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.

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.