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Audience, content, monetization & technology – the next era of regional media deals

At the start of this month DISH Network dropped all AT&T SportsNet and Root Sports RSNs, while Comcast Xfinity hit the headlines shortly after by ending its relationship with MSG Network.

It’s a massive story for the US sports industry. RSNs’ large rights-fee payments have been a central contributor to its growth over the last 60 years, enabling teams to monetize media rights at the local level, outside of the national packages sold by leagues.

But these carriage disputes are the latest in a long line of issues for RSNs that have raised questions about their future, and the significant implications their changing business models will have for sports.

Last year Sinclair wrote down the value of its RSNs by $4.2bn, while earlier this year NBCUniversal was reported to be selling its seven RSNs; in both cases, once highly profitable businesses have been hit hard by cord-cutting, rising rights-fees and carriage issues. Sinclair, like nearly every traditional media company over the last five years, is responding to threats to its business model with plans to roll out a streaming service.

We believe sports properties have three routes to explore as they plan for the next era of regional rights deals and ensure any revenue drops coming their way are kept to a minimum:

  1. Sticking with RSNs and helping them pivot, with their premium rights, to a new model with streaming at the core
  2. Bundling in-market and out-of-market rights into their own D2C proposition
  3. Shifting local rights to a more established, national streaming player such as an Amazon or an ESPN+.

Eradicated Advantage

While some properties have explored route (a), we ultimately believe that it won’t be a long-term option. RSNs are a product of the cable TV era, where media distribution channels were limited and having a platform to reach consumers in a local market was a competitive advantage. The streaming era has eradicated that advantage, and in moving from a cable TV channel to a streaming company, the competition RSNs now face is greater – namely the biggest tech and media companies in the world.

So all things considered, properties seem to be left with the decision to either build or expand their own D2C proposition, or to sell local rights to a national streaming service. Going D2C is the long-term Holy Grail, as sports properties capitalize on growing connectivity to build and then commercialize direct relationships with their fans.

However, in the short term, leagues have to be able to make the economics work out – in particularly as they move away from audience reach, and perhaps more significantly the revenue that RSNs provide. Receiving a rights fee from a streaming partner will help to make up some of the existing revenue that RSNs provide much faster than going D2C will.

It’s also important to point out that many major teams are heavily invested in RSNs as equity partners, making the move away from the local model even more of a challenge for certain properties. In New York, for example, the Yankees and Knicks own YES and MSG Networks respectively.

SBJ’s John Ourand recently speculated that these networks, along with Mets local broadcaster SNY, could merge, giving them bargaining power in carriage disputes in the short-term, but more importantly an opportunity to create a regional streaming platform that would drive greater scale than a single team or network going to market alone.

From our experience helping properties like the NFL, ATP Media and F1 develop media distribution strategies and scale their D2C streaming platforms, we’ve developed a framework of four key pillars properties should be analyzing as they pursue moving their local rights D2C or to a national streaming partner:

1. Audience

Traditional media relationships, whether with RSNs or national broadcasters, give properties little-to-no information about the audiences that are engaging with their content. Property-owned D2C services will provide a wealth of fan data but partnering with a national streaming service such as ESPN+ or Peacock can also enable deeper audience insights than a partnership with the parent broadcasters.

As properties form these new streaming relationships, being clear from the start about the data and insights that will be shared between property and broadcaster is critical.

2. Monetization

Local rights will reach a property’s most avid and engaged fans – the same fans who are most likely to buy tickets and merch or play fantasy games. The shift from RSNs to streaming will therefore open the ability for properties to grow revenue streams outside of media, and having a D2C platform that can operate as a one-stop-shop for fans, or a streaming partner who can integrate other fan engagement and revenue opportunities, will create centralized touchpoints for fans.

One of Amazon’s value propositions as a rights buyer has always been the ability to sell fans merch alongside the content they’re watching, and we expect more companies to develop similar offerings as revenue streams continue to converge. Look no further than Fanatics’ latest plans to expand past merchandise into betting, streaming, and ticketing.

3. Content

As sports consumption moves online, we’ve seen a rise in the consumption (and value) of non-live content, from highlights and game replays to behind-the-scenes documentary features. In addition to local media rights, properties need to review all the other content they own and determine how it can best be distributed across digital, social, streaming, and traditional channels.

Finding the right balance of selling vs retaining content, informed by a deep understanding of fans and how they are most likely to engage, is the key to any property’s content strategy.

4. Technology

While live streaming provides technical challenges to reduce latency and maximize the user experience, streaming technology also allows rights-holders to move away from one-size-fits-all programming to content that can be personalized by fan preferences and behaviors.

Whether that’s new commentators and alternative streams focused on stats and betting, or truly customizable broadcasts such as the Masters’ MyGroup product – where fans can watch every shot from their personalized list of favorite golfers – properties will be able to inform and develop their own product strategies off the back of successes (or failures) of their streaming partners.

The Future

While the future of RSNs remains unclear, it is almost certain that they will play a smaller role in sports media’s future than it’s past. For sports properties, developing a regional media strategy that capitalizes on the opportunities that streaming provides, rather than holding on to a dying business model, will allow them to grow into the new era of sports.

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