07 February 2024

The Disney-Fox-Warner Bros. Streaming Service Is Just Fubo-Lite - An Analysis

The streaming sports joint venture of Disney, Fox, and Warner Bros. Discovery is a lot less revolutionary than the popular press seems to think. It does sound like something the sports fan might be requesting -- nearly all of the sports on cable, without the non-sports to clutter (and push up the price of) the package.

Disney brings to the table ESPN and a number of other full-time sports services and ABC. Fox has the Fox broadcast network and Fox Sports 1 (among others). Warner Bros. Discovery brings the general entertainment channels TNT, TBS, and truTV which each carry some sports (truTV only has a sliver of sports -- a few games during March Madness).

Unlike Netflix or Amazon Prime, this service will not just carry the games, but will also carry all the other stuff on the included channels. So, the experience of watching the NBA on TNT (supplied by WBD) in this service will be the same as watching it on cable. When the game ends, NCIS or Charmed or another entertainment program will follow it.

The as-yet-unnamed service will be carrying linear channels, much like any other virtual multichannel video programming distributor or MVPD (e.g., YouTube TV, Hulu with Live Channels, Sling). Calling it a "streaming service" is a bit of a misnomer, since that term usually describes a mostly on-demand assortment of programs with a sprinkling of live sports.

In essence, what this new service will provide is a sports-oriented skinny bundle, which is essentially the part of the market that fuboTV has staked out. The issue for fubo was (and is) that the sellers of the channels with live sports were generally unwilling to sell the sports channels at the time that fubo launched in January 2015 without fubo also taking their non-sports channels. For example, Disney would really prefer a distributor to carry the Disney Channel and FX in addition to its suite of ESPN sports services (e.g., ESPN, ESPN2, ESPNews, Longhorn Network). It might not be that Disney would not sell the sports services separately, so much as Disney would make the deal terms far less attractive if the non-sports channels were excluded. So fubo's attempt to super serve sports fans ended up being mostly a replication of the full channel lineup carried by the leading MPVDs, with only a few exclusions (channels from cable programmers without any sports programming like AMC, A&E, and Hallmark).

Among the three partners, nine years later, they were willing to sacrifice the non-sports services, provided that the other guys did, too. Because the new service is carrying linear channels, there is no new grant of rights needed from the suppliers of the programming -- the sports leagues. To them, this is a new MVPD.

It is unclear to me if there is much of a market for this service. If it were significantly less expensive than the full cable package, there may very well be. However, each of these programmers is likely selling their channels to the new service at full rate card. The technical costs of streaming the channels to customers costs money as does customer service and processing credit cards. It is unclear if this package can be sustainably much cheaper than cable or a vMVPD. 

What is clear is that the package will be without a bunch of high profile sports -- notably those controlled by NBC and CBS and smaller sports services like Tennis Channel -- and that lacking those and the cable entertainment and news channels, the package might be less-than-satisfactory in meeting the needs of families, where a package that has sports and also has Nickelodeon, Fox News and Lifetime might seem like a better deal, even if it costs a bit more. 

Another ramification is that all of the MVPDs will see this package and ask for similar packaging rights on their systems. The affiliate sales staffs of Disney, Fox and WBD are probably not looking forward to those discussions.

WBD may be the biggest relative winner among the partners, since this new MVPD will fully distribute most of its costly entertainment programming (which runs on the three included channels), while its Cartoon Network and TCM are on the outside looking in. The sports services from Disney and Fox are pure plays; their entertainment services don't have any sports.

Update: fuboTV clearly sees the new venture as a threat, as it felt compelled to issue a press release about it.

Update (16 Feb 2024): The MVPDs' concerns come out in this CNBC story regarding them seeking similar packaging rights for these channels as the the joint venture appears to have.

Update (20 Feb 2024): fuboTV has sued the joint venture claiming antitrust violations related to less attractive licensing terms for the sports channels. fuboTV's press release The US Department of Justice is interested in such an argument, per Bloomberg Law via Reuters. Clarifications to the original post were added and are marked with italics.

19 September 2023

One Good Reason Disney Sacrificed Freeform in its New Charter Deal

Disney may have sacrificed carriage of Freeform (nee ABC Family, Fox Family, The Family Channel, CBN, Christian Broadcasting Network) in part because it was easier to give up carriage of a linear channel which had an "ironclad" obligation to carry The 700 Club, the conservative evangelical Christian talk show for 2 hours every day (currently 11PM and 9AM ET).

In the recent past, "shelf space" for fully distributed basic cable TV channels was perhaps the most valuable asset in the media. Basic cable networks with inexpensive programming like MTV, could run at greater than 50% margins. Cable cord cutting has reduced those margins, in some cases pretty dramatically. Programming companies, like Disney, have been prioritizing entertainment investments in growing on-demand services like Disney+ and Hulu over the declining "linear" TV business of 24 hour scheduled channels. Disney CEO Bob Iger has discussed its options for the linear services in a recent interview on CNBC; they "might not be core to Disney".

The Disney-Charter deal, which saw the inclusion of Disney+ and ESPN+ in Charter's Spectrum "cable TV" packages, despite the fact that they had not, to date, been considered cable TV services. The services clearly have some attractive programming. Charter had asked for it to be included in its deal for free for Charter customers; the announcement of the deal made it clear that Charter is paying a "wholesale" rate for them. Depending on what that rate is, the inclusion of these services in Spectrum's cable video packages could represent a lot of value to Charter or a lot of value to Disney. Most likely, it is a little bit of both.

What is clear is that the Disney linear services that were carried by Spectrum systems in its expired deal, but not in the new one (Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo), were no longer growing assets for Disney nor highly valued by Spectrum. 

Cable operators have been pruning their cable lineups to control the cost of their video service which have looked expensive and bloated next to the much cheaper streaming services over the last decade. It was very clear that the streaming services were also getting more and more of the high profile new original programming, because the programming companies had been rewarded by the stock market for the growth of their streaming services, despite the fact that these services were all highly unprofitable.

Whether these straight-line trends towards streaming and away from cable video will continue now that the fast growth of streaming has ended, investment in streaming programming is being cut back, and streaming retail prices are going up sharply, is less clear.

I believe consumers' move from cable to streaming was much more about the relative value they offered than the "inevitability" of the newer technology.

21 June 2023

Vegas Golden Knights Switch to Broadcast from RSN for 2023-2024 Season - Implications

Shortly after the Phoenix Suns entered into what appeared to be a broadcast TV deal for the rights that they used to sell to RSN Bally Sports Arizona, the NHL Vegas Golden Knights, entered into a true broadcast TV deal for their regional rights

E.W. Scripps is operator of local TV stations mostly affiliated with major networks, including the ABC affiliate in Las Vegas, KTNV (channel 13). In 2020 Scripps acquired Ion Media, which operates the Ion broadcast network which primarily programs off network reruns (e.g., Law & Order SVU). Ion is  distributed on a hybrid basis -- its on broadcast stations in most of the country via its owned and operated stations which are in virtually all of the top 20 TV markets and most of the top 75. Ion is distributed via cable, satellite and telco in the places where it does not have a station. ION's affiliate in Las Vegas in KMCC (channel 34) and Scripps' plan is to offload the Ion programming to cable and run the station as an independent television station, including the Vegas Golden Knights games. 

This is a bit of a back to the future moment. Independent broadcast television stations were routinely the local distribution for MLB, NBA, and NHL games prior to the launch of regional sports networks in the 1980s and 1990s. Regional sports networks outbid local TV stations for regional sports rights in that period because of the fees that cable operators were willing to pay for the programming where greater than what the local stations could make selling advertising during those games. 

Now the cable operators are looking at the costs of RSNs and frequently opting to drop them rather than renew when the contracts expire. Altitude Sports, in nearby Denver, has not been carried by Comcast, the primarily cable operator in Colorado since 2019, reportedly because of its cost. Dish Network has dropped every RSN that it used to carry and it used to carry virtually all of them.

For their entire existence, the Golden Knights have been distributed by RSN AT&T Sports Rocky Mountain, which also distributes games from the MLB Colorado Rockies and the NBA Utah Jazz. Warner Brothers Discovery, the new parent company of AT&T Sports Rocky Mountain had announced plans to shut down its handful of RSNs this year.

How the Golden Knights plan differs from the Phoenix Suns proposed plan is that KMCC is a full power television station, currently carried by all of the major MVPDs. The Suns plan put most of the games on a low power television station that was not carried by any of the major MVPDs, it would need to gain carriage -- just like an RSN would. Additionally, the coverage area of KMCC, which has two transmitters, appears to cover a lot of the Las Vegas market for those relying upon an antenna for reception.

It's unclear when Scripps' deals with the major distributors for the retransmission consent of its stations are up (they may be staggered) and what sort of fees that it will be looking to get. Unlike a stand-alone RSN negotiating on its own, Scripps has the advantage of bringing the programming from ABC to systems in Las Vegas in additional to the Golden Knights and whatever else will surround the games on the new independent station. Generally, MVPDs have come to terms for Big 4 broadcast affiliates in most markets. MVPDs fees for Big 4 network affiliated stations has gone up pretty dramatically in the last decade, after being modest for the first decade or so of retransmission consent.

However, it is unclear if MVPDs will be willing to pay the same money that they used to pay for RSNs for retransmission consent of the stations now carrying the games. It is possible that MVPDs will start to look at broadcast station retransmission consent costs the way that they now look at RSN fees -- as simply not worth it. Without regional sports, cord cutting has been at higher levels than we saw in the past. Without ABC, CBS, Fox and NBC programming, we might be looking at the demise of cable TV altogether. Ironically, the biggest losers in that case may be the companies, like Scripps, that own the Big 4 affiliates in many markets and have developed substantial revenue streams from retransmission consent fees. The cable operators can, and smaller operators often have, focused on selling Internet access service and getting out of video altogether. No cable video means no cable retransmission consent fees.

01 June 2023

Value Is the Problem with Current Regional Sports Offerings

Consumers are moving to better value services, not away from traditional services. Basic cable TV represented an outstanding value in the 1990s when it cost $20 per month and there was no service like Netflix. 

In the 1990s cable TV competed with free broadcast television and, for those who wanted something more and were willing to pay, video stores. In the 2020s, basic cable TV service costs more like $75 per month. While video stores are no longer significant players, free broadcast television is very much around and there are a number of subscription video services (e.g., Netflix, Disney+, Max, Paramount+) which offer additional entertainment choices for those who want something more and are willing to pay. iTunes and Amazon rentals are the new video stores.

It was inevitable is that consumers would leave services that seemed to offer less compelling value and move to services that offered better value. Streaming was the technology that enabled these options; it wasn't necessarily that the technology was better (virtually all of the viewing is still at home on a TV; phones and tablets are a small part). 

It is not inevitable that the streaming offerings in the marketplace now (e.g., Bally Sports+ typically at $20 per month, MSG at $30 per month, NESN at $30 per month) will be the solution to the regional sports network business going forward. The CEO of Diamond Sports Group, the parent of the Bally Sports RSNs, David Preschlack, is an experienced sports executive with stints at both NBC's regional sports networks and ESPN. Preschlack had to admit yesterday in court, that its over-the-top a la carte subscription service had only 203,000 subscribers after 9 months in the marketplace, a figure is only 55% of the entity's budgeted number. That 203,000 subscriber count works out to an annual revenue "run rate" of only $36 million, which is a fraction of the amount of revenue that Bally's needs to generate to make up for the shortfall it is seeing it its fees from MVPDs, whose customers continue to "cut the cord" in large numbers.

Sports fans still want to watch their local teams' games. It appears to me that the fundamental problem here is that customers don't think that the value of these streaming services is attractive. Consumers see the same problem that caused them to drop cable TV in the first place. 

The other streaming services, all of which have a monthly ticket cost of less than $20/month, are perceived by customers as a reasonable value (if not quite as attractive a value as they were a few years ago). 

The contrast between a pro game every day or two on Bally Sports+ in a given month for $20 and Max at $16 (or less with ads), for a content library with hundreds of high-profile hours does not flatter the sports service. From a content standpoint, Bally Sports matches up more favorably with a service like Apple TV+, which retails for only $6.99/month. Like Bally's, Apple TV+ is a service focused on new programming; it doesn't have a large valuable library of popular older content.

Regional sports networks are not required to sell themselves on a monthly subscription basis. All of the services I have mentioned in this post also provide an annual subscription with an effective discount for those who purchase it (for Bally it's $190 annually, a savings of 20%). In addition to cutting the monthly rate, the services might also experiment with selling single games or other lower-priced offerings. Ultimately the rights holders should be flexible in considering how they might entice fans to want to buy in. Running a sports service is a fixed cost business and the games can't be sold after they are played. In this way, the business is much like an airline. Airline-style "yield management" might make a good deal of sense to maximize each service's revenue.

The RSNs are not alone in the annals of communication in finding their historical business model does not seem to be holding up in today's world. A similar situation is playing out in audio, as FM radio continues to hemorrhage listeners. Unlike cable TV, FM radio listening is free and the streaming solutions for music (e.g., Spotify, Apple Music) generally have a monthly subscription fee. FM represents a poor value for music listeners is because of the high commercial advertising load on such stations. FM became a lousy listener experience at some point and eventually services emerged as alternatives (first Sirius XM, later Internet delivered services). Music fans are willing to pay for Spotify to avoid the high commercial load on FM (Ad-supported Spotify has a much lower ad load than commercial FM stations). Also those who don't subscribe to a streaming music service can easily put together hours of their own audio programming via free podcasts and collections of music they have assembled on their phones and can easily play in their cars.

15 May 2023

NFL Network Gets New Deal with Comcast; Peacock Gets Exclusive NFL Playoff Game

Today news broke that the NFL had agreed to sell the rights to a playoff game to Comcast's past-nascent-but-not-yet-well-established Peacock streaming service. This is quite a coup for Peacock. Generally, the NFL, as the purveyor of the most popular sports programming sticks to leading television services for their marquee events. Amazon Prime Video, after all, started with a package of often-lackluster Thursday night regular season games in its first NFL season.

Close observers will note that less than two weeks ago, on May 2, 2023, NFL chief Roger Goodell and Comcast leader Brian Roberts were personally involved in negotiating a new agreement for NFL Network and NFL Red Zone, restoring the service to the systems of nation's largest cable operator after they had been dropped a day earlier.

It appears the parties recognized that each had something the other really wanted.

28 April 2023

Have the Phoenix Suns Created a New Model for Regional Sports Networks?

The first new model deal to replace an RSN appeared in Arizona on April 28. The NBA Phoenix Suns, along with the WNBA Phoenix Mercury, agreed with a local broadcaster (Gray Television) to move all of their games to free-to-air television, along with a separate direct-to-consumer offering. This deal, with respect to the Suns, would begin this fall, as the rest of the Suns' games this year are post-season games that will be carried by national services like ESPN, TNT, and ABC. The first regular season game for the Mercury that will be part of this deal is set for May 25.

There are a few wrinkles here worth noting. 

First is that in-bankruptcy Diamond Sports Group, which carried the Suns' games this season on its Bally Sports Arizona RSN, is threatening to sue the teams for breaching their contract which they claim provides the RSN to match any new offer the team might receive. Additionally, if the Suns are relying upon the right to terminate the contract because Diamond declared bankruptcy, while it may be a surprise to non-lawyers, those provisions are usually unenforceable. Companies in bankruptcy, in some respects, have a more favorable position than those that are not. For example, Diamond's failure to make a rights fee payment might give the Suns a basis for termination. Once Diamond has the protection of bankruptcy, the court typically wouldn't allow them to do so, as it would look at the Suns' rights agreement as a crucial asset of the business that might be needed to help pay off Diamond's creditors.

Update: On May 10, 2023, the US bankruptcy court blocked the Suns move to enter into this new agreement, saying that it violated Diamond's contractual rights, notably its right to match any deal for the Suns renewal. Recall the Diamond-Suns deal only ran through the 2022-2023 regular season. As the Mercury were not carried on Bally Sports Arizona, their portion of the Gray deal was unaffected.

Second is that of the 70 regular season games in the typical RSN season, 40 or so are planned for Gray's full power TV station, independent KTVK, channel 3, and the rest will be on a co-owned low-power TV station KPHE-LD, channel 44. The distinction between full power and low power stations is important for two reasons. For those receiving the station via an antenna, low power stations, as their name would suggest, do not cover as large an area as a full power TV station does. 

For those receiving a station via a cable, DBS or similar distributor, low power stations are not always carried by those distributors, full power stations almost always are. KPHE does not appear to be carried by either Dish Network or DirecTV, at least not yet. Gray may need to negotiate a new deal to get KPHE carried on the systems of  many, possibly all, distributors. 

Considering KPHE as a broadcast station may be technically true. However, if most of that station's value is in the Suns programming, it is, from the perspective of a distributor, effectively an RSN -- a channel that needs cable carriage to reach customers save for those in its over-the-air footprint (note the linked map doesn't show any area where the station can be received with an indoor antenna). Depending on the retransmission consent fee that Gray/KPHE might request, that might be a tough sell to Dish which has dropped the RSNs in every market. KPHE is also branded like a cable channel, using the slogan Arizona's Family Sports and Entertainment Network; big TV stations typically include their channel number as part of their branding (as KTVK 3 and KPHO 5 do). Note also that none of the games are scheduled to be carried on Gray's most viewed Arizona TV station, CBS affiliate KPHO, channel 5.

Third is that the television deal is non-exclusive, unlike most RSN TV rights deals. The Suns also entered into an agreement with Kiswe, a streaming video technology company. It looks like the streaming concept is that the Suns (and Mercury) would be the face of the streaming service containing the programming. Kiswe would be the technical backend to that streaming service, not the name visible to consumers. Having a different media rights holders is not unusual in that teams typically have a television deal with one company and a radio deal with another. KMVP-FM is the radio rights holder for the Phoenix Suns; it is owned by the radio giant Audacy. However, for streaming vs. traditional TV, this may be a new precedent.

Updated: 5/11/23 to add bankruptcy court ruling and streaming plan
Updated: 5/12/23 to add KPHE signal map, branding information

06 May 2022

Dish Network Subscriber Count Falls Below 8 Million

Dish Network reported that it had 7.993 million subscribers to its DBS service at the end of the first quarter of 2022. The last time the count was below 8 million subscribers was nearly twenty years ago, at the end of the third quarter of 2002. Dish's highest quarterly DBS subscriber count was nine years ago, at the end of the first quarter of 2013, when it stood at 14.092 million. Things go up; things come down.