By Lillian Rizzo
NBCUniversal has explored putting its regional sports channels
on the streaming service Peacock or selling them off, as the
company tries to figure out a future for a business under
increasing stress, people familiar with the situation said.
Early this spring, NBCUniversal planned to start streaming NBC
Sports Philadelphia, which broadcasts the city's pro basketball,
baseball and hockey games, the people said. The goal was to be up
and running in time for the Major League Baseball season that began
in April.
The plan was halted over concerns that it would conflict with
the broader streaming strategy of NBCUniversal, a unit of Comcast
Corp., the people said.
NBCUniversal is still considering options for streaming its
sports channels on Peacock, the people familiar with the situation
said. The company also is exploring whether to sell off the
networks and sees the teams associated with them as potential
buyers, some of the people said. Teams often hold an equity stake
in the networks that air their games.
Regional sports channels were once an engine of growth and
profit for media companies, because of the high fees owners were
able to charge cable and satellite TV providers to distribute them.
Now, the business is eroding as consumers cancel pay-TV
subscriptions or switch to traditional or online packages that
don't include the sports networks.
In 2020, regional sports networks collectively had 145.8 million
subscribers, down 23% from 190.2 million in 2014, according to
S&P Global Market Intelligence. The pandemic pummeled the
industry. More than $1 billion in rebates were given to pay-TV
subscribers when leagues paused their seasons, according to
S&P.
Meanwhile, some channels are on the hook to pay billions of
dollars of media-rights fees annually, meaning they will face a
financial squeeze in coming years.
Building streaming businesses has become a popular option for
traditional TV networks. Sinclair Broadcast Group Inc., owner of
the Fox Sports family of regional sports channels -- rebranded as
Bally Sports in a licensing deal with casino operator Bally's Corp.
-- plans to sell streaming subscriptions for 19 of its networks,
with an aim to launch in 2022.
One major challenge for the networks is to build an audience for
their streaming apps without jeopardizing their traditional TV
business. "In the short term, does this cannibalize some of these
other cable-TV subscriptions, which are very profitable?" said Rose
Oberman, an analyst at S&P.
The economics of streaming will be tough. In traditional
cable-TV, households pay for many channels in their bundle that
they don't watch. In direct-to-consumer streaming, only the people
who want to watch sign up and pay, so networks will likely need to
set a much higher price in order to collect the same revenue as
they do on cable.
The sports world is moving toward streaming, gradually but
inexorably. Amazon.com Inc. will stream a package of National
Football League games exclusively starting in the 2022-2023 season,
under a deal reached with the league. Walt Disney Co.'s ESPN has
been investing in its ESPN+ service, which also will add a few NFL
games and stream some National Hockey League games.
Regional sports channels are under more pressure to adapt,
because they have been hit harder by cord-cutting than bigger cable
channels and face high costs. Collectively, regional sports
channels spend more than $4 billion yearly on sports rights fees,
according to consulting firm Octagon Sports and Entertainment
Network.
Under the plan NBCUniversal was developing for its local sports
channels, in addition to having them available on pay-TV providers
in a given region, the channels would be added to Peacock, a
streaming service that carries an array of the company's TV shows
and movies.
Philadelphia was a natural choice for the test market because
Comcast is based there. NBC Sports Philadelphia is profitable, but
it may not be as early as next year and has long-term media-rights
deals that will require it to pay billions of dollars in the coming
years, a person familiar with its finances said.
NBCUniversal, which operates seven regional sports networks,
doesn't break out financial results for them.
If the plan had moved forward, fans in the Philadelphia market
would be able to stream the local teams' games. To offer the games
to fans outside Philadelphia, NBCUniversal would need permission
from leagues, which have their own apps offering such "out of
market" viewing.
One issue for executives at the company was pricing, people
familiar with the situation said. Peacock subscribers in
Philadelphia would have to pay more for the service than Peacock
subscribers in markets without a regional sports network, a
situation the executives feared would confuse the service's
marketing, the people said.
For NBCUniversal, selling the networks to teams has proven
challenging because teams haven't emerged as serious bidders in
recent auctions of sports networks.
Sinclair, the largest owner of regional sports networks in the
U.S., is working on offering two streaming tiers, one without games
but with content associated with the teams and another at a higher
price that would show live games, Chief Executive Chris Ripley said
in an interview.
"Look at how much fandom is outside of the pay-TV bundle -- it's
quite significant and it's been growing faster over the last couple
of years," Mr. Ripley said. "We think there's millions and millions
of subscribers just for our service alone." Sinclair's sports
networks had 52 million subscribers in late 2020.
Pricing has yet to be decided for Sinclair's regional sports
networks, but analysts and industry experts estimate an individual
channel with live games could cost $30 or more a month.
Sinclair placed a big bet on regional sports channels in 2019
when it acquired a group of Fox-branded networks from Walt Disney.
in a deal valued at $10.6 billion including roughly $8 billion in
debt.
At the time of the acquisition, Sinclair didn't signal plans to
get into streaming, instead focusing on the potential of the
traditional TV business. But Covid-19 accelerated the deterioration
of the networks. The company's debtholders began to consider a
restructuring of its hefty debt load, given the mounting pressure,
The Wall Street Journal previously reported.
The Sinclair channels remain profitable, but analysts say it is
only a matter of time before they start losing money. The company
last year wrote down $4.2 billion on the sports networks.
Sinclair's goal is to make regional channels' existing Bally
Sports streaming apps -- which can be accessed by people with a
pay-TV subscription -- available to cord-cutters, Mr. Ripley
said.
Sinclair's Mr. Ripley said the goal isn't to upend the pay-TV
model, but complement it and reach cord-cutters.
"I don't see this system with the pay-TV distributors
collapsing, I see it evolving and the structure changing," said
Patrick Crakes, a sports media consultant.
Write to Lillian Rizzo at Lillian.Rizzo@wsj.com
(END) Dow Jones Newswires
May 06, 2021 12:31 ET (16:31 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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