The Battle For the Future of Sports on TV Has Begun

Right now if you’re one of the roughly ten million subscribers to Dish Network you have lost access to all the Fox Sports regional networks. Those 22 Fox Sports Regional Networks — sold by Fox to Disney who then sold them to Sinclair — broadcast local telecasts of 14 Major League Baseball teams, 17 NBA teams, and 13 NHL teams.

They are provided on a regional basis through channels like Fox Sports Ohio or Fox Sports Arizona, for example, and they are among the highest priced sports channels in the country. For years the games on these networks have been a major boon to franchise values and these television rights deals have been a huge part of the framework supporting the rapid rise in player salaries.

But, and this is key, most people don’t watch these regional sports networks or these games.

Now maybe it’s just public battling in the midst of negotiations, but Andy LeCuyer, Dish’s senior vice president of programming, said this by way of explaining the channels being cut off Dish Network: “The regional sports TV business is broken. It relies on the majority of customers subsidizing the slim minority who actually watch those channels. RSNs should be like a ticket to the ballpark — fans who want to watch the game should be the ones to pay for it.” He continued: Sports programming is the most expensive content on TV. Networks pay the sports teams huge amounts of money, then try to recoup it from a broad base of consumers. It’s time to change the status quo.”

According to the regional sports networks, the Dish decision occurred despite the fact that they weren’t seeking any increase in the fees they receive.

LeCuyer’s comments come in the midst of a challenging time for cable and satellite companies. After years and years of growth, around 2011 customers began to decline. Initially, these declines were seen as outliers. But over the past several years those declines have picked up speed, eventually leading to the present moment, where, as we’ll discuss below, the cordcutting trend is accelerating in a big way.

LeCuyer’s comments don’t sound like those typically made in the midst of negotiation, they sound like an attack on the very existence of the regional sports networks themselves. (If Dish’s battle with the regional sports networks grow to other carriers then Rupert Murdoch’s decision to sell them might end up looking like genius. If the battles don’t grow then Sinclair may still have gotten a very good deal. Regardless, it’s clear that Disney will lose billions on the channels, leaving Disney hoping the other assets they acquired from Fox will make up for these losses).

Now, as a refresher, everyone pays for every channel as part of the cable bundle. That is, whether you watch sports or not if you subscribe to a cable or satellite bundle, you pay for every channel on that bundle. You just don’t realize it because your cable bill isn’t itemized. And sports, by far, are the most expensive parts of the cable bundle. And while the cable bundle has been the most lucrative media rights packaging deal in global history, it’s now under assault due to the rise of streaming companies and the multitude of entertainment options available to us all.

I don’t know about in your house, but my family subscribes to cable (including HBO, Showtime, and the like), Hulu, Netflix, WWE Network, DAZN, and Amazon Prime. (Of course in order to have streaming services in your home you need high speed Internet at the house as well so that needs to be factored in.) Add all of that up and we’re spending somewhere in the neighborhood of $300 a month for cable, these streaming services, and Internet for our home.

That’s before the arrival of a new Disney+, a new ESPN+, a new Apple +, and a new WarnerMedia streaming service.

(If you subscribe to all of these services at their top tier, you’re talking about $400 a month, or nearly $5000 a year in media consumption.)

Add in the fact that virtually everyone reading this right now also has a fairly expensive cell phone, as well as an expensive cell phone plan as well, frequently with multiple lines for all the members in your family, and we’re talking about thousands of dollars more.

When you put all of these costs together, most of us are paying thousands and thousands of dollars a year for phone, cable, streaming, and Internet.

That’s a big monthly entertainment bill.

So when do consumers throw up their hands and instead of adding more spending, they start dialing back?

For lots of you, I think that moment’s already arrived.

Because the cable bundle is suddenly under siege like we’ve never seen before. Rich Greenfield points out that so far in quarter two of this year, 1.3 million cable and satellite subscribers, representing only three companies reporting so far, have abandoned their services, setting the table for what may be the worst cordcutting quarter in cable and satellite history.

These numbers look even more crushing when you consider them, as Rich does here, in the context of last year’s second quarter numbers. Cordcutting is accelerating in a big way in 2019 over 2018. What’s more it’s not just cable and satellite, Netflix also missed its subscriber goals, both domestically and internationally, losing 126,000 subscribers in the United States, leaving it with roughly sixty million subscribers here.

So I’ve got a question for you, what if we’ve reached peak cable, satellite and streaming consumption levels now? That is, not that there aren’t customers who will sign up for new offerings — there clearly are — but what if the United States cable and satellite market will never be as high as it is today — at around 85 million subscribers and change –and what if the top streaming audience in the United States, at least for a price of around $14 a month, is Netflix’s sixty million subscribers?

What if, in other words, we’ve reached peaked media consumption in this country?

Already, as Netflix CEO Reed Hastings has made clear, his company is competing with sleep. But what if everyone is competing with sleep and we’ve reached peak media consumption? For decades media companies have been able to rely on a growing domestic audience pie, but what if we’ve reached, aside from population growth, our peak consumption abilities in America?

Putting phones in everyone’s hands drastically increased the amount of available media consumption for all of us, both audio and video, but what’s the next technological leap forward that will allow a similar increase in hours of media consumption? Unless we figure out a way to cut either work or sleep hours, there’s only so much time in every day. And within that time is only so much time to consume media. How many of you out there right now have shows piled up in your DVR that you can’t get to? How many of you have podcasts lined up that you’ll never consume?

I bet almost everyone reading this right now has both.

Yet the onslaught of content is only going to grow because the rewards for a break through, Game of Thrones style massive hit are so large.

And what if that’s the underlying reasoning behind Dish Network’s battle over the regional sports networks. We’ve always had carriage battles over channels, but what if Dish is tossing in the towel with the regional sports networks because they believe carrying sports is actually costing them more customers than they gain? In other words, what if their calculus, maybe for the first time ever, is that far from sports fans rioting if they can’t see their games, that there simply isn’t that much loss to their business if they don’t carry regional sports channels? In fact, what if they are calculating that by lowering the cost of their subscriptions for the average consumer who doesn’t consume sports they’ll actually lose fewer customers and increase profits even as the cable bundle subscriber numbers continue to decline?

If so, that’s flipping the sports script on its head.

For much of the past forty years, sports fans have received a great deal from the cable and satellite bundle. Our channels cost by far the most, but our sports viewing is being subsidized by all the people who don’t watch sports at all. While ESPN alone costs around $7 a month, that $84 a year represents a great deal for sports fans. That’s because an ESPN without the non-sports fans who watch ESPN would cost us roughly $360 a year. (That is, an a la carte standalone ESPN with 20 million subscribers would need to charge $30 a month to roughly equal the revenue they make now off existing cable and satellite subscriptions. If 40 million subscribers would pay, then the cost could drop to $15 a month or $180 a year, roughly the same cost of an annual Netflix subscription. Regardless of the number of subscribers, ESPN’s entire business model would need to change, it would go from receiving money from people who mostly don’t watch their programming to receiving money entirely based on people who do watch their programming.)

The point here is that the cable and satellite bundle has been built, to a large degree, off sports fans getting a free ride on non-sports fans. (Yes, sports fans also pay for channels they don’t watch. But most of these channels cost a fraction of what sports channels cost). The net result of the cable and satellite bundle, from a sports fan perspective, has been very positive.

Indeed, a huge part of ESPN’s growth was the power they held over cable and satellite companies — carry our games or else you’ll lose subscribers to your competitors who do have us — but what if these cable and satellite companies are starting to lose customers so fast that their goal is simply to be as profitable as possible and not to provide all channels to all people any longer? In other words, this move by Dish doesn’t seem motivated by fear of lost customers. If the customers are leaving already, why not wind down the business and bank as much profit as you can along the way. (Indeed, Dish Network now seems to now be pivoting its business to cell phones — it will attempt to become the nation’s fourth major cell phone provider — which would allow them to sell media streaming packages to customers and take a share of the sign ups that way as opposed to via a satellite subscription.)

And here’s the biggest question of all — if cable and satellite companies no longer fear losing subscribers over not carrying sports, what’s to keep the entire cable bundle from essentially imploding? If Dish is telling sports fans that they need to buy a ticket — which is another way of saying pay directly for streamed content — how many fans might abandon their satellite subscription and do just that? Moreover, what will that do to sports audiences moving forward? Will teams and leagues be able to replicate the same money they receive now from the highly lucrative regional sports networks or will they take a big hit because the number of hard core fans willing to pay hundreds of dollars a year to stream their local team’s games is much smaller than anticipated? In other words, how many truly hard core fans are there? (The best evidence? The NFL Sunday Ticket has around two million subscribers. The same is true of the WWE. If two million subscribers is the ceiling so far, how much higher can you go than that?)

Again, look at the ESPN numbers above, a direct to consumer business is a completely different business model that what exists right now. Right now sports — and teams and players — are receiving billions of dollars from people who never consume their content. Could a direct streaming offering work for sports teams and leagues to replace their lost revenue as the cable and satellite bundle collapses? Yes, but it will probably be much more expensive than what sports fans are paying now. So will sports fans pony up and pay big dollars to watch their teams or will sports find itself swimming against the tide as they try and sign on new customers just as we’ve reached peak media consumption? Well, we’re about to find out.

Because the future is now.

Comments

Get the Daily Outkick

* indicates required