Fox||$3.8 billion/10 years||2024|
|NCAA Men’s Div. I basketball tourn.||CBS, Turner||$10.8 billion/14 years**||2024|
|SEC||CBS||$825 million/15 years||2023-24|
|French Open||NBC||N/A/12 years||2024|
|NBA***||ESPN||$12.6 billion/9 years||2024-25|
|NBA***||Turner||$10.8 billion/9 years||2024-25|
|College Football Playoff^||ESPN||$7.3 billion/12 years||2025|
|Big 12||Fox/FSN/FX||$1.2 billion/13 years||2024-25|
|Big 12||ESPN/ABC||$1.3 billion/13 years||2024-25|
|U.S. Open (Tennis)||ESPN||$825 million/11 years||2025|
|Big East Conference||Fox||$500 million/12 years||2024-25|
|Notre Dame||NBC||N/A/10 years||2025|
|U.S. Open (Golf)***||Fox||$1.12 billion/12 years||2026|
|ACC||ESPN||$4.2 billion/15 years||2026-27|
|Big Ten Conference||Big Ten Network||$2.8 billion/25 years||2031-32|
|Olympics (U.S. rights)||NBC||$7.65 billion/12 years||2032|
|SEC||ESPN/ABC||$6 billion/20 years||2033-34|
N/A: Not available
Note: All contracts may share rights with related networks. For example, ESPN contracts may share rights with ABC, NBC with NBC Sports Network, Fox with Fox Sports 1, and CBS with CBS Sports Network. Telemundo is owned by Comcast/NBC.
* CBS Sports Network and ESPN will alternate game selections in football and men’s basketball, with ESPN controlling the rights to Boise State home football games. CBS Sports Network retains the rights to Boise State road football games.
** Combined total for both networks
*** Deal has not begun yet
^ Figure takes into account the $215 million annual payout ESPN has committed to the “contract” bowls — the Rose Bowl, Champions Bowl and Orange Bowl — in addition to the playoff package.
Sources: Conference Form 990s filed with the IRS; conference officials, SportsBusiness Journal research