The NBA's Los Angeles Clippers under their new owner, former Microsoft chief Steve Ballmer, will pass on a $60 million-a-year offer to stay on their regional sports network (RSN) and will instead embark on a direct-to-consumer (DTC) streaming video distribution scheme. The New York Post reported on the action, citing unnamed insiders.
The Clippers are entering the last year of a deal with Fox Sports RSN Prime Ticket, which pays the team roughly $25 million a year. This is a relative pittance compared with the $3 billion, 20-year RSN deal the Clippers' in-market rival, the Los Angeles Lakers, have with Time Warner Cable (NYSE: TWC), which pays out more than $150 million a season.
The NYP reported that Fox Sports is offering the Clippers a new deal worth $60 million a year. The NYP also reported in January that the team was talking to TWC about launching a new RSN. In response, the Clippers released a statement saying that Ballmer is "exploring any and all options, including a new deal with Fox."
According to the NYP, Clippers games are currently distributed into 5 million pay-TV homes in the L.A. region. If the team were to sell a DTC streaming service to 10 percent of those homes (500,000) at $12 per month, the team could bring in annual revenue of $72 million.
"The rumor of Ballmer going in an unconventional route with the Clippers' local rights has been swirling for a while too, since he has the technology background," said Adam Gajo, analyst for SNL Kagan.
Of course, the Clippers would also have to pay for all the video production and live streaming infrastructure necessary to support the service. But as Major League Baseball has proven with its thriving Advance Media division, there are benefits to being a pioneer.
As an early adopter of streaming technology, Major League Baseball Advanced Media (MLBAM) has branched out far beyond helping its pro-baseball constituency stream games and now supports a wide range of outside clients including ESPN, HBO and the National Hockey League. Recent reports have indicated the technology unit will soon be spun off from the MLB with a value as high as $5 billion.
"Ballmer is going to want to explore his option on the tech side, but the cable model is still a pretty reliable source of revenue," an unnamed source told the NYP. "If they go OTT [over-the-top], they're taking an enormous risk, and they're not the most prominent team in L.A. -- they are second-best."
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