Ken Rosenthal of The Athletic recently reported that Major League Baseball, after receiving significant increases in pacts with Fox Sports (+36%) and Turner (+62%), is “bracing for a reduction on a deal it is nearing with ESPN.” The story painted the anticipated drop in rights fees as a troubling development for the league. MLB declined to comment on the ongoing negotiations (though, a source familiar with discussions said the league was in fact anticipating fewer total dollars in its next ESPN deal). But conversations with several media insiders suggested the setback says less about the value of Major League Baseball programming and more about the increased emphasis linear broadcast networks are placing on exclusivity. Dan Cohen (SVP, Octagon) said, “Live sports content choice has never been more fragmented or more competitive. ESPN, like all distributors, is vying for subscribers’ wallets and attention span. Exclusivity is a proven driver of subscriptions and [the company’s] reported step back from their non-exclusive package of weeknight MLB games is emblematic of this trend.”
Our Take: It is important to understand that despite the expected reduction, ESPN still values MLB and very much wants to be in the baseball business. The company will continue to pay heavily for Sunday Night Baseball—the only true regular season national TV window on cable—and for playoff baseball (including any new playoff windows that may be created). They are just less interested in elevating regional sports network broadcasts or doing non-exclusive ‘co-exist’ games than they were a decade ago. John Hodulik (telecom and cable analyst, UBS) explained, “There are just not a lot of ratings points to go around and at the same time sports rights inflation has continued. So, buyers are getting smarter [and more selective].”
While ESPN will pay more for the inventory they retain, they’re going to pay less overall on a package with fewer games. But that does not necessarily mean MLB revenues are headed backwards. “Considering FOX and WarnerMedia’s MLB renewals and assuming ESPN drops their fees by $150 million/year, MLB will still earn a 17% increase cycle-over-cycle and still have those weeknight games to monetize,” Cohen said. It is certainly possible the league will find a broadcast partner to take that inventory (think: Facebook, Amazon). Of course, the tech companies are highly unlikely to pay anywhere close to the same amount for the rights. It is worth noting that companies like Facebook and Amazon are less concerned with exclusivity as they already have an audience (i.e. they’re not concerned about adding/retaining subs) and are capable of monetizing the content in a multitude of ways (i.e. they’re not reliant on subscriptions).
Exclusivity has become more important to linear broadcasters. At the peak of the “bundle era” (circa 2010), sports networks were sprouting up like weeds (think: FS1, NBCSN), and each needed to fill their programming lineup. So, the concept of elevating RSN broadcasts and doing co-exist games made sense. But with the bundle now under intense pressure from cord-cutting, “cable networks are focused on delivering content [that] advertisers and distributors find valuable,” said Patrick Crakes (Principal, Crakes Media Consulting). Non-exclusive games do little to draw or retain consumers, so they hold minimal worth to established broadcasters in the current environment. Realizing non-exclusive content is not an efficient place to spend money; established broadcasters—like ESPN—have started to alter their programming strategies accordingly.
MLB isn’t the only rights owner currently getting squeezed on non-exclusive content. The established broadcast networks are said to be pushing back on the NFL in Thursday Night Football negotiations. Because fans can find the games elsewhere (see: Amazon) and because there are fewer matchups than the league’s other packages (remember, NFL Network has several exclusively) none of the league’s existing linear partners appear to be willing to pay a premium on the expiring deal. They simply are not convinced TNF will be a force multiplier with distributors.
When all is said and done, the NFL will probably still see an increase on their Thursday night package. It just seems unlikely the growth will keep pace with the increases paid on the exclusive Sunday afternoon, Sunday night and Monday night windows.
If linear broadcasters are going to shy away from non-exclusive game inventory, there is going to be less sports programming on television overall. And as the desire to drive growth to direct-to-consumer streaming platforms increases, one can only assume even more sports programming will migrate away from the cable bundle (think: Champions League on CBS All-Access).
To be clear, we’re talking about exclusivity within a single company. The programming doesn’t necessarily have to be exclusive to a distribution platform (think: broadcast, cable, streaming). In theory, Disney could buy TNF and spread it across ABC, ESPN and ESPN+.