Examining The Fractured Sports Rights Conundrum, And What The Future Holds
Live sports are single-handedly keeping the decaying cable business alive. Without NBC, CBS, FOX, ESPN, TNT, ABC, TBS and a few others' willingness to plunk down billions for sports television rights, cable would have already joined Blockbuster (RIP), VHS tapes and CDs in the wasteland of obsolete forms of content.
Every piece of content other than live sports and news has become fungible in the cable realm. Want to watch the latest episode of Succession? Subscribe to HBO Max. What about Dancing with the Stars and Abbott Elementary, two network staples? Disney Plus and Hulu have you covered. Even niche networks such as AMC have their own streaming services at this point.
Subscribe to enough platforms, and most popular movies are within reach. But sports and news carry far greater urgency. They operate on a much faster timeline than anything else. If scripted programming is on the slow drip, methodical pace of Better Call Saul, sports is like Brad Pitt's Bullet Train; fast and moving at warp speed.
It's acceptable to miss the latest episode of your favorite show, or watch a popular series years after it aired, and yet it's treason if you plan on waiting even a day late to watch an NFL game.
That immediacy is crucial, and it's the reason why content is king, yet also increasingly fractured. As reality and scripted programming has successfully migrated to streaming services, sports are the last major frontier tied to cable.
The NFL is the 500 lb gorilla in the room that is going to anchor the cable business for at least the next 10 years. The league has four separate rights deals that all don't expire until 2033, while the NBA's are up in 2025. So when people exclaim cable is going to die soon, they may be a little off in their timing.
There are currently roughly 70 million pay TV subscribers in the US, which is still a massive number that churns out billions in revenue per year for all the key players. But it's a far cry from the 100 million subscribers merely 10 years ago, per Statista. It's common knowledge that number will continue to drop.
So, where is this all heading? No one truly knows, but here are some fun ideas to hypothesize about.
Cable Becomes Itself Again
Everything is cyclical. The rise of streaming was spearheaded by the consumers' desire to break away from the massive (and expensive) vortex of content cable offered. Why pay to watch Boomerang, National Geographic, Military News and many other random channels when all you really want to consume is HBO, Showtime and AMC? For those people who have no interest in sports, streaming has been a cheaper oasis of select premium content.
But sports is also feeling this content fracturing. Say you're a big fan of the major US sports and you live in Los Angeles. Thanks to local blackouts, all of the following subscriptions are necessary if you want to watch everything:
- Cable or YouTube TV/Hulu Live Sports for NBC, CBS, FOX, ESPN national broadcasts
- Regional sports network to watch Lakers, Dodgers, Kings, Rams etc
- ESPN+, for more niche MLB, NHL, College Football and UFC programming
- Amazon Prime for exclusive Thursday Night Football Broadcasts
- Apple TV+ for select MLB and MLS coverage
- NFL Sunday Ticket, NBA League Pass, MLB TV for non National and regional games
- Peacock for English Premier Soccer Games
"It appears that the company's goal is to make its TV app the home to all of the major sports leagues and put that in over a billion pockets. That's a powerful notion."
Apple absolutely possesses the liquidity to win whatever the next sports rights deal is. The house that Steve Jobs built is reportedly the front runner for the NFL's shiny Sunday Ticket package. Their senior VP of services Eddy Cue is a huge sports fan, and it appears he's determined to make Apple a one stop shop for the splashiest sports in the country.
Meanwhile Amazon looms as a dangerous threat to gobble up college football and NBA rights in the future. Don't believe me? Look what their VP of Global Sports Video Marie Donoghue just said. She probably has an idea of Amazon's programming strategy.ttps://twitter.com/AndrewMarchand/status/1580236394248564736?s=20&t=Nwg8_I4Dcyjtd2BgRCAN4w
One of the disadvantages these ultra wealthy behemoths have working against them is, ironically, viewership. Sports leagues will almost always usually follow the money, but it's still highly important their product reaches the most amount of eyeballs as possible. And while Thursday Night Football on Amazon garnered an impressive 12 million viewers, Apple TV+ reportedly only has around 30 million subscribers, far fewer than cable and most streaming services.
Amazon and Apple are the new kids on the block in a decades long content game, but their competition is vulnerable. Warner Bros. Discovery, home to unimpeachable IP such as DC, Game of Thrones, Harry Potter and iconic brands in HBO, TNT, CNN, Cartoon Network and valuable sports rights, is $50 billion in debt. Rumors of yet another sale are currently circulating, especially as the stock tanks even more than the general market downturn.
NBC has a treasure trove of scripted programming between Seinfeld, Friends, SNL, The Olympics and sports rights, but their Peacock service is like the 2011 Charlotte Bobcats in the race to the streaming top. They have a measly 15 million subscribers, plus no brand identity. Yuck.
Paramount has a movie studio with decades of hits, Nickelodeon, premium cabler Showtime and a growing streaming platform in Paramount+...and yet, rumors of Shari Redstone selling the whole company grow louder than ever at every Allen and Co. conference.
Amazon has already bought MGM, and while Apple has kept their powder dry in regards to buying legacy media companies, it may be a smart idea to eliminate another competitor. By 2033, anything is possible. Maybe consumers will actually have a smooth experience watching the content they like.
Sports Become Even More Splintered
Ah yes, just what everyone wants. Sure, sports rights are already evenly distributed, but at least you can find major prime time regular season and playoff games on cable without having to subscribe to other services. But if cable subscribers keep dropping and profit sinks to a certain level, rights holders may decide to pull their most valuable content and feed it to their direct to consumer streaming services.
For example, if you only have ESPN+ but don't subscribe to linear cable ESPN, you don't have access to national broadcasts of, say, Monday Night Football or Wednesday night NBA games. Those properties are cable exclusives. Sure, you could watch them on the ESPN app and not a TV, but you still need to login to your cable provider in order to do so.
Recently, sports media journalists Andrew Marchand of the NY Post and John Ourand of Sports Business Journal have been predicting that ESPN is going to go full direct to consumer within the next few years, meaning it wouldn't be essential to pay for cable if you want to watch the Manningcast on Monday Night Football. When, not if, that happens, cable will lose even more value.
NBC and CBS already offer the option to stream live games on their DTC services. The one holdout is Fox, a company that has de emphasized streaming ever since selling all of their non Fox Sports and Fox News assets to Disney for $70 billion. They're zagging while everyone else is zigging. Fox's stance of sitting the cutthroat streaming wars out while keeping the profits churning through legacy media has worked out well for them, but the company is likely going to need a streaming service eventually in order to survive long term. Could that be Tubi, Fox's ad-based free streamer that doesn't have any premium Fox content? Perhaps.
It would be terrible for maximizing distribution, but if sports rights holders such as ESPN want to own the customer experience, perhaps they eventually pull their content from cable and YouTube TV, and force sports fans to sign up to their service directly if they want to watch the marquee products. It's unlikely this occurs, but you never know.
The Leagues Keep Their Product For Themselves
Now this would be Stage 10 armageddon for rights holders, and virtually the entire media ecosystem. It's safe to say this likely won't happen, and if it did, it wouldn't happen for the next 15-20 years.
But this year, we grew one tiny, baby step closer to this becoming a reality someday. What was that small change? Both the NBA and the NFL debuted direct to consumer streaming apps (NFL+ and The NBA global app). In the past, the NFL struck a deal with Yahoo where a few games were broadcasted free each year. Now? Those are going to NFL+, which is an incremental, yet important piece of groundwork to building a true DTC business.
The NBA has had NBA League Pass for years, but introducing their own app allows them to own the customer experience even more. Ideally, consumers will also watch highlight worthy plays such as dunks and crossovers on the NBA app instead of Instagram or YouTube. While that may be wishful thinking for now, it's wise of the NBA to start building.
By having these streaming services operational, leagues such as the NBA and NFL can use them as negotiating carrots every time rights deals come up. Now these leagues can credibly point to their own services with a straight face as a potential alternative to selling the rights. At worst, it's another negotiation tactic in favor of leagues. At best, it's a path to completely owning the customer relationship and keeping all of the advertising and subscriber revenue.
But other than the obvious rights money and distribution these networks offer, there is one massively underrated reason as to why leagues don't just hoard their content all to themselves....
It's really hard to run a direct to consumer business. Networks market, advertise, hire broadcasters, and actually produce the games. Lots of money and labor go into this. I remember one time the Sunday Night Football producers spoke to our college sports broadcasting class in March, barely after the Super Bowl ended. And when they said they were already knee-deep in planning for the next NFL season, the classroom was flabbergasted.
If leagues actually hoarded their own sports rights, the repercussions would be insane. Who would announce the games? Would networks still feel incentivized to allocate resources toward covering the sports? What about producing talk shows?
Thankfully, that's not a real threat for the foreseeable future, and perhaps ever.
Parting Shot
In the meantime, the path forward is murky, but somewhat clear. Sports leagues will continue to try maximizing their distribution channels. By adding Amazon as the Thursday Night Football partner for the next 11 years, the Shield now has five broadcast partners, with a sixth in Apple potentially on the way.
When the NBA rights expire in 2025, it would be a shocker if ESPN/ABC and TNT don't re-up with the league. But it also wouldn't be shocking if the NBA adds another package to their rights deals with, say, Amazon or Apple. This creates more partners, more bidding wars and most importantly, more money.
And yet, cable is still on top...for now.
"The death knell of the cable bundle is largely exaggerated,” Gerry Cardinale, the founder and managing partner of Redbird Capital, told the New York Times. "It’s the best place to get a one-stop-shop offering of as many sports as are available.”
It will be fascinating to see where this next decade of sports rights take us. As long as I can still hear Mike Breen say "Bang!", I'll be okay.
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