Sports and Cord Cutting

Maryland TerrapinsThere are two trends having to do with TV and sports that are headed in opposite directions. There is a continued bidding war where networks are paying records prices to lock down sports content. But we also have the cord cutters who are dropping off the network and reducing the size of the cable TV subscriber base. Somewhere soon those two trends are going to collide in a big way.

The sports programmers keep hammering cable operators with higher costs. Time Warner claims that they have seen a 91% increase in sports programming since 2008. Where is this increase coming from?

  • There are more new sports channels all of the time. There has been an explosion of sports channels over the last decade.
  • The programmers force bundles. For example, I have clients throughout the country who are now being forced to carry the SEC channel, although their customers have very little interest in southern college football.
  • The various leagues are extracting huge payments for rights to their content and this translates into the cost of sports programming growing faster than other programming.

Let’s look at an example of this. I am a Maryland Terrapins fan and they just moved this year to the Big10, largely to get a share of larger television revenues there. The Big10 will reportedly pay out almost $31 million per school this year, mostly due to revenues from the Big Ten Network (and some from bowl games). That network is carried by 60 million homes. They have expended to new TV markets by the additional of Maryland and Rutgers and the projected payments per school are estimated to grow to $44.5 million per school by 2017.

But even in the Midwest, no more than 5% of households, at most, watch the Big Ten Network very much. The two big draws on the network are college football and basketball. Most college football games on the network draw only a few million viewers, with some games getting far fewer than that. And basketball games in general draw maybe half of what football draws. And only the diehard fans watch the network the rest of the year when they show wresting, volleyball, baseball and all of the other Big10 sports.

So the network is pulling in huge dollars due mostly to a three months of college football and most of the rest of the year there are very few eyeballs on the network. Contrast this to ESPN which has a lot of programming that outdraws the Big Ten Network. ESPN has more viewers on a day-to-day basis than a whole season of Big10 football. And so a network like ESPN can make more money from advertising than they do from subscriber fees.

One has to wonder what is going to become of networks like the Big Ten Network as cord cutters cut into programming revenues. We recently saw ESPN agree to be on the Sling TV lineup which is going to be completely online. That will get them new subscribers from sports-loving cord cutters, but it’s also going to attract a new wave of cord cutters. And Sling TV is not the end game, but just the first volley. It seems like there are dozens of companies working to put packages of programming on the web.

The cable industry as a whole stopped growing a few years ago due to cord cutters. Instead of adding a few million new homes per year, the total number of cable households has held steady. But lately it’s finally starting to drop, and when there are real options online a lot more households are going to opt out of the big cable packages.

I’ve seen statistics that say that the average household only watches 17 channels out of the hundreds of programs on the typical cable lineup. When households start finding $20 and $30 dollar packages that give them most of the channels they want, it’s going to become easy for them to jump ship.

ESPN is probably going to make the transition to the web just fine because they are going to be included in most of the web packages. But networks like the Big Ten Network and every other regional sports network are not going to fare so well. It’s just a matter of math.

Let’s say the Big Ten Network wants to make $350 million annually from programming. If there are only 2 million homes willing to pay for the network then they need to charge $14.58 per month. With 3 million customers it’s $9.72, 4 million it’s $7.29 and 5 million is $5.83. Perhaps they can find one of those price points to make it work. But they won’t be operating in a vacuum and there are going to be lots of other sports channels trying to do the same thing and wanting to charge the same high fees. On an a la carte basis it is going to cost a sports fan a lot more than what they pay today for all of the channels, and that is where the rubber hits the road.

I don’t know what is going to happen any more than anybody else. But my gut tells me that the revenue collected by networks like the Big Ten Network are going to drop – slowly at first and eventually precipitously. At some point they will have to get on the web and reach a new stasis, and that probably means making less revenue than today. That’s not such good news for the Terps and the teams of the Big10.

One thought on “Sports and Cord Cutting

  1. Pingback: Sports and Cord Cutting | Doug Dawson | POTs an...

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