TV breaking point for sports industry

The TV breaking point has arrived for the sports industry.

This moment has been building since the introduction of streaming and the onslaught of “cord-cutting” in 2009.

The Regional Sports Networks have reached the breaking point because their bundled cable model can no longer reconcile with, in the case of Diamond Sports, debt and with AT&T SportsNet rights fees and overall costs.

AT&T SportsNet made its payments to three MLB teams, but as “friends of ours” will not like to note, the “envelope was a little light”. In other words, all the money that was due was not included.

The Pirates, Astros and Rockies are all ATT SportsNet teams. I played a small role in launching Comcast SportNet Houston in 2012. Comcast had built a fantastic facility and team there only to see it crushed by the first “per-sub-fee” insurrection after the LA Dodgers carriage debacle. CSNHouston ended up going bankrupt after just a year and fell into the hands of ATT after much litigation with the Astros.

The NHL called an emergency meeting of all their clubs to address this issue on Wednesday as Bally’s stands on the brink of bankruptcy.

Diamond or “Bally’s Sports” represents a host of NHL teams including Los Angeles, Anaheim, Arizona, Dallas, St. Louis, Minnesota, Detroit, Columbus, Nashville, Carolina, Tampa Bay and Florida.

The New Jersey Devils are concluding their local TV deal and are up for renewal. They will be first team to experience how the “new rights fees” ecosystem evolves.

HOW DID WE GET HERE?

Let’s be blunt. The cable companies did nothing to “defend the cord”. They dove into streaming in the same way the newspaper business dove into the internet. They rushed to be digitally relevant and ignored the business model.

Why?

1.??????Set top boxes are expensive. And while they ding you with fees to recoup that expense, they don’t want to pay installers and have to deal with equipment.

2.??????People were starting to complain about cable bills and examining costs. Some of that had to do with services like ESPN and Regional Sports Networks being baked into Basic Cable whether consumers wanted them or not. The RSN’s became an add-on on many systems later and that created the warning pangs.

3.??????Because of No. 2, cable companies rightfully tried to extend “value” by making their products portable to the influx of SmartPhones and Tablets. Digital Rights Management was an early issue and may remain so as people share account info and passwords.

4.??????They saw the opportunity to double-dip and hedge via OTT apps.

THE CURRENT ECONOMIC DRIVING DEMOGRAPHIC

Let’s be blunt again: The current main demographic responsible for being consumers doesn’t believe in paying for anything. They grew up with an internet that was pretty much free. Cable bills are trigger points. They don't believe in paying for cable – or anything else. They believe cord-cutting “hurts the man” but then they have to buy internet access and subscribe to a multitude of channels to get all their programming.

People have bizarre valuation issues. They’ll pay $5.00 a day for a Starbucks, but $3.50 a month on your cable bill to watch your local team(s) is too much money.

BUNDLED CABLE WAS A GOOD DEAL

Bundled cable was a decent deal. If you tallied up the cost of your internet service, your streaming/mobile services and all the OTT apps you have to subscribe to, you’re probably within a stone’s throw of your cable bill. But you actually have LESS content than you think.

Oh, and BTW…have you noticed the DVR is pretty much dead except for skinny OTT bundles like Sling TV or Fubo? You are forced to watch commercials again – even when you have a subscription!?Yes, nothing like three minutes of Big Pharma symptoms disclaimers!

RUSHING INTO THE WRONG DEALS

All the Leagues did it. They grabbed streaming dollars. They have voracious mouths to feed. We get it. And streaming services need the allure of the content to drive sub value.

But when that happened, the leagues scattered national broadcasts across a myriad of channels. That created a massive issue of trying to find games.

Don’t believe me? Step out of your corporate meeting-room bubble and read comments on stories about these issues -- especially with NHL fans. ?Their main complaint – they can’t find their team when they’re on national TV. And in the NHL, it’s all about local loyalty over the entirety of the game.

Linear cable, major broadcast brands and programming guides still matter.

LIVE SPORTS PROGRAMMING IS DVR-PROOF

Live sports programming is DVR proof.

Maybe.

If you make it appointment viewing.

Here are some uncomfortable thoughts.

1.??????There is too much programming. When you can watch Division III women’s cornhole via streaming, there’s too much programming.

2.??????The main demographics in charge of consumption have a different pattern of consumption. They like sports, they care about their teams, but they consume differently and Leagues/Broadcasters are giving away the goods for free (more on that below).

3.??????The industry needs a massive shift in mindset.

THE COUNTER-INTUITIVE SOLUTION

I believe football would be safer without helmets and shoulder pads because players would wrap-up, tackle and stop using their heads as weapons.

That’s counter-intuitive, right?

I believe the hunger for sports rights fees has created a glut of programming and diminished the value of that programming.

Furthermore, the rush to embrace social media over the past 20 years to attract the current main economic demographic created bad TV viewing habits.

Here is the logic chain:

1.??????THERE IS TOO MUCH – There are too many options in too many places and games are just a commodity. Nothing is special. I guarantee you there are less than 5,000 people watching a Serie A match between Empoli and Salernitana on Paramount+.

2.??????SCATTERED PROGRAMMING – Where do you find “the big game?” The 2022 American League Championship Series had one game on a traditional BIG national network that’s way up the tier in the programming guide. That was unthinkable 20 years ago.

3.??????APPOINTMENT VIEWING IS CREATED BY BIG GAMES – This is the Heavyweight Fight model. You want Heavyweight Matchups that people are dying to see and are willing to pay for.

4.??????BUT BUT GAMBLING – Yeah, gambling. Gain extra rights fees by streaming all the games inside the construct of a gambling app/website and be done with it. Gambling’s a Faustian bargain that’s not good for society overall and will ultimately lead to a massive scandal for some sport.

TAKING “OWNERSHIP” OF THE RSN’S WILL NOT HELP

The Leagues are exploring taking over the RSN’s.

Sports leagues like checks. They like to get paid and do nothing.

When you own an RSN you have production costs for the games and the Leagues currently use their licenses to collect those satellite feeds and use them in their “out-of-market” packages. So MLB.TV collects the RSN’s production work and sells it on MLB.TV.

The St. Louis Cardinals are in the midst of a big TV that will pay them around $75-80 million annually. The Cardinals are a big club in terms of popularity. But if they lost 100% of their RSN revenue would they be able to replace that with a local streaming app or through a slice of a larger national streaming pie with no local blackouts? Highly doubtful.

And what happens if Diamond Sports’ and AT&T teams struggle for rights fees or are taken over by the league? What happens to big-market RSN’s like SNY, YES Network or Marquee in Chicago??These are RSN’s attached to huge teams with big national followings. They will survive. But their model will be vastly different from other operators.

If Ted Leonsis in Washington were to land the Nationals, he’d be in a position to own the NBA, NHL and MLB teams in that region as well as the local RSN. He’d have the luxury of controlling his TV destiny. With an NBA/NHL combo in his portfolio, he’s already in better shape than most. There’s one-stop value there for local fans.

HOW TO FIX THIS SITUATION?

The leagues and broadcasters must retrain their thinking as well as that of two generations of ?consumers.

Retraining starts with SCARCITY.

1.??????Big games. Fewer broadcast partners. You get big rights fees for fewer games, bigger ratings, bigger sponsorship bucks.

2.??????Send your common games to over-the-air TV in local markets to earn some local rights fees and take pressure off the RSN’s. It’s an opportunity to also sell a completely different set of sponsors.

3. ??STOP extended highlights and short-highlights!

4. STOP posting everything on social media. Or, if there’s value for social media, charge them for the right to have those highlights. There was a day when internet sites couldn’t show a highlight without a license…now the leagues and broadcasters give it away on social media to appease a certain audience and for "marketing". Who consumes their sports that way? Well, only the two most important generations in economic control – Millennials and Gen Z. You have to get them off their phones and social media and back to the TV!

Using myself as an example: I've been a soccer fan my whole life. Do I have time to spend two hours watching a match?

If my team loses I've wasted two hours just to be annoyed. That's not entertaining. At this stage of my life, I have limited time and zero tolerance for things that annoy me.

It's a lot easier to wait for the extended highlights on Peacock or YouTube or Twitter and get to the bottom of the narrative in 10 minutes or less. This is the way a lot of people consume sports these days.

This is where we have arrived as a society. How do you monetize that in a meaningful, sustainabile way? You can't.

LAUNCH “THE STREAMING BAD” CAMPAIGN

The cable/satellite TV industry should’ve launched a “defend the cord” campaign to maintain customer bases.

The message: Signing up for all the streaming apps gives you less choice and cost more money in aggregate. The problem is that unless you actively account for all your subscriptions, you have no idea what your cost is.

The “Skinny Bundle” aka cable served through an OTT application with DVR is the approach. SlingTV, Fubo, DirectTV are current options.

Cable/Skinny Bundle offers:

1.??????Internet access (which you need anyway) in a bundle.

2.??????On-demand content

3.??????DVR capability to time-shift AND avoid thousands of Big Pharma commercials.

4.??????Portability because you can use your subscription to “take it with you” on your phone or even your SmartTV.

5.??????Cost certainty.

6.??????Bundling options with internet, VOIP and mobile.

7.??????Value: You’re paying, say, $3.00 – $7.00 a month on your cable bill for a regional sports network that pumps out hundreds of your local teams’ games. It costs more money to cross the George Washington Bridge every day. But at the same time, if you find a cool science show on Science Channel that you watch a couple of times of year, you just got some extra entertainment value.

I believe traditional "cable TV" served through an OTT skinny bundle is the best solution for just about everyone.

KILL THE WALLED GARDENS

Remember the early days of the internet where you had to do a deal with AOL in order to get any scale?

We’re kind of in that phase for streaming.

Every media company has its own walled garden. It just prevents consumers from experiencing everything that’s out there. And it (perhaps intentionally) keeps small outfits off the table.

GO AHEAD

Call me nuts.

Say I don’t know what I’m talking about.

But there it is. Emperor’s New Clothes.

You must change consumption habits and stop giving away the product in a way the current generations consume and steer them back to valuing live events enough to want watch and pay for them.