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MediaTalk | Season 2 | Ep. 35 - NBA tips off amid shifting media rights

MediaTalk | Season 2 | Ep. 35 - NBA tips off amid shifting media rights

 

Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to MediaTalk, a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. Today, we're going to talk hoops. The 2024-25 NBA season tips off on Oct. 22, on TNT (US) with the revamped New York Knicks against the world champion Boston Celtics, followed by the Minnesota Timberwolves taking on the LA Lakers. It's the last season under the current national deal for Walt Disney Co., ESPN (US) and Warner Bros. Discovery Inc.'s TNT.

We'll discuss changes afoot nationally for the 2025-26 season and beyond. In the meantime, there are many changes at play on the local level amid the transformation of the regional sports network model that has been in place for decadeas. To try and make some dollars and cents of it all, I'm joined by S&P Global Principal Analyst Scott Robson, who tracks US TV networks and sports, and Kagan Research Analyst Michael Johnson, who's on the US sports watch. Lee Berke, principal of consultancy LHB Sports, Entertainment & Media, who was also on Scott's panel at the Kagan Summit back in July, is also in the virtual MediaTalk arena. Busy off-season, Michael, or as the folks here like to call you at S&P Global, MJ, how are you doing?

Michael Johnson: Thanks for having me, Mike. Yeah, a very busy off-season, indeed. Big media deals and Bronny on the Lakers. A lot going on.

Reynolds: Scott, you've been working on your jumper over the summer?

Scott Robson: Yeah. Thanks for having me, Mike. I haven't been playing basketball this off-season, but I've been focusing on all the big media moves.

Reynolds: And Lee, I'm sure you've been keeping abreast of all the RSN roster and player moves.

Lee Berke: Yeah, the RSN player and roster moves have been busier than actually the free agent moves, so yeah.

Reynolds: All right. As alluded to above, the RSN model is under fire from the decline in linear subscribers and the attendant drop in affiliate fees amid streaming's ascent. Warner Bros. Discovery exited the local RSN business for the most part at the end of '23, and Diamond Sports Group LLC, the nation's largest operator of such channels, is still trying to emerge from Chapter 11 bankruptcy protection. Scott, can you talk about what's going on with local pro sports presentations in general?

Robson: Yeah, it's an unusual situation. We're seeing these large upticks in national sports rights deals. The narrative has been that sports are the most important thing for TV networks, and yet at the same time, we're seeing the collapse of the regional sports network business. So it's odd to see the national rights doing so well while the local rights seem to be heading back to local broadcast stations. I think the Clippers were the first NBA team to put some games back on local broadcast stations. Since then, many others have followed. We've seen teams experiment with 10 games on the stations last season. But it looks like, for many NBA fans this upcoming season and going forward, they're going to have to tune into their local stations or purchase streaming packages if they want to catch all the action.

Reynolds: All right, Lee, it's back to the future for broadcast stations, again, becoming the home of not only basketball but hockey and baseball as well.

Berke: Absolutely. And it's, as Michael alluded to, it's all because of the collapse of the traditional RSN model. They worked very well when cable penetration was going up and up, maxing out when total TV households on cable were around 100 million households, and then were dropping a percent or two a year. After the pandemic, cable churn ramped up to about 10 to 12 percent per year in terms of subscriber drops. That number shows no sign of abating. In the midst of that, if you want to be visible, you have to be where the viewers are, and the viewers are essentially changing their viewing habits. That's what's driven all of this. They've made the decision; they're no longer buying a cable television package; they're buying broadband. They're watching games on broadcasts and streaming platforms. Ultimately, you're seeing all the teams and leagues conform to that by offering up more games on broadcasts, more games on streaming, and becoming far less dependent on cable television going forward, particularly regarding the RSN marketplace.

Reynolds: MJ, you just wrote about the growing role of local direct-to-consumer sports. Your thoughts on the opportunities and growth within this segment, and any sense for what the local one here, Gotham, is against the Knicks, Nets, and all the hockey teams?

Johnson: Yeah, no doubt. Direct-to-consumer is definitely a growing trend, especially with the escalating media rights costs and the increasing appeal of streaming services as well. Commissioner Adam Silver basically came out and said the RSN model was broken. He predicted that streaming services will play a bigger role in the future for local viewership. As far as DTC growth in the NBA goes, like Scott mentioned, the Clippers were the first to go direct to consumer with Clipper Vision. You also had the Phoenix Suns with Suns Live, the Utah Jazz with Jazz Plus, and just recently, the Trail Blazers with Blazer Vision, just to name a few. I think the Pelicans and the Mavericks will be dropping some news in those markets as well. As far as the Gotham Sports package goes, it was recently launched. It offers three subscription options in the New York/New Jersey market: one for MSG Plus, one for the YES app, and then a combined Gotham package available, I think it's for $42 per month, accessing all three options. It'll be interesting to see how profitable these options are and how many other teams will follow suit in the upcoming season.

Reynolds: MJ just mentioned the Suns and the Jazz; they're also offered on a streaming product from Kiswe, and the NBA Rockets team with MLB's Houston Astros on their own RSN, the Space City Home Network. Scott, any sense of how these platforms performed?

Robson: Yeah, so there haven't been a lot of publicized subscriber numbers out there. I think the Jazz put out about 20,000 subs during last season, which seems about right to me. It's going to be difficult to really grow a lot of these services given that they are regionally focused. But it seems to be the right move for diehard fans in terms of being able to consume all the entertainment in one place with just one login.

Berke: Hey, Scott, I can provide some additional information. I worked with Gray on the linear setup for the Suns and then with the Jazz and Kiswe for Jazz Plus. They generated roughly 20,000 subs last year. The key for both the Suns, Jazz, and others offering up their full season on streaming is that pricing needs to be appropriate for the marketplace. They seem to work pretty well at $12 to $15 a month or $125 a year for a season. You need to have broadcast along with it. It's interesting. You're dealing with two separate markets. On the streaming side, you have broadband-only homes that are roughly about 30% to 40% of the total marketplace right now. That's essentially homes that only get their video through streaming. Then you're dealing with broadcast television homes. That gives you the wide reach that, quite honestly, RSNs don't have anymore because they're tied to the pay TV model, which continues to shrink. Now you're getting your signage, you're marketing, and your ad sales being seen by 10 out of 10 television homes. You've added new revenue with a DTC platform for the Suns and the Jazz, and for others as they go forward. Ultimately, you establish a range of revenue streams, and while it's not necessarily going to start where you were in the heyday of RSN growth, at the same time, though, you can now reach your entire marketplace. You can grow your ad sales, you can grow the value of the signage that you're offering up, and you can also, as broadband-only homes become a larger part of the market, grow your subscriber numbers and revenues as well.

Reynolds: All right, again, busy off-season. As we stated from the start, the Portland Trail Blazers just exited from Root Sports Northwest. The Blazers are now teaming with Sinclair NJ. Your thoughts about what they're calling the Rip City Network?

Johnson: Yeah, so the Rip City Network, I believe it's the first time that a majority of the Trail Blazers' games will be available to fans throughout the region through over-the-air television, consisting of various affiliates throughout the Pacific Northwest. They're entering a new era as far as over-the-air television goes in the Portland Pacific Northwest region. As mentioned before, the new direct-to-consumer streaming service, Blazer Vision, is launching for this season, and I believe it costs $20 per month. Uniquely enough, anyone who signs up before November gets two tickets to an actual Blazers game. They're trying some different things in Portland as they just enter into a new era of direct-to-consumer and over-the-air.

Reynolds: Alrighty, in the second city, we've got new goings-on. We've got the Chicago Bulls, the NHL Blackhawks, and MLB's White Sox. They opted out of their deal with NBC Sports Chicago to form their own service, Chicago Sports Network, which launched on October 1. The Bulls' best player, DeMar DeRozan, is on the Sacramento Kings. The White Sox just broke the 1962 Mets record for the most MLB losses over the past two centuries. Lee, what's the outlook for the Chicago Sports Network?

Berke: It's still very much up in the air. Everybody's experimenting out there; they're trying different approaches and a variety of ways to reach consumers in new ways. This is an approach that utilizes television stations that are called must-carry stations. They're based out of Gary, Indiana, which is part of the Chicago DMA. They can be picked up on a must-carry basis by the Chicago pay TV systems, but at this point, they have achieved a deal with DirecTV, presumably to receive some compensation because you don't necessarily have to be compensated if you're must-carry, but they've yet to reach a deal with Comcast. As you move into the season for the Blackhawks and the Bulls, you're going to have a lot of fans eager to watch these games. If they have broadcast only, they could buy an antenna and watch the games. But if they have pay TV right now, if you're a Comcast subscriber, you're going to be disenfranchised until they reach a deal. It's still a challenging situation. They tried a different approach, but it remains to be seen exactly how it pans out over the next several months.

Reynolds: The New Orleans Pelicans opted out of their contract there. Scott, can you talk about the club's new arrangements?

Robson: Yeah, so the Pelicans, like MJ mentioned earlier, are probably going to be announcing a direct-to-consumer option as they approach the season. Following suit with what we've seen with the Jazz and the Suns and some of the other teams, it's one of those situations where teams are looking for options outside of the Bally Sports networks, and streaming and local broadcast seem to be the move.

Reynolds: Let's go to the Dallas Mavericks. They also got out of their contract with Diamond Sports. Lee, you worked with TEGNA Inc. down there.

Berke: Yeah, I worked with Tegna down there and helped put together their broadcast deal. Obviously, they were a mainstay of Bally Sports Southwest. Several teams have left that shop, including the Stars. The Pelicans' deal was rejected. With Tegna leading the way, they have two stations within the DFW DMA. They also have a number of stations throughout the remainder of the state, so they're able to provide a substantial amount of OTA coverage for the team. Coupled with a to-be-announced streaming deal along with it gives them a wider range of homes across a range of technologies and reaches the fans that are out there and have changed their viewing habits. That right now seems to be a very promising new network arrangement for the Mavericks and for Tegna.

Reynolds: MJ, Lee just talked about the Dallas Stars. They're taking their local presentation to a whole new level.

Johnson: Yeah, exactly. The Stars are moving away from the RSN model and just launching a streaming service called Victory Plus, which will broadcast all the Stars' games moving forward. It was developed in a seven-year partnership with a parent media company. It's going to be a free service, ad-supported for users. This represents a significant shift from traditional broadcasting practices. They're expected to receive a minimum revenue guarantee in the deal too, which is going to help offset the financial impact of losing millions in annual rights fees from Bally Sports and Diamond Sports as well.

Reynolds: Yeah, I think a lot of people are going to be checking into that to see, because this is streaming only, so we'll see how that turns out. Just going back a couple of weeks ago, there was NBA and NHL news coming out of Denver that you also had your hand in, Lee.

Berke: Very much, I've been involved in helping Tegna establish essentially a game-of-the-week package for both the Nuggets and the Avalanche. That is a major move for them. They have had all their games on the Altitude RSN for many years. They made an announcement together with Tegna that there would be 20 games for the Nuggets per season and 20 games for the Avalanche per season on Tegna's two stations in the Denver marketplace. In addition, the Nuggets and the Avalanche announced that all their games are going to be streamed on an Altitude-branded streaming platform. This exemplifies the new approach to reach where fans are watching their games. It's been particularly challenging for the Nuggets and the Avalanche, given their success, that many fans were not able to watch them on Altitude, given the impasse they reached with Comcast in particular. Now going forward, you're going to have substantial broadcast and streaming coverage over and above the remaining games that are still being shown on Altitude.

Reynolds: All right. To use an NBA term here, let's pivot a bit. Let's talk about the national front. The viewership was essentially flat last season. Scott, were you surprised the NBA was able to get the huge bump in rights fees it received with the three new deals it inked with different media players?

Robson: Yeah, I’m not very surprised by the uptick in the media rights deal on the national front for the NBA. Sports is more popular than ever. A lot of these networks are really looking to increase their live sports portfolios as more viewing of dramas and sitcoms moves to streaming services. The most interesting part of the deal was obviously TNT being left out. TNT has been the home of the NBA since 1989. I think it really speaks to the state of the industry and the deterioration of the cable network industry that the NBA decided to go with Amazon Prime over TNT. You look at the reach of both platforms, and while TNT is still in about 65 million homes in the U.S., it seems like a better decision for the NBA to focus on that streaming aspect of the business. At the same time, the NBA is heading back to NBC, which highlights the reach of the broadcast networks.

Reynolds: Yeah, I was going to say MJ again, NBC is back in the national NBA game for the first time in decades.

Johnson: Yeah, definitely. Who can forget the NBA on NBC theme music from the nineties? If I'm not mistaken, I think they're going to be bringing back a modern version of that, so people like me will be looking forward to that. Like you said, Amazon continues to make major moves as a primary player in sports streaming. A lot to look forward to there.

Reynolds: So Lee, these national contracts mean how much per club? It's gigantic dollars. It has an impact on, I guess, the local rights, and Knicks owner Jimmy Dolan was complaining that maybe the new national deals hurt the local guys.

Berke: Look, based on the NBA math that's out there in terms of games, the local teams still have about, I think about 64 or 65 games per season to exploit within their respective regions. No question, we're looking at issues regarding local rights fees for these teams, but the national television deals have been absolutely brilliant in terms of creating a very competitive marketplace. The NBA essentially held off on streaming on a national basis for these sorts of packages in the past. They created new properties like the in-season tournament, the play-in game tournament, and international games—a range of opportunities that could be exploited by a range of competitors eager to get the size of the audience the NBA offers, the demos that they offer, and ultimately achieving a substantial boost in national television revenue. If you want to boil it down on a per-team basis, this year, approximately each team is receiving about $90 million in national television revenue for the year. Starting next year, on an average annual basis, the teams will each be receiving about $230 million per year in national television revenues across the three packages.

Reynolds: It's a gigantic jump.

Berke: Yeah, a $140 million jump. So if you are running into difficulties regarding your local media revenues, that is more than accommodated by the growth in national television, particularly by adding in broadcast, reducing your dependence on cable, and offering up all these streaming packages. The net is a substantial growth. That’s growth in terms of the value of the franchises, and that's growth in terms of player compensation. I think you're going to see the top players getting, you're already seeing them get $50 to $60 million per year; they may be getting far more than that going forward. It's generational wealth for everybody involved with the NBA. These new deals are the linchpin for making that happen.

Reynolds: All right, Consumer Insights recently conducted a survey around various aspects of sports. This included asking respondents about viewership and which sports they followed during their respective seasons. The NFL led the way at 48%, the Summer Olympics, which was top of mind with the Paris Games this past summer, was second at 32%, MLB was at 28%, then the NBA at 27%, ahead of college football at 24%, and men's college basketball at 20%. Did that surprise you at all, Scott?

Robson: Yeah, it doesn't surprise me to see the NFL on top there, but it does surprise me to see MLB ahead of the NBA. As we mentioned, the NBA contract is second only to the NFL, so I'd expect to see them ahead there as well. It's interesting to see men's college basketball lagging there, as March Madness draws a very large audience every year, but it might have had something to do with the timing at which the survey was conducted.

Reynolds: That's true. Lee, the survey also delved into audience composition. Among females, the WNBA led the way with 52%. The Summer Games were at 45%, the NFL at 42%, and the NBA was tied with the FIFA Women's World Cup at 39%. Your thoughts, Lee? Does the rise of Caitlin Clark and the WNBA bring more viewers to the NBA?

Berke: I think the NBA, after decades of involvement and investment in the WNBA, is reaching a brand new era where they are going to achieve what many sports leagues have wanted to achieve, which is offering a full year-round slate of major league professional games. The NFL is great at creating offseason events like the draft and free agency. Baseball, for decades, has been offering the hot stove league. But now you have, going forward, the WNBA with Caitlin Clark and other players generating substantial boosts in ratings, offering ratings that in some instances approach what regular-season NBA games are generating. Now you're offering it up from year-round WNBA, pitching in when the NBA takes off, and then the NBA coming back in again at the end of the WNBA season. Year-round events, major stars, major league basketball, worldwide interest. I think it demonstrates and is going to lead to substantial growth in viewership and audience participation in the demos. It's just a major success and also a major success in terms of creating a new sports team business that has really now come to fruition.

Reynolds: All right. We'll get into the best part here—some of our own thoughts about the league. I'm going to go back to MJ with that nickname. Are you a Bulls fan? Or maybe the Charlotte Hornets because Michael Jordan is still a minority owner there?

Johnson: Yeah, so oddly enough, I was a huge Charlotte Hornets fan back in the nineties when they were battling the Bulls with players like Glenn Rice, Alonzo Mourning, and Dell Curry. Since then, it's been pretty hard to remain a loyal fan, but interestingly enough, my eight-year-old son has taken an interest in the Hornets. It must be he just likes the logo or something like that. So we've been getting back into it a little bit.

Reynolds: All right, Scott, how about you? What's your squad?

Robson: Yeah, so I'm a lifelong Knicks fan. It seems like we have something good going on right now with Jalen Brunson and company. I'm very excited to see how Karl-Anthony Towns meshes with the gang.

Reynolds: All right. Lee, you used to work for MSG Network. Are the Knicks on your watch?

Berke: Yeah, I've got a soft spot for the Knicks. I spent a lot of time there watching both the Knicks and the Rangers. I grew up in Cleveland, so the Cavs are my hometown team. But I have to note that any team that's a client of mine or works with a client of mine is somebody I support. So I'm very eager to support the Mavs and the Nuggets and other teams as they are announced down the line because you obviously want to see them do well, and you have a vested interest in seeing them do well.

Reynolds: All right, me, I'm also like Scott; I'm down with the orange and the blue. And going back to when Julius "Dr. J" Erving made his way to Philly, I'm also a Sixers supporter—except for when I played the Knicks. Christmas has always been a big day, Scott, for the NBA—five games. The NFL has encroached on that territory. Is Ted Sarandos going to play Grinch to Adam Silver in the NBA this Christmas?

Robson: Yeah, absolutely. The NFL will be the biggest sporting event of the day. I'm excited to see how Netflix Inc. handles the games. I'm sure the NBA doesn't appreciate the NFL encroaching on their territory; it's nice as a fan to have an array of sports to consume on Christmas.

Reynolds: Lee, what are you watching on Dec. 25?

Berke: That's why I have multiple screens. I have a TV set, and I'll have my phone and my laptop. It's a buffet of sports on Christmas Day. Nothing better.

Reynolds: All right, guys, now we're at the end. Are the Celtics going to repeat, MJ? You're first.

Johnson: I'm going to go with the Oklahoma City Thunder to take the crown this year. I think they have a good young core, and I think they reach the peak this year.

Reynolds: How about you, Lee?

Berke: I'm seeing the Thunder. I certainly would like to see the Cavs in there as well. But the Thunder have just a remarkable array of talent. They've done a great job setting the draft up and their talent flow over the next several years.

Reynolds: Last word to you, Scott.

Robson: Yeah, I've got to go with the Knicks here. Gotta root for the team. So hopefully, they get it done.

Reynolds: Me too, but I like the Thunder on the other side. Anyway, that concludes this episode of MediaTalk. I wanted to thank Mike, or MJ, Scott, and Lee for sharing your insights on the media business of the upcoming season and making their personal selections too. Thanks, guys. This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of MediaTalk.