NBCUniversal May Follow’s Sinclair’s Lead And Launch A DTC RSN Service

Taking the lead from Sinclair Broadcast Group’s subsidiary Diamond Sports Group, NBCUniversal appears to be preparing a direct-to-consumer (DTC) offering featuring its vast array of regional sports networks (RSNs). 

Diamond (owner of the Bally Sports channels) and NBC Universal (owner of the NBC SportsNet (NBCS) group of regional sports networks) are the two largest RSN owners in the nation by a wide margin.

The possibility of NBCS launching a DTC service was widely reported in the media following the news on 1/31 that Valari Dobson Staab was promoted to the position of chairman of NBCUniversal Local, which houses the NBCS RSNs, and both NBC and Telemundo’s owned TV stations.

However, management tried to walk back the DTC news. In a statement released the following day, a spokesperson for NBCUniversal said,  “In a personnel-related announcement issued by NBCUniversal Local on Jan. 31, a reference to the NBC Regional Networks’ direct-to-consumer (DTC) plans was inadvertently included and was misleading,” the spokesperson said.

“At this stage in the process, our DTC strategy is evolving as we assess options in each of the unique sports markets we serve. At this time, we don’t have any further details about launch plans including timing or markets. More information will be announced when available,” said the NBCU spokesperson. 

This suggests that due to varying rights in different local markets, NBCS may roll out a DTC offering market by market, rather than trying to do a big bang launch across many markets as Diamond Sports Group has announced it will do.

NBCS will face the same issues that Diamond has—it doesn’t have streaming rights to games in all of its markets so it essentially needs to build content for the DTV service almost from scratch. It will also face potential cannibalization of its core linear RSN business.

Diamond has tried to address this issue by giving the app for free to its multichannel subscribers and management has said that their research shows there will not be a big flight of consumers moving to cancel their traditional video service. However, with the high cost of cable and satellite, it seems inevitable that some subscribers will continue to migrate to digital content only.

In management forecasts for Diamond’s DTC product, they estimate they will have 6-10 million average paying subs by 2027. Of course, much of this depends on what streaming rights they can line up—currently they have 16 NBA teams, 12 NHL teams and an undisclosed number of markets where they hold NFL rights.

How many subs either RSN owner group will get will rely on a number of things, including how slick the app is, what rights are held, and how it is marketed and priced to the consumer.The retail price of the service will clearly drive the bottom line as the vast majority of costs are fixed—and sports contracts are locked in with price escalators each year.

Diamond noted in an SEC filing that its traditional RSN business would post an average cash flow margin of about 15% in 2022, dropping in half to just 7-8% by 2027. That’s after margins have already fallen in half for the RSNs (now Bally Sports, but formerly Fox SportsNet) since Diamond agreed to purchase the RSNs from the Walt Disney Company in 2017. 

Walt Disney was forced to divest the RSNs which it was acquiring in a much larger deal with 21st Century Fox for a wide array of media assets including national and local channels.

It’s unclear at this juncture what digital rights for the RSNs NBCS has, but a slower approach to launch may be more feasible. It could start with markets where it has licensed a strong portfolio of digital rights and see what consumer take-up rates will be. This will give it the ability to forecast how much it can bid for digital rights with each league. 

And although parent company NBC Universal (owned by Comcast Corp.) does have deep pockets, it didn’t just get the cash windfall from its RSN business that Sinclair Broadcast Group will potentially see. 

It was announced on January 25 that an investment firm led by Soohyung Kim, the chairman of Bally’s Corp., has offered to buy the shares that his firm Standard General doesn’t already own for a 30% premium over the pre-deal trading price of BALY.

Between 2020 and 2021, Sinclair Broadcast Group entered into commercial agreements with Bally’s and as part of these transactions they received warrants to acquire up to 10 million shares of Bally’s common stock for just a penny per share.

The buy-out offer could potentially net Sinclair Broadcast Corp. roughly $380 million from the warrants, an increase of about $90 million more than they were worth prior to the $38/share offer for Bally’s was announced when BALY was trading at just $29.23 per share on January 24, 2022.

Source: https://www.forbes.com/sites/derekbaine/2022/02/02/nbcuniversal-may-follows-sinclairs-lead-and-launch-a-dtc-rsn-service/