YouTube TV announced on Friday that “Google agreed to a temporary extension with Sinclair Broadcast Group” (SBGI) that will protect subscribers from the immediate loss of twenty-one FOX Sports branded regional sports networks (+ YES Network) as the two companies continue to work on a longer-term carriage deal. The OTT streaming service had previously told customers that they would no longer include the RSNs within their channel lineup as of February 29th. While YouTube TV has blamed the “rising costs of sports content” for the stalled renewal talks, Sinclair insists that they actually offered to lower the fees charged to the Google subsidiary to “the best terms under which their competitors carry [the] regional sports networks.”
Howie Long-Short: Carriage disputes surrounding RSNs have become commonplace with the channels amongst the most expensive on cable and the television business in transition, but news indicating that the two sides remain engaged in negotiations is consistent with the belief that live sports content remains valuable. One well-respected senior media executive reminds that “at the end of the day, these networks have loyal and fairly large followings on a local level. In roughly half of MLB cities, the RSN with broadcast rights to the team has the highest primetime ratings in the market six months of the year.”
The fact that YouTube TV and Sinclair have been battling it out publicly would seemingly indicate that the current dispute is nothing more than a price negotiation (i.e. there is no real threat of the live streaming service dropping the RSNs). YouTube TV has bulked up on its sports programming lineup – both on a regional and national basis – since launching in Q1 2017, lending one to believe that the company values the content on the cable networks, and SBGI owns hundreds of local affiliates (think: ABC, NBC, CBS & FOX within 98% of markets) that they’ll be able to use as leverage in discussions (though it’s not clear when YouTube’s current deal for the local channels expires). Our source was adamant that he/she believes that there is “ultimately a deal to be had [between the two companies].”
The television executive we spoke to does not believe that Sinclair offering Google a lower price on carriage of the RSNs is indicative of a larger issue for Diamond Sports Group. The expiring pact was signed long before SBGI took control of the assets and was done at a time when linear providers were “charging the virtual guys a real premium.” In other words, he/she believes YouTube has been overpaying for the sports channels and Sinclair is simply offering to bring the costs down to the going rate. The problem is, that number may still be too high for an OTT service that works on slim margins and may not be willing to increase prices for fear of losing their competitive advantage (i.e. low-cost relative to cable/satellite).
There are certainly some who are sounding the panic alarm on the Sinclair’s RSN business with SlingTV and fuboTV having already dropped the lot of cable channels and another 2 million+ subscribers hanging in the balance of these negotiations, but it’s too early to write off Chris Ripley and Co. As the Sinclair CEO stated during last week’s Q4 2019 earnings call “over 70% of [SBGI] RSN subscribers [are] locked in” to multi-year deals thus “significantly de-risking the company.” Our source agreed adding “SBGI is still in the top of the first inning on carriage renewals. They have negotiations with Comcast coming up later this year and DISH Network next year.” As long as Sinclair can retain those distributors – admittedly, a decision by Comcast to drop the RSNs would likely put Diamond Sports into bankruptcy – the company should be able to weather the storm and “over time [the RSNs] will find value in these new forms of distribution.” The digital transformation that Sinclair intends to go through (see: rumors of a Deltatre acquisition) – one that will include a more robust content offering and interactive betting opportunities (SBGI has an RFP out for a sports betting partner) – is another reason to believe in the future of the company’s RSN business.
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