Cord Cutting Is The Demise Of The RSN Business Model
When Randy Freer joined Fox
Fox Sports began to invest in local sports programming and Fox’s RSNs began to produce and broadcast more local sports programming, including pre-game and post-game shows, coaches’ shows, and other content that was tailored specifically to each market. This helped to build stronger connections between the RSNs and local sports fans, and it also helped to differentiate the RSNs from other sports networks that focused more on national programming. Free also caused Fox to expand its RSNs distribution and they were made available on a growing number of cable and satellite providers, which helped to increase their reach and viewership.
The growth of the RSNs became a cash cow for Fox Sports. And when Fox sold its RSNs to Sinclair Broadcasting in 2019, the deal fetched a cool $10.6 billion. At the time, there were 21 RSNs included in the sale, covering 42 teams across the NBA, NHL, and MLB. This was a significant increase in the number of RSNs that Sinclair owned, as the company had previously only owned four RSNs. The deal was seen as a major win for Sinclair, which saw the acquisition as a way to diversify its revenue streams and expand its reach in the sports media market. It established a division, Diamond Sports Group, and aggregrated these regional sports assets under this umbrella. However, lots of changed since the Sinclair acquisition of the Fox RSNs.
Unfortunately, shortly after the purchase the pandemic hit and numerous games were cancelled leading to a reduction in the programming that could be offered, diminishing the bottom line. Next, the unforeseen acceleration of cord cutting was devastating to the RSNs. Cord cutting refers to the trend of consumers replacing their traditional cable or satellite TV subscription in favor of streaming services. As more people cut the cord, the number of subscribers to RSNs declines, leading to a drop in revenue. Moreover, the traditional advertising model that RSNs in part rely on is becoming less effective. With the rise of digital advertising, many advertisers are shifting their budgets away from traditional TV advertising. This has led to a decline in advertising revenue for RSNs, and made it harder for them to generate revenue.
Finally, the cost of broadcasting sports events has increased significantly in recent years. The price of acquiring the rights to broadcast sports events has skyrocketed, and this has put a strain on the finances of RSNs. The cost of broadcasting sports events had increased due to the intense competition among RSNs and the leagues that own the broadcasting rights. Even though the RSNs hoped to bridge this revenue gap by launching its own streaming services in local market, they were often tripped up with rights issues in the face of many sports leagues and teams launching their own streaming services. In some markets fans can often watch their favorite teams and sports events directly from the league or team’s own streaming service, and this has further led to a decline in the number of viewers and subscribers for RSNs.
Freer was recruited by the creditors of Sinclair to become the Chairman of Diamond Sports Group that acquired the RSNs from Fox and is now on the verge of bankruptcy with roughly $8.6Billion in debt, $2Billion in rights obligations and declining revenues. Diamond Sports recently missed a $140M interest payment which puts them on the verge of bankruptcy unless some type of accommodation can be negotiated over the next 30 days. Perhaps they hoped that Freer, the guy that built the original model could find a creative solution to this thorny problem.
And just a few days ago Warner Brothers Discovery (WBD) says it will pull out of the RSN business completely offering to give all their broadcast rights back to the leagues in return for a release of its financial obligations. It controls the local broadcast rights to 10 teams across the MLB, NBA and NHL.
If Diamond Sports chooses to declares bankruptcy it is unclear how the new order will emerge for fans that want to watch the games of their local teams since the RSNs are responsible for the live video production of the games, although this will likely continue under any negotiated settlement. WBD has already indicated that its existing production team will be made available to the leagues to deliver the games to fans and the Sinclair/Diamond sports group will likely offer up the same as the sports leagues stand ready to bridge the gap between linear and streaming by offering their own DTC service to replace revenues.
However, there will no doubt be short term pain. According to a recent Sports Business Journal article, on average teams will go from roughly $30M a year in RSN revenue to $8M that can be realized from streaming or DTC in the local market.”
One scenario may provide for modified rights fees for linear rights in return for a return of the streaming rights to the team. In any case, fans will likely still be able to watch all their games, it’s just a matter of how they will be delivered.
Rob Manfred, Commissioner of MLB, seems happy to toss aside the RSNs saying: “it may be tough in the short term, but we’ll be able to offer both linear and streaming to our fans in the future”. What many seem to be missing is that streaming, as sexy as it sounds, cannot make up in the short term for the revenues lost from linear TV rights fees at the local level.
No matter, someone is going to forego short term money as this all unfolds. Perhaps Randy Freer, that guy that built the original model, can figure out a solution for the next generation of sports content producer, distributor and fan so that everyone can win. The next 30 days will be quite interesting in seeing how things unfold.
Source: https://www.forbes.com/sites/leonardarmato/2023/02/26/cord-cutting-has-crushed-mlb-nba-and-nfl-regional-sports-networks/