April 20, 2021

The Uncertain Future of Regional Sports Networks

Live sporting events have served as a bulwark against cord-cutting and have been largely credited with keeping the MVPD model afloat. Unfortunately, many pay-TV operators have been forced to drop regional sports networks (RSNs) in order to maintain a more competitive cost structure.

Can pay-TV survive without RSNs? Yes. The question is whether RSNs can survive without pay-TV.

Regional Sports Networks (RSNs) offer local fans the ability to watch the games of local teams. For many sports, professional and college, these local broadcasts drive a significant amount of viewership, revenue, and excitement.

Unfortunately, MVPDs are increasingly unwilling to pay the expensive fees RSNs charge, and streaming services are unable to do so without violating their pricing & revenue model. This leaves the future of RSNs up in the air.

The Traditional RSN/MVPD Relationship
Traditionally, an RSN could demand fees that an MVPD considered excessive because the higher fees would be passed on to the entire subscriber base. The regional sports networks had real leverage, knowing that if it did not carry the RSNs, the MVPD was likely to lose many of its most passionate viewers, i.e., avid sports fans. Losing a large group of subscribers was considered a threat to the MVPD’s core business.

The Arrival of Streaming
When inexpensive streaming video apps went mainstream, MVPDs were no longer the only way to access premium video at home. A wave of disruption swept in, impacting both networks and pay-TV operators. At first, the impacts centered on the distribution of films and TV shows, but over time began to reach into other genres, including live sports.

While the most valuable primetime sports continue to flow primarily through pay-TV operators, consumers now have a wide variety of options for streaming other live sports. From a cost perspective, many streaming services do not require RSNs because, unlike cable operators, Alphabet (owner of YouTube) and Disney (owner of Hulu) would not be noticeably impacted by the loss of a group of passionate sports fans.

The Pandemic
The lack of live sports during the COVID pandemic further added to the financial challenges facing RSNs. They had to issue refunds to their pay-TV distributors, but the refunds they received from the leagues were not enough to cover the tab, further impacting bottom lines.

The pandemic’s financial impact also accelerated operators’ willingness to drop regional sports networks across the country. This hastening trend has left local fans wanting to watch their team at home in a difficult if not impossible situation.

Bifurcation of Value
Advertisers view primetime sporting events differently than they do local events. The Super Bowl for example, may have declining audiences, but the pricing continues to increase. The primary justification for these price increases is that primetime sports have unmatched reach. In fact, the Super Bowl occupied all 10 of the most viewed television broadcast slots for this decade.

The World Series, Stanley Cup Finals, and the NBA Championship games all have decent reach and solid pricing, but it is the loyal local audiences tuning in for 162 baseball games or 80 games for the NBA and NHL that is more impactful to these sports. RSNs are the source for regular season MLB, NBA, and NHL games (provided the rights have not been sold off to a national network).

However, if fewer people have access to local games on TV, fewer people will become passionate fans making for fewer purchases of game tickets, jerseys, hats, and other merchandise. Since cord-cutters are more likely to be young adults, leagues will be forced to address the loss of regional distribution and find a different way to keep regional sports on the air. The MLB and NHL will be particularly impacted by the loss of RSNs.

How to Keep Regional Sports on the Air

Going DTC
For $125 per season, a sports fan can get MLB.TV (streaming). They can also get the NBA League Pass for $100 or NHL.TV for $35. While these services provide every out-of-market game, local games are blacked out. Eventually, the leagues could work out a deal with the regional sports networks to offer the local TV package like a PPV event.

However, the problem with a local TV package sold like a PPV is that the numbers won’t add up. In the traditional RSN/MVPD model, fees were spread across their entire consumer base. Generating revenues from a fraction of the audience is a recipe destined to fail.

If the DTC model is going to work, the package will have to include local games. This would require that any rights fees needed to pay the teams would have to be subsidized by the leagues or that the local teams would have to accept lower rights fees.

The Addition of Gambling
Many media companies see value in investing in gambling. Why is this potentially good news for RSNs? The combination of broader legalization combined with advancements in technology could create a new revenue stream for struggling regional networks.

Sinclair Broadcasting recently announced that it will rebrand its Fox Sports Networks as Bally Sports for a reported price of $85 million. As part of the deal, Sinclair will spend $10 million to promote the role that regional television plays in delivering live games and local team sports content.

Also, as part of the deal with Sinclair, Bally’s sports-betting content will be integrated into broadcasts. Actual sports-wagering will remain (for now) available only through the Bally’s Bet platform. Eventually, interactive games could be played along with live sports broadcasts as they unfold. RSNs have a role to play in this model.

Amazon Primed to Make an Impact
Amazon just paid the NFL $1 billion a year for exclusive rights to Thursday Night Football over the next 10 years. The NFL is the most nationalized of sports leagues and encourages local viewing through regional broadcasts. Since only out-of-market games are blacked out – and given the number of games aired every week – there are only a few games that a loyal out of town fan may miss.

With such a large investment in the NFL, it is likely Amazon is laying the groundwork for additional sports investments, including, possibly, buying a few RSNs. Amazon could even integrate gambling, assuming it made sense.

Conclusion
For professional sports leagues, the demise of RSNs will leave a large portion of their fans without access to non-primetime games, thus accelerating the demise of live sports viewing. It is therefore in their own self-interest to ensure that local fans have access to local games.

The reality is that the future of RSNs is bleak unless they can somehow incorporate gambling/fantasy sports and other interactivity/gaming into their revenue streams. The more likely outcome is a DTC approach, where the leagues subsidize the local teams to ensure a lasting loyal and passionate fan base for years to come. The DTC model will make RSNs a marginal entity. Streaming is not going away, and cord-cutting will continue for years to come, further jeopardizing the standing of RSNs.

At the end of the day, if the RSNs, leagues, and teams cannot find a way to grow their viewer base, then the future is bleak for not only the RSN, but for baseball, basketball, and hockey—the anchor sports of RSNs—that rely on local regular season viewership.

   

A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.

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