Sinclair Broadcasting Group is looking to expand the footprint of its regional sports networks beyond the bounds of linear TV, noting on its first quarter earnings call that it plans to launch a direct-to-consumer streaming service.
Speaking to investors last week, Sinclair president and CEO Chris Ripley said the company is “currently developing a product to reach. . . consumers on a direct basis, in an app, similar to the way consumers access over-the-top platforms.” Sinclair hopes to roll out the app sometime in the first half of 2022, and while Ripley didn’t offer many details on how it might price and package its new DTC offering, the service is meant to complement the existing linear TV properties rather than replace them outright.
“We believe the incremental revenues from direct-to-consumer will likely more than offset the loss of revenue from churn of subscribers of traditional distribution platforms,” Ripley said. “And much like the authenticated viewers who currently subscribe to the RSNs, the direct-to-consumer viewer will benefit from the upgrades we are making to the digital viewing experience.” Among the bells and whistles subscribers may expect when they access their local Bally Sports RSN via the app are enhanced playback and recording functionality, next-gen stats, and what Ripley characterized as “elements of gamification.”
The DTC push is Sinclair’s answer to the ever-shrinking ecosystem that is pay-TV. According to Nielsen’s most recent Total Audience Report, 66.9% of all U.S. TV homes subscribed to the traditional cable/satellite/telco bundle in the first quarter of 2021, down from 83.9% five years ago. “It is no secret that consumer cord-cutting and the dropped distributor carriage of the RSNs have left many people scrambling for a way to watch their favorite local team,” Ripley said. “It is imperative that Sinclair be able to fill that void.”
The Sinclair RSNs closed out 2020 with 52 million subscribers, 17 million of which are in markets that are served by more than one Bally Sports channel. The RSNs’ reach has been hampered somewhat by an inability to come to terms on carriage agreements with the likes of Dish Network, which currently serves 8.69 million TV customers (11.1 million, including Sling TV subs), and the virtual MVPDs YouTube TV and Hulu Live.
As is common practice among programmers and distributors alike, Ripley did not provide an update on the state of those interrupted carriage deals. “The only thing I can say is time will tell if these distributors will return,” Ripley said. (In keeping with the two-way nature of the distribution omertà, Dish Network didn’t address the Sinclair stalemate during its April 29 earnings call.)
When asked if operators had signed off on Sinclair’s DTC plans, Ripley suggested that the company’s distribution agreements allow for an expansion into the over-the-top space. “We have already cleared the path with the distributors to launch [the service],” Ripley said. “We have direct-to-consumer consumer rights for the vast majority of our teams, [and] we are in discussions with the leagues and the teams on enhancing some of those rights to make the product even better. . . .
“So that’s what’s going on right now,” Ripley concluded. “I don’t see that being a threat to timing.”
Sinclair’s expansion into DTC comes as NBCUniversal continues to ruminate on what it plans to do with its own collection of RSNs. As the Wall Street Journal reported last week, the company may either shift the seven linear channels over to Peacock, or may elect to sell the networks outright, presumably to the one or more of the clubs that are affiliated with each outlet. In January, NBCU announced it would shutter its national cable sports network, NBCSN, before the end of the year.
Sinclair purchased its suite of RSNs in May 2019 for $9.6 billion, less than half what analysts expected the Fox-branded networks to fetch on the open market. Between the ongoing subscriber squeeze and the ravages of the pandemic, Sinclair has faced an uphill climb: Last fall, the RSN unit absorbed a $4.23 billion impairment charge.
As the sports world begins to take on the characteristics of a sort of Before-Times normalcy—the NBA’s regular-season schedule was trimmed by just 10 games, while MLB looks to execute a full 162-outing slate—there’s been a concomitant improvement in the local and national ad markets. But advertising sales at the Sinclair RSNs were up 18% in the quarter to $65 million, that segment accounts for just 8.5% of the unit’s overall revenues; per the company’s 10-Q filing, distribution slipped 7% to $698 million.
A robust spring sports roster has helped the Bally Sports stanch the bleeding on the rebates front, and Sinclair is now on the hook to pay out $401 million in make-goods to its distributors, down from its original estimates of $420 million. All told, the sports world’s coronavirus shutdown resulted in the issuance of some $1 billion in rebates to pay-TV subs, per estimates from S&P Global Market Intelligence.
Of course, with the spring sports calendar back in working order, Sinclair and the other media partners that carry live NBA, MLB and NHL games have had to resume payment for those rights. Sinclair thus far has paid $587,000 of the $1.82 billion that it owes to its franchise partners this year, and those scheduled payments will be somewhat diminished in the near future. According to the company’s May 10 filing with the Securities and Exchange Commission, its 2022 rights fees will add up to $1.66 billion, with the total costs moderating in each of the next three calendar years.
By 2025, Sinclair’s sports-rights bill is expected to be down to $1.42 billion.