Twelve ways sports networks will adapt to evolving marketplace
■ Subscriber fee increases. Sports network license fees have been going up for decades, and are a driver of cord cutting and skinny bundles. With networks experiencing subscriber losses (from fewer traditional MVPD subs and lower network penetration), subscription revenue can’t grow as fast as previously anticipated. Industry consolidation adds to the networks’ challenges, as per-sub rates are typically size-based, lower for bigger players like Charter+Time Warner and AT&T+DirecTV. Sports networks with growing rights commitments will need to increase growth rates or penetration to compensate, in exchange for relaxation of affiliation packaging requirements.
■ Direct to consumer. In addition to selling existing feeds to the new virtual MVPDs (YouTube TV, Hulu, Sony PlayStation Vue, Sling), sports networks will diversify away from MVPD-only operations. ESPN, CBS, NBC and Turner have recently announced sports streaming initiatives; expect Fox as well. These will add new content and shift programming from current networks (e.g., ESPN may add MLB and NHL from its BAM acquisition to ESPN3 content and some NBA, creating branded offerings for varied interests.) While small compared to the existing business, this will start building a third revenue stream for the Worldwide Leader.
■ TV Everywhere. Look for networks to stem the revenue outflows by fighting password sharing through limiting the number of simultaneous streams permitted and for MVPDs charging for mobile access (like additional sets in the home) rather than continuing to provide TV Everywhere as added value, perpetuating shrinkage via a perfect substitute.
■ New mobile/digital products. ESPN has led the shift to digital, recognizing that an hour of “SportsCenter” is not an ideal product for younger fans. A customizable app that delivers the stats, highlights and news that mobile customers crave is a better fit than a linear feed featuring many stories of little interest. The NBA has already created a new, tighter game feed, customized for smaller screens. The challenge is making this pay like cable’s dual-revenue stream.
|The importance of sports in programming bundles will diminish over time.
■ Primary channel OTT. Sports still holds the bundle together, but this benefit will diminish in time, creating the opportunity to directly serve subs that don’t care about general entertainment. Sports networks (particularly those like ESPN and Fox whose parents are not in cable/satellite distribution) will someday find the time right, as penetrations decline, to offer their services direct-to-consumer on an unbundled basis. While they will give up the benefit of using their sports properties to leverage broad distribution of their entertainment networks, at some point this will have less value. In Canada, it’s already happening. The six Rogers Sportsnet-branded services (which have national NHL, NBA and Blue Jays and MLB rights) are offered direct to consumer at a high a la carte price ($25/month), designed to avoid traditional package cannibalization, while providing nevers/cord cutters/potential pirates a more attractive option.
■ Audits. Cable affiliation agreements include provisions that entitle the networks to periodically perform audits of MVPDs. Small discrepancies, over thousands of subs multiplied monthly, can become material. Expect networks to increasingly look under every rock.
■ Programming replacements. Networks’ biggest expenses are rights fees. Look for cuts of low-ROI packages in favor of rights-free barter, which can generate similar ratings, but without production or rights fee risks. This will create opportunities for streaming players to generate subscription lift from acquisitions, and product migration between traditional competitors. Also anticipate networks obtaining broader grants of rights for use by co-owned properties (e.g., NBC also buying Spanish rights for use on Telemundo, or ESPN also getting rights for its new streaming product).
■ Slowing rights growth. While new competition will limit where this can be employed, look for the networks to tap current industry fears to extract smaller rights increases, longer terms and/or more content from licensors. Though market forces will simultaneously drive some rights in the opposite direction, those properties that insist upon linear TV may have to settle for less than they expect.
■ Trim overhead and reduce experimentation. ESPN and Fox offered buyouts in 2016 for longtime employees. In 2017, ESPN let another 100-plus talent and two senior executives go. Expect a microscopic focus on everything from headcount/management layers to travel costs, and for less R&D on VR and 4K.
■ Production costs. Technology is improving and costs are declining. With growing bandwidth availability, look for more live hours to be produced using remote integration model (REMI) setups that use staff, network control rooms, big transmission pipes, and just camera, audio and talent at remote locations. This saves travel and rental costs, and improves utilization of above-the-line personnel. Low-cost Sportscaster fly-packs are also replacing big mobile production units on lesser events.
■ Brand-name talent. Expect less-well-known announcers to replace big names on studio shows and at mid- and low-level events. Today’s talent do radio interviews, pregame and postgame, announce games, do stand-ups, tweet, and write a magazine story, all in a day’s work. The big guns will still come out for the NBA Finals and NFL games, but expect “right-sizing” for many other events.
■ Consolidation. Just as Scripps and Discovery are merging to increase their leverage and economize, look for strategic partnerships in sports. BAM got the NHL Network. Sinclair added sports panache buying Tennis Channel. Turner Sports and CBS already team up on events like the NCAA tournament; AT&T could buy CBS. Fox or NBC could buy independent and/or AT&T’s RSNs; ESPN or Fox could buy additional league/conference networks.
As competition for scarce sports rights increases, sports networks face a dilemma: Accept smaller operating margins or relinquish key properties. Smart, nimble programmers will adjust and thrive, just as they have through prior industry malaise, because live sports is integral to linear networks. They will do so on the strength of their curated programming to a sports-craving audience, their valuable consumer brands, and the growing relative value of sports in the media mix.
Ed Desser is founder and president of Desser Sports Media Inc. (www.desser.tv). He served 23 years as the senior media executive in the NBA’s office of the commissioner.