“One of the most invigorating parts of this job is when you start seeing data points that were unexpected and force you to re-think a core tenet.”
That’s the opening line from a newly released investor report on U.S. media from MoffettNathanson Senior Analyst Michael Nathanson.
He notes that from his Wall Street perch, MoffettNathanson has long preached the dogma that live sports “are the glue to Pay TV and, as such, will be the least likely content to go over-the-top.”
Umm … that’s proving to be untrue, to some extent. Now what?
Nathanson points to recent announcements that Comcast “was killing” the NBC Sports Network and that the WWE had shuttered its SVOD service, which puts more content on Peacock.
“These developments speak to profound changes afoot in sports media economics,” Nathanson says.
While MoffettNathanson still believes that the National Football League will remain a core broadcast product in the existing bundle, distribution of other sports rights, which the Wall Street investment house has previously taken for granted, could change “meaningfully” over the next set of renewals.
“These shifts could occur as media companies and leagues/teams are forced to react to declining viewership among younger audiences and the acceleration of vertically-owned network streaming services like ESPN+, HBO Max, Peacock and Paramount+,” Nathanson says.
As such, there is, Nathanson notes, “obviously a long list of questions that we need to ask with few known answers.”
However, he adds, “We do know that we are witnessing the initial shifting of tectonic plates that have long been static. As such, every crack at this point will need to be scrutinized.”
SCALING STREAMING
Given the little earthquakes that could severely rattle an industry fueled by retransmission consent revenue in the wake of advertising dollar dips, Nathanson has some tough words for linear media C-suites.
“Media companies will need to aggressively and expensively scale assets in the streaming
world to move sports rights over to DTC platforms,” he predicts.
With that said, MoffettNathanson thinks the four major broadcast networks will retain sports rights that are “broadly” followed and still benefit from the relative (yet shrinking in absolute terms) reach advantage.
“We would think the NFL, NCAA, ‘March Madness,’ NBA and MLB Playoffs will remain the domain of broadcast and will have digital rights that are monetized via affiliated services like Paramount+, Peacock or ESPN+,” he says. “Fox, the odd man out without a paid OTT service, will have a decision to make about how they move forward on this count.”
However, nationally telecast sports like the MLB, NHL, NBA, Golf, Tennis and college sports
have some tough decisions ahead as cord-cutting and younger audience flight persists.
“Here it might make sense to have a more limited number of events carried on a smaller group of networks, which would mean both the end of FS2, ESPNU, CBS Sports Networks and a greater number of games carried on OTT products,” Nathanson says.
How will this impact cord-cutting?
“While the market has focused on the demise of RSNs, there is a parallel narrative about the death of league owned networks,” he concludes. “As these two trends accelerates, we wonder when some of these leagues not named the NFL start to get more aggressive about the pricing and packaging of an all-in-one OTT service at lower starting entry prices.”
