(Welcome to the “Most Important Story of the Week”, my bi-weekly strategy column analyzing the most important (but often not buzziest) news story of the last two weeks. I’m the Entertainment Strategy Guy, a former streaming executive who now analyzes business strategy in the entertainment industry. Please subscribe.)
Before we start, in case you missed it, my analysis of consolidation in theatrical movie chains was featured by The New York friggin’ Times “Dealbook” newsletter, along with graphical updates, which I much appreciated:
Check out their write-up! Dealbook is a newsletter I read daily, and seeing my work show up there is so exciting.
Speaking of consolidation, the energy in Hollywood to stop the Paramount consolidation really does seem to have picked up steam. After the news of the Netflix merger, I tried to amplify how folks could get involved…and the town seemed fairly resigned to letting the merger happen. That doesn’t seem to be the case this time around. Ted Hope wrote an excellent piece directly on this with a call to action.
I’d recommend getting involved, if you haven’t already. You can sign up here for BlockTheMerger dot com. I’d also follow the Future Film Coalition here, who is testifying before the Senate today.
I’d also re-issue my recommendation to contact your local representatives.
Let’s dive into this week’s issue. While the US-Iran-Israel War dominates headlines, I want to check in on regional sports networks, because their long-simmering demise may finally have arrived.
Most Important Story – The End Is Nigh (Here?) For RSNs
If I wanted to, I could probably write about the saga of RSNs—regional sports networks—in every issue of the “Most Important Story of the Week” column. Nearly every month, there’s big news about one of these legacy cable channels fighting a bankruptcy battle, or dropping a sports team, or a sports team walking away from a deal, or a sports league exploring a new outlet for their local media rights.
But the news that nine MLB teams finally left the FanDuel Sports Network, owned by Main Street Sports Group, stuck out to me as one of the more consequential moves for the fate of RSNs. This may finally be the end of the RSN bundle as we formally know it. At this point, every sports team that had previously had these deals will need to move somewhere else; it’s a matter of now, not when (after the current NBA/NHL seasons end in April).
So let’s run through what’s happening, the impact it could have on the NBA, MLB and NHL, and what could come next. Crucially, this means understanding how much money each team stands to lose.
What Happened and Will RSNs Survive?
To be blunt, RSNs as we know them won’t survive long in the new entertainment landscape. Some will continue, but it looks like the majority of channels will end up folding or returning in a much changed format. And revenue for all of them will decrease in a streaming-focused world.
It’s worth reminding everyone exactly how RSNs worked to explain why they made so much money. Back in the day, a major sports team could launch a channel and almost demand distribution in its geographic footprint. That’s what the Lakers and Knicks did in their respective cities. Or the RSNs themselves would buy up rights, and then also demand fairly strong terms with the cable providers, especially if they controlled the rights for multiple teams. (Like what Fox Sports did with the Clippers and the Angels.)
In the cable model, each household had to pay a small fee, even if they didn’t watch those channels. Again, that meant millions of potential households paying sometimes a dollar or more, and those dollars added up!
That’s the key change here: with streaming, you can’t “make” every subscriber pay for every channel. So teams face a challenge: charge customers small dollars, and most won’t pay, or charge big monthly fees, and even fewer fans will pay.
This Will Cost Sports Teams Millions
When I analyzed the NBA’s big new media rights deal, I tried to put these numbers into context, because it seemed like national media coverage ignored this crucial piece of the story. Essentially, the NBA signed a big new national media rights deal and celebrated this as a big victory. But they partially signed that deal by adding a TON of inventory to the overall deal. Back in the 2010s, teams would have strongly objected, but they didn’t this time around. Why not?
Well, the teams know local rights are atrophying and they need bigger national media paychecks to offset this decline. That’s why they let the NBA sell more national TV games.
How much are these media rights deals? As I pointed out then, it can be 15 to 30% of a team’s total revenue each year, meaning tens of millions of dollars. This is why the NBA’s salary cap didn’t increase as much as a lot of observers expected, because local media rights likely declined more than national sports rights increased. (Why do I say probably? Well, none of the sports teams publish public financial statements, so we have to deal with leaks.)
Of course, local media rights deals aren’t “going to zero”. But the RSNs wanted a 20% decrease in their fees to local sports teams. A 20% decline is much bigger than the 10% or increase in national media rights from two years ago. And even that 20% decline might grow larger over time.
What Will Come Next?
Of course, the local media rights won’t go anywhere. Some sports fans will still want to watch nearly every game of their local team. The demand is there, just not the business model that supported it.
Thinking on it, and looking at what teams are experimenting with, I can see a few options to replace RSNs:
- À La Carte Streaming. Some teams have launched their own streaming subscriptions/streamers for their games. The problem, as I covered in my NBA Media Rights deep dive, is that it’s really hard to get a mass volume of customers, especially at a more expensive price point. Also, at this point, teams have tried to launch their own streamers…and the results leave a lot to be desired (in some cases, teams likely only have tens of thousands of subscribers). Basically, customers didn’t sign up, and that’s in addition to the challenges of running your own streamer.
- An RSN Streamer. A solution to “à la carte” is to join a bundle of local media rights, and one streamer, Victory+, has just that plan. Customers would sign up with Victory+ to watch their local team(s), and they handle the logistics of running a streamer. This helps sports teams solve the challenge of running a streamer, while potentially offering a better value because there can be more content produced for the entire subscriber base. The challenge, though, is similar to the à la carte options: you have to convince customers to sign up for mostly one or two teams, and the options are much more expensive than cable subscriptions of old. (I’d add, Victory+ is starting as a free streamer, likely to lure customers in, then it will increase prices later.)
- YouTube (legal). Let me be honest: I don’t think this is actually a viable option, but I know some folks will shout out, “YouTube!” whenever they hear about the disruption of the cable bundle. Specifically, they’ll say, “Just stream your game on YouTube for free!” The challenge with YouTube is that to get widespread distribution, you have to get a lot of eyeballs. Even then, tens of millions of views doesn’t make folks that much money. As I wrote in January, according to one analysis, the most popular streamer on YouTube, MrBeast, makes under $100 million in YouTube advertising. Now imagine your much, much smaller local TV game…
- YouTube (piracy). By the way, one option a lot of folks will “choose” is to simply find pirated streams of local sports games on YouTube (via links found on Reddit and Discord). YouTube struggles to regulate pirated live streams on its platform, and honestly, the word “struggles” could be replaced with “chooses not to” and I’d be hard pressed to argue with that. Lots of customers will “choose” this illegal option.
- Streaming content. One could imagine a world where, say, Amazon added all the games for the Utah Jazz or smaller sports teams to their streaming service, without requiring signing up for NBA League Pass. Or maybe ESPN+ or Peacock would add these local games. This gets rumored every so often. In a way, this could mimic the cable model of old: you charge every customer a few cents or bucks more, and spread out the costs. The challenge is, again, that cord-cutters may not hang with your streamer if prices go up too much. With so much churn, if prices go up too fast, customers will just unsubscribe. Streamers might also find quantifying the value of local sports rights fairly tough.
- Stay on broadcast/cable. Every town with a sports team still has independent broadcasters, and these folks used to air regional sports games before RSNs took over. So we’ll see a return to broadcast airwaves. Or in some cases, the local teams will buy their RSN channels and run them themselves. This could make money, but even the RSNs that do survive will shrink as cable subscribers shrink each year and vMVPDs don’t bring on RSNs for the same rates.
- A Focus on National Games. This is the other option that leagues like the NBA may be choosing: just put more and more games on the national TV schedule. Will this replace the lost RSN revenue? Not entirely, but it could ameliorate some of the issues.
Bottom Line
The likeliest outcome is a combination of choices, even with individual teams. For example, the Texas Rangers launched their own streamer, did a deal for over-the-air broadcast, and joined Victory+. I expect we’ll see Frankenstein-like deals like that. Yet even there, they likely lost $50 million or so per year in local media rights revenue. The challenge is that while the top teams (in the biggest markets, like Los Angeles, New York, and so on) will likely cobble together strong packages, the smaller markets will struggle even to do that.
Running through that list of RSN alternatives, I have to emphasize that the revenue of the olden times isn’t coming back. At something like 15 to 35% of revenue per team, in a business model that was propped up by local cable monopolies, customers just won’t pay the same for sports that they used to.
Almost Most Important Story of the Week – The Iran War’s Impact on Hollywood
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