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.

Welcome to 2016, Here's Your Price Increase

The headline on Karl Bode's story in TechDirt really grabbed me: "The Cable Industry's Response To A Banner Year For Cord Cutting? Massive Across The Board Price Increases For 2016" which goes on to decry the stupidity of cable TV executives.

I'm not sure that's the story here. I have worked in the cable TV industry for many years and, by and large, my experience has been that the cable companies are run by pretty sharp people.

So, why, given "rampant cord-cutting" would a cable company "pour gasoline on the fire" by raising prices?

The logical reason would be that it is better business. Multichannel penetration peaked in 2010 at 88% of US TV households. This figure was up from 82% in 2005 because many people who previously used an antenna to watch TV found cable a more attractive solution than buying a new TV or a converter box to deal with the digital TV transition.

Americans certainly love television, but is there any reason on God's green earth why 88% of them would be unsatisfied with the over-the-air broadcast offerings and feel compelled to spend hundreds of dollars per year on additional television? The broadcast channels have most of the top-viewed shows and are available for free in the overwhelming majority of homes (they are not available for free in rural and mountainous Arkansas, Oregon, and Pennsylvania, where the cable TV industry was founded).

If you don't know who this is, you are probably not a young person (click here for the answer)

It is abundantly clear to anyone in the television business that multichannel penetration will continue to decline as it gets more expensive. There will be more and better content on YouTube (itself now 10 years old) each year, particularly for young people who don't hear their voices represented much on television. Netflix and Amazon have created a lot of attractive original programming. That may continue or it may go the way of Yahoo's original programming. It is unclear to me how much money there will be to support how much TV. FX CEO Jon Landgraf said last year that "there is simply too much television"; he may be right.

However, what do you do if a whole lot of people have been buying your service even though it probably didn't make a ton of sense for them to do so and there are more decent cheap alternatives available to them in the "boredom killing business"? It would seem rational to write off these customers and reposition your service as a premium offering. Maybe you would roll out something like Time Warner Cable's Signature Home. Or to put it more into cable programming, maybe you would pursue the strategy Rachel Menken put forward on Mad Men.

Over-the-Air Broadcast TV Down to 9%, Maybe Cable Is Just That Good

One of the interesting facts from the recently released Nielsen media infographic (below) is that only 9% of US households rely solely on over-the-air television (i.e., do not have a cable, DBS or telco subscription). This figure is down from 16% in 2003.

On one level the decline in over-the-air household is counter-intuitive; the price of multichannel television has gone up much faster than inflation over the last decade. Higher prices usually lead to lower sales for the same product. I see the three factors -- two external to the multichannel value proposition and one internal -- that supported the decline in the use of over-the-air television.

First, the conversion of broadcast TV to digital made decades of analog-only TV sets obsolete for receiving TV stations (or required a digital converter box to make broadcast TV signals usable by these sets). In contrast, all of the top multichannel subscription services work just fine with an analog TV set (without even the need for a set-top box on many cable systems).

Second, the number of households with high speed Internet connections has dramatically expanded since 2003 and such households have a large amount of video content available to them both for free (e.g., YouTube, Hulu) and for pay (e.g., Netflix, iTunes). A light TV viewer might get all the video he or she needs from the Internet and not bother with an antenna and/or converter box.

Finally, a strong argument can be made that the content available via multichannel television has advanced faster than its price, rendering it a better value than it was earlier. In 2003, the top college bowl games were on broadcast television as were virtually all of the top dramas. By 2012, all of the top college bowl games were on ESPN networks (well, all but 3 of the top 36 bowl games, per this link), AMC's The Walking Dead was the top rated drama on television and cable networks like Food, E!, History and Showtime were attracting significantly more viewing and this was no accident as they are all spending significantly more on original programming. Not to mention that the multichannel subscription is much more likely to include VOD, HD and online streaming/TV Everywhere access to substantially more content than it did in 2003.

Click the graphic to see it in its full sized glory

There are a lot of fascinating data on the graphic. One of the not surprising, but striking points is that 56% of mobile phone subscribers now use smartphones, 44% use "feature" phones. That split was  18 smart to 82 feature in 2009.