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Live sports are the glue keeping the pay TV bundle intact.
It’s a refrain that’s become so common over the last decade that it is easy to take it for granted. Even as consumers increasingly turn to streaming services for their entertainment needs, sports and news have remained stubbornly tied to legacy bundles, with executives dismissing any push to break them out.
Former 21st Century Fox COO Chase Carey, for example, memorably said of selling individual channels at the company’s 2013 investor day: “A la carte is a fantasy.”
Nearly a decade later, and Carey’s fantasy is quietly becoming reality.
Regional Sports Networks, long viewed as among the least likely channels to go direct-to-consumer due to their high cost and regional appeal, are beginning to position themselves for a future without a TV bundle, and where sports fans pay for direct access to their favorite team’s RSN.
Home to live local games (usually from Major League Baseball, the NBA and NHL), RSNs draw outsize carriage fees within the pay TV bundle, although the local nature of the games (and broadcast market limits from the leagues) keep their overall reach low. Until now.
The first RSN to dip its toes in the water was NESN, home of the Boston Red Sox and Boston Bruins. NESN, which shares owners with the teams (Fenway Sports Group and Delaware North) launched its offering, NESN 360, in early June.
Then on June 23, the Bally Sports RSNs, which are controlled by Sinclair Broadcast Group, soft-launched its streaming offering in five markets: Milwaukee, Detroit, Tampa Bay, Kansas City and Miami.
The bet is that, while the pay TV bundle isn’t dead yet, its days may be numbered — top pay TV providers shed 1.95 million subscribers in the first quarter of this year, per Leichtman Research — and there needs to be a streaming option for those that cut the cord, or that will never pay for cable in the first place.
“We see it as a hybrid model moving forward — and for the foreseeable future,” Sinclair CEO Chris Ripley tells The Hollywood Reporter. “Meaning both the RSNs on MVPDs and the direct-to-consumer RSNs living side-by-side.”
“Our distribution partners are very important to us. But we need to have an offering in the marketplace that serves the next-generation viewer, be they cord-cutters or cord-nevers, with innovative, engaging and interactive experiences,” Ripley adds. “We are looking at the DTC offering to bridge that gap for a large and growing sports fan consumer base that is outside the cable bundle.”
Bally Sports is the biggest player in the RSN space, owning 19 channels and holding stakes in others, including the New York Yankees’ YES Network and the Chicago Cubs’ Marquee Sports Network.
Because of its scale, its success or failure will be closely watched by everyone in the sector.
“Subscribers are overloaded with streaming platforms, but most of these are focused on scripted drama and reality TV,” says Moody’s analyst Christian Azzi. “Bally Sports’ positioning as a local sports content provider of scale is an advantage but that scale, and with it subscriber growth, will remain limited in the long run unless more MLB teams are signed up.”
RSN owners are also betting that a streaming option could deliver new revenue streams, such as more advanced advertising offerings, and, of course, sports betting integration.
On the advertising side, RSNs have actually underperformed compared to national sports, which are among the most highly sought-after programs for ad buyers. A streaming service has the potential to rectify some of the problems baked into their current product.
“The advertising business is huge. As a buyer of local media, the RSNs have always been something that our customers want to buy, but they actually have very little measurement,” says Cross Screen Media CEO Michael Beach. “There is a massive amount of potential from the advertising side of the business, I think it is probably undervalued by people.”
While market limits will prevent RSNs from reaching national scale (for now, at least), more advanced targeted advertising technology and measurement capabilities can improve CPMs — and potentially, revenue.
And on the betting front, the feeling among some RSN owners is that the sky is the limit. Online sports betting has seen enormous growth since the Supreme Court paved the way for its legalization in 2018, and rightsholders have long held out hope that offerings can become a bit more like Europe, with actively engaged viewers making small bets midgame.
“Numerous focus groups and studies have shown that folks who like to wager on games are more engaged and watch more hours. And the DTC product will allow more ‘personalization’ to each fan,” Ripley says. “But let’s be clear, no wagers will be taken on Bally Sports+. Folks who want to place a bet will be directed to our licensed sport betting partners.”
But the betting opportunity also underscores some of the sector’s challenges. The regional appeal (and league market definitions) limit growth, and the offerings are pricey (NESN 360 is $30 per month or $330 annually, Bally Sports is $20 per month or $190 annually). But they need to be, if they have any hope of recouping the margins they get from cable, even with other revenue potential down the line.
The relationships with the leagues are critical, and could deal a fatal blow to any RSN unwilling to come to terms with them.
Sources at one of the major leagues that RSNs deal with emphasized that it expects to have a say in any streaming offering, to ensure a high-quality product and consistency. They may also want to share in the economics, or have a say in some commercial partners.
A source at another league partner also emphasized the need for a high-quality product, noting that the DTC model is about connecting with fans and having that direct relationship. In the long term, the leagues expect future rights deals to add more enhancements and flexibility for both parties (“We are always speaking with our league partners to evolve a framework that works best for all stakeholders,” Ripley says).
And betting complicates matters further, with the leagues inking deals for their official sports betting partners (MLB has deals with Bally’s and DraftKings; the NBA has deals with DraftKings, FanDuel, and MGM; the NHL has deals with BetMGM and FanDuel). RSNs will likely need to navigate those league-level relationships accordingly.
And then there’s churn, the scourge of all streaming services. The high prices, combined with live games for only part of the year, could encourage users to sign up for the season, only to cancel when it’s over. And signups could also be dependent on team performance, with RSNs hosting strong teams finding it easy to sign up users, and others hosting losing teams struggling to attract anyone.
NESN 360 is trying to mitigate that problem by giving buyers of its pricey annual plan eight tickets to Red Sox games, which could serve to discourage anyone thinking of churning, but other RSNs may need to develop their own strategies (NESN, after all, shares an owner with the Red Sox, making the ticket giveaway a relatively simple proposition).
“Without a league-wide and/or multi-league type streaming platform (like a Sunday Ticket type program), and a revenue-sharing structure, there is significantly increasing risk of closer subscription and engagement ties to on field/court/ice performance as automatic linear pay TV basic tier subscriptions decay,” Moody’s analyst Neil Begley says. “There may also be increasing risk to the teams and leagues over the long term as well.”
Indeed, as Begley says, in the long term the future of RSNs may rest with the leagues themselves. That could take the shape of the leagues offering RSNs their own streaming tech to build off of, or a multi-league offering to spread investment around.
“I could see Major League Baseball, or the NHL, or the NBA, definitely doing their own thing if they could,” Beach says.
But, as Major League Soccer’s recent deal with Apple demonstrated, it could also be the leagues themselves taking back all rights, even if that means waiting out years-long contracts, or expensive payouts to RSN owners.
The Apple/MLS deal will see the league create a new stand-alone streaming service that will have all of the league’s games, as well as a variety of MLS games that will be streamed for free, all through Apple.
And national sports channels like ESPN aw weighing their own streaming futures. Disney CEO Bob Chapek, on the company’s last earnings call, suggested that it had put quite a bit of thought into a true ESPN direct-to-consumer service: “It will be the ultimate fan offering,” he said. ESPN already operates ESPN+, which has its own set of sports rights, and simulcasts some ESPN events.
Without ESPN, the pay TV bundle is only likely to fray further, cementing a need for RSNs and the leagues to figure out their own futures.
For now though, all bets are off. NESN and Bally Sports are in the streaming game, and others are likely to follow. Turner Sports has remained mum on its plans for its RSNs, while NBC Sports said earlier this year that “our DTC strategy is evolving as we assess options in each of the unique sports markets we serve.”
Meanwhile, the Chicago White Sox, Chicago Bulls and Chicago Blackhawks are in talks to launch a new RSN when their NBC Sports contract comes up in 2024, suggesting that teams still see potential in the sector.
But will the economics of streaming ever match the cash machine of the pay TV bundle?
“Only time will tell,” Ripley says. “The economics of the regular distribution model [MVPDs] are still very strong, and we haven’t even scratched the surface of the economics of DTC yet. We think, in the future, both revenue streams will be solid. We want it, our team partners want it, and the consumers want it.”
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