With virtually all professional and amateur sporting events canceled due to COVID-19 shutdowns, it’s no wonder that a business based exclusively on those activities – sports television – is suffering. To understand the extent of the damage, and when and how the sports television business may return to more normal conditions, GLG spoke with Troy Ewanchyna, a former Vice President and General Manager at NBCSports.com and former Vice President of Business Development and Digital Strategies at NBC Sports Group. Edited excerpts of the discussion follow.
Where do things stand now?
The current situation is awful. Let’s look at it across sports television’s five main constituents. First are consumers. There are now about 80 million households paying for satellite and cable service, down from about 100 million a few years ago. People are watching video five to six hours a day, on average, but they’re doing it via television, streaming, phones, and social media, making TV a more difficult model.
The second group of constituents are the distributors. What used to be a series of local monopolies are now cable and satellite giants, including Comcast and DirecTV, which are known as multichannel video programming distributors (MVPDs). They’re facing increased competition, growing costs, and shrinking margins due to new internet-based means of distribution that include YouTube TV, Hulu, and Sling. Many customers have cut the cord.
The third piece: programmers and networks, like ESPN, that generate 75% or 80% of their revenue from the fees they receive from distributors. The remaining 20% to 25% of revenue comes from advertising. The lion’s share of the costs associated with these networks are the fees paid to content owners, such as major sports leagues, to showcase their live game content. These costs have skyrocketed for decades and continue to do so.
The fourth component are the leagues, studios, and athletes. The leagues make billions yearly by leasing their rights, primarily the live games, to traditional media properties. But they’re increasingly leasing to digital, social, and mobile companies, and they’ve become media entities themselves with their own networks that sometimes compete with their partners. They’ve also started acquiring ownership stakes in regional sports networks.
The final component is the advertising world. Of the $70 billion TV marketplace, sports accounts for roughly $20 billion. The NFL alone accounts for about $5 billion in advertising spending. Advertisers love sports fans because they tend to be loyal, young, and passionate.
In sum, TV still has the scale, but the business is becoming more fractured.
Many feel that sports are holding the pay TV bundle together. If subscriptions continue to decline due to the impact of COVID-19, how will national and regional networks be affected?
Common sense suggests that if 20 million people are unemployed, fewer are going to spend $100 plus per month for traditional TV services that include a sports bundle with no live sports. That said, there are three major boxes to check when thinking about how this will play out. First, there are the legal contracts, which are quite thorough and don’t provide much wiggle room. The second are the business relationships among distributors, networks, and the leagues, which none of the participants wants to jeopardize. The third and new part is the involvement of the government and politics.
For example, in Europe, they were looking to pause charging for Sky Sports as a break for consumers. But that adversely affects media companies, which still must pay sports leagues and pay all the costs associated with running a channel. The choices and trade-offs won’t be easy.
Most likely, all the parties – leagues, networks, distributors – will negotiate workarounds in which, perhaps, contractual time frames are extended, payment terms are modified, and allowances are made for shortfalls today in return for something else later.
Does the pandemic mark the peak of prices for sports rights?
Industry experts have been saying that for years, but live sports programming continues to be proven valuable. Remember that 100 million people watched the Super Bowl on TV, while only a few million streamed it online. For big events, television still provides the scale, despite its challenges and the growing competition. It’s not going away overnight. That said, increases in rights fees will be difficult to come by.
As far as a time line for resuming live sports, what do you see?
From a network perspective, the best case economically would be a limited return of the NBA, the NHL, and MLB this season. If that happened, the networks probably wouldn’t have to pay rebates to distributors, they might get some fee relief from the leagues, and they could salvage their advertiser relationships. For the final piece of the Big Four sports, there’s the hope that the NFL returns, maybe even without fans in the stands, because that could drive up ratings even more.
About Troy Ewanchyna
Troy Ewanchyna provides consulting services to sports, media, and technology innovators across North America under the brand U.S. Eh Media, LLC. Troy is the former General Manager and Vice President of NBCSports.com. Before this, he was Vice President of Business Development and Digital Strategies at NBC Sports, Inc., a subsidiary of Comcast Corporation. Before this, he served as Vice President of Digital Media at Comcast Corporation.
This article is adapted from the May 8, 2020, GLG teleconference “The Future of Sports Television: Uncertainty amid COVID-19.” If you would like access to this teleconference or would like to speak with Troy Ewanchyna or any of our more than 700,000 experts, contact us.
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