Sports network affiliate fee growth to slow, Nathanson says

NBA
A prime example of a single-team RSN feeling the heat is Time Warner Cable’s SportsNet LA, the broadcast home of the Los Angeles Dodgers. Image: NBA

Sports network affiliate fees could be under pressure going forward, according to MoffettNathanson analyst Michael Nathanson.

MoffettNathanson recently held its Sports Summit featuring league officials, network executives, ad buyers, programmers and sports experts. While the consensus from the forum was that sports viewership and advertising isn’t under any near-term threat, affiliate fees could be in trouble.

“There is no doubt that properties like the NFL and strong multi-team regional sports networks are incredibly valuable to distributors and can’t be dropped,” wrote Nathanson. “However, given the increasing margin pressures in video distribution, single team RSNs and long-tail cable networks were seen as especially vulnerable.”

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Of course, a prime example of a single-team RSN feeling the heat is Time Warner Cable’s SportsNet LA, the broadcast home of the Los Angeles Dodgers. The RSN, based on a 25-year distribution deal with the team, has struggled to set carriage agreements in place with major pay-TV providers. The whole ordeal is currently the subject of the Justice Department lawsuit alleging DirecTV conspired with other operators to block SportsNet LA from securing carriage deals.

But if Nathanson is correct, network groups like Turner could soon be feeling some pressure. Turner, through its networks TNT and TBS, has licensing deals in place with the NBA and MLB as well as the NCAA. But much of Turner’s programming is not sports-related.

Nathanson sees leagues and networks increasingly pushing new packages in order to “stem the bleeding” caused by millennial audiences continuing to impact subscriber growth.

“For these reasons, our experts thought sports network affiliate fee growth would slow going forward,” Nathanson said.

Nathanson pointed out that most major domestic sports rights packages are already tied up in agreements until the end of the decade. But, at that point, digital media companies like Amazon and Google could very well jump into the fray for distribution rights. Nathanson said leagues could be wary of partners like Amazon because they might lack the reach of television as well as the professional content production skills most major sports leagues demand.

“In the short run, there might be some digital experimentation to test the readiness of these partners,” wrote Nathanson. “We believe their entry, no matter how small, will cause consternation for investors in 2017.”

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