Non-Live Sports Content May Be a Tough Sell for Struggling RSNs
Since Q3 2019, Dish Network, YouTube TV and Hulu+ Live TV have all dropped the regional sports networks owned by Sinclair Broadcast Group (Nasdaq: SBGI) from their respective bundles. But while Sinclair has secured agreements with both DirecTV and Comcast during that time, it is still in a precarious position. The loss of another strategic distributor could make it difficult for Sinclair subsidiary Diamond Sports to meet its heavy debt obligations. That reality sparks an obvious question: Is there anything the company could do to validate carriage with its remaining distributors and even convince some of the emerging platforms to pick the channels back up again?
Needham & Company principal Ryan Vaughan suggested if SBGI could program content that drew viewers outside of live game windows, it might make it easier for distributors to justify the RSNs’ inclusion in the bundle. But several industry insiders say that content simply does not exist. And even if there were non-live sports programming that drew an audience to a regional network, with distributors attributing nearly all (if not all) of an RSN’s value to its live game counts, it wouldn’t provide any additional leverage anyway. One RSN executive who asked to remain anonymous said: “Nobody has come up with something that is a moneymaker outside of live sports. And I don’t see a program on the horizon that is going to get a distributor to say, ‘We can’t drop that network because they have that program.’”
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JWS’ Take: Diamond Sports is the poster child for the struggling regional sports network business. But the secular decline of the established pay-TV bundle ecosystem and declining distribution are problems plaguing the entire industry.
Regional sports networks are among the highest-rated channels on television during live game windows (which is why they have been able to command a premium). But as Vaughan noted, “the distributor argument is always that there is just not much viewership the remainder of the week.” Of course, they will also point out the highly segmented nature of the audience (think: RSNs are important to just 10-15% of bundle subscribers) and that the channels are among the most costly within the TV and video bundle.
It would be logical to assume if RSNs were programmed with better non-live content, viewership would be greater. While that may be true, it would not mean distributors would be any more likely to carry the network. That is because non-game programming doesn’t really hold much value in their eyes. They believe the game content they have is sufficient to keep the subscriber in the pay-TV bundle.
Whether it is possible for an RSN to deliver ratings for content beyond pregame, postgame and live game inventory is up for debate. Vaughan tends to believe that it can. He sees the success that nationally syndicated radio shows have found on YouTube (see: The Pat McAfee Show) and believes RSNs could replicate the model—particularly when one considers local radio syndication has arguably been the best non-live sports performer for these networks. For example, the live simulcast of ESPN Radio New York’s The Michael Kay Show is the highest-rated show on YES Network outside of the game inventory and pre-/postgame shows. “It’s about having desirable content [and] being easily accessible anywhere/everywhere to consumers,” Vaughan said.
But local radio simulcasts aren’t particularly profitable for RSNs, and shows with a national focus tend not to draw well on regional networks. It is hard to imagine an RSN generating a positive return on investment. Remember, the territory for YouTube viewership is significantly bigger than it would be on a single RSN, too. Perhaps if a collective of RSNs banded together and syndicated a show across the entirety of the footprint, the economics could work.
And history has shown non-live sports programming doesn’t draw on RSNs. Fox Sports invested heavily in the creation and marketing of original content like Best Damn Sports Show and Fox Sports News throughout the 2000s. But the results were underwhelming. The company was unable to move ratings—in part because, while the show budgets were relatively large, they could not compete with the economics of programming on nationally distributed networks like ESPN. Fox Sports wasn’t able to attract enough advertisers to make the shows profitable or get a distributor to pay more for the programming. In the end, the shows just added costs to the operation of the business.
Unlike non-live content, sports betting has the potential to positively impact margins for RSN businesses (perhaps the networks could program secondary live sports like tennis at off-hours, still appealing to gamblers). But former Fox Sports executive Pat Crakes says at the end of the day, RSN businesses are likely to remain about distribution fees from distributors for game counts, and everything else on the network is filler. That’s because, he said, “Even if you could program these channels across the board with programming people were watching, it wouldn’t move your P&L at all.”
It’s logical to wonder why Sinclair does not lean on their ABC, NBC, CBS or Fox affiliates for programming. Presumably, a syndicated early morning news show would outdraw what currently airs on most of their RSNs between 7 and 9 a.m. (and it is not like there would be an incremental cost for it). But cable company mandates limit the types of programming that can air on the network. Distributors don’t want their sports channels competing with their news channels (or any other channels for that matter).
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