Charter Communications on Monday announced changes to its regional sports network distribution model, with plans to split its base TV package into two forthcoming options – with one that includes RSNs and another that excludes certain sports programming and offers a reduced rate for non-sports fans.
In a separate but related happening on Monday, Charter reached a distribution deal for its own RSNs with DirecTV that will see the pay TV provider continue to carry Spectrum Networks’ SportsNet and SportsNet LA, serving local live games of the NBA Los Angles Lakers and MLB Los Angeles Dodgers.
The DirecTV deal aligns with Charter’s new model as it requires a significantly lower penetration threshold for the RSNs. Penetration rate is important because historically sports agreements have required distributors both pay a fee and provide programming to a high proportion of its subscribers. At high levels, penetration thresholds mean providers need to include sports networks across most TV packages, even basic ones and for non-sports fan viewers, driving up the cost to customers as distributors pass on the pricey programming costs to consumers through rate hikes. And paying higher bills for programming they aren’t interested in is one factor that’s driven cord-cutting and consumers exiting the pay TV system. The model has also proved challenging for RSNs, some of which have struggled to find carriage on distributors as pay TV viewership declined, one element leading certain RSNs and leagues to launch their own direct-to-consumer streaming apps.
As for Charter and DirecTV, traditional penetration rates (ie: the percentage of a provider’s base that needed to be distributed to) were upward of 90%, and have now been cut to upward of 60% or so, StreamTV Insider has learned. And the lower the penetration rate threshold, the more flexibility DirecTV can offer customers since RSNs don’t need to be included in nearly all or as many TV packages, thereby leading to potentially lower cost or more choices for both fans of local live sports and non-sports fans.
Carriage of Charter RSNs on DirecTV includes satellite, DirecTV Stream, and U-Verse for customers throughout Southern and Central California, parts of Nevada including Las Vegas, as well as Hawaii.
“While viewing habits continue to shift, it’s clear that regular season professional sports programming remains extremely popular with a core base of traditional cable, satellite, and OTT customers,” said Dan Finnerty, SVP and general manager at Spectrum Networks, in a statement. “That said, given these customers represent a relatively small percentage of the overall video subscriber base, and recognizing the marked increase in direct-to-consumer choices, the model for RSNs needs to evolve to reflect the realities of the current marketplace. With this agreement, we are taking a step to shift the business model so that customers have more control.”
Charter is the second-largest pay TV operator with about 14.9 million subscribers as of the end of Q1, while DirecTV is the third-largest with around 12.7 million subscribers across its systems, according to Leichtman Research Group.
Charter to offer new plans, launch DTC RSN apps
For Charter itself, the existing Spectrum TV Select packages will be relaunched as two new services in parts of the cable operator’s footprint in the third quarter of 2023.
The new packages include Spectrum Select Plus, which will offer a complement of sports programming and RSNs, as well as Spectrum Signature Select, an alternate TV option that will exclude certain sports content and give non-sports fans a reduced rate option. Multiple media reports have pegged the option as about $10 less expensive.
The two new TV packages will launch on a market-by-market basis throughout the majority of Charter’s footprint, where the cable operator said it’s already garnered the rights to proceed.
The new model also leaves room for RSN and league-owned DTC streaming apps, which will be offered to Spectrum Select Plus customers at no additional charge. Charter said it could also market and sell the DTC streaming apps to non-video subscribers as well.
Also noteworthy are Charter's plans to launch its own DTC alternative for its SportsNet RSNs. While Charter hasn’t shared more details on that effort yet, the operator said the apps will be made available to all affiliate subscribers for free.
According to Charter’s press release, as mentioned earlier, sports networks’ agreements have typically made distributors pay a fee and make their programming available to a large majority of subscribers, citing a threshold that historically is “almost always over 80%” even though many viewers don’t watch the content.
“The launch of Spectrum Select Plus underscores our commitment to providing our customers with the best sports coverage while ensuring our non-sports fans have options that meet their needs,” said Tom Montemagno, EVP of Programming Acquisition at Charter, in a statement. “This new model paves the way for a more flexible approach to the outdated packaging model for sports, and it puts the focus where it should be, on the customer.”