While live sports programming is the only thing that keeps the lights on on the Big Four broadcast networks and is the glue that holds the rickety wiring harness together, the rising cost of acquiring and maintaining the rights to most desirable leagues begins to eat away at TV channels. profit margins.
According to a new report from Kagan, a media research group at S&P Global Market Intelligence, sports rights fee hikes are piling up faster than the rate of inflation, with top leagues like the NFL , the NBA and Major League Baseball by $15.5 billion a year under their current contracts.
And as new offers come along, expenses continue to grow, like mushrooms after a pouring rain. Under the terms of its new rights package, the NFL will begin collecting a majestic $9.46 billion per season in 2023 from CBS, Fox, NBC, ESPN/ABC and Amazon. This represents an increase from the $5.67 billion in annual fees the league collects as part of its legacy set, which works out to a combined annual growth rate (CAGR) of 5.9%.
Among the biggest renewals set to kick off in the next year is the NBA’s two-partner pact with Disney and Turner Sports. Kagan values the current package, which spans the 2024-25 season, at $2.61 billion a year, and given the league’s outsized deliveries of young viewers, it’s a safe bet that the next contract will come to 5.5 billion dollars a year. . (While a number of outlets have engaged in varying degrees of breathless speculation that the league will seek to triple its annual rate, there is no need to legitimize what amounts to a whisper campaign.)
While inflated ad rates and high consent/carry fees for retransmission keep money flowing to major sports networks, Kagan concludes that inbound revenue isn’t growing fast enough to offset the cost. media rights. Take ESPN, for example. The cable company generates staggering distribution revenues; given a subscriber base of 78.7 million households and an estimated license fee of $8.15 per customer per month, Bristol in 2022 is expected to rake in $7.7 billion before even spending a dime. advertising is factored into the equation. (According to Kagan’s estimates, the sale of trade inventory adds another $2.2 billion to the mix.)
At the same time ESPN gets all those dollars back, it also sends a lot of money the other way. As Kagan notes, ESPN spends more on programming than any other cable network, paying out more than $6.98 billion in 2021, which equates to $89.94 per subscriber, a total 22 times the industry average of $4.08 per subscriber.
“Dropping subscribers and increasing programming spend not only drove up program spending per average subscriber at ESPN, but also put pressure on profit margins,” the Kagan researcher wrote. , Scott Robson, in the report. “We estimate ESPN’s cash margin peaked in 2011 at 41.5% and has since declined to approximately 25.1% in 2021. ESPN is expected to see its margins dip into the single digits as early as 2023.”
The cord-cutting epidemic has been particularly harsh for ESPN, which has lost 11.3 million subscribers since 2016. At its peak in 2010, the network had more than 100 million subscribers, which equates to a loss of some 21.3 million subscribers over the past dozen years. Similar declines were recorded by TNT, TBS and USA Network. ESPN was able to recoup a good chunk of those lost connections through its ESPN+ service, which signed up 22.3 million subscribers according to Disney’s latest quarterly earnings report, but with a monthly fee of $6. $99 streaming product does not work. t entirely compensate for the loss of linear TV subs.
The erosion of the traditional wire harness shows no signs of slowing down, and it presents a nightmare scenario for any network that has dragged its feet on OTT. Currently, only 56% of US TV households subscribe to a bundled pay-TV package. Four years ago, the penetration rate was 78%.
National sports networks aren’t the only outlets feeling the pressure, as RSNs have lost ground with many consumers sticking with the package. Bally Sports’ RSNs were blocked in 7.99 million DISH Network homes before Sinclair Broadcasting acquired the networks for $9.6 billion in 2019, and last fall major U.S. cable company Comcast a abandoned MSG networks.
According to Kagan, RSN subscriptions have fallen by 45% from a record high of 192 million connections in 2014. Now estimated at 108 million households, the undercount is expected to drop another 21% by 2025, when RSN subscriptions could fall to 85. million. To buck the trend, Sinclair will launch Bally Sports+, a new streaming service next month, which will be introduced at a relatively high monthly fee of $19.99.
Other than ESPN, no network charges carriers higher fees to carry their signal than RSNs. The average monthly affiliate fee for the industry is $5.01 per subscriber, with three RSNs (YES Network, Bally Sports Detroit, Bally Sports Wisconsin) bringing in over $7 for each paying customer. These costs are reflected in the monthly cable/satellite/telco-TV bill; in April 2022, Comcast customers could expect to pay a monthly “regional sports fee” surcharge of $19.15, while DirecTV passed on a fee of $11.57 to its 14.6 million video subscribers .
As much as the cost of streaming high-end sports is well into nosebleed territory, networks that want to keep racking up the most expensive distribution fees and ad rates have little choice but to pay. At the risk of fiddling with hyperbole, sports is the last vestige of the old date-TV model, and the fact that 99% of the action is consumed in real time translates to an unusually high ad impression rate. raised.
The proof is in the Nielsen data. NBC Sunday night football closed its 11th consecutive season as the highest-rated primetime television program, averaging 18.5 million linear viewers, of which 6.67 million were members of the 18-49 key demo. By comparison, everything else in broadcast prime was an afterthought, as the average nighttime entertainment series on the Big Four networks this season drew an audience of 3.78 million viewers, of which 652,996, or just 17% , were in the target demo.