The decline of the legacy RSN model recalls Ernest Hemingway’s description of the mechanics of stumbling into bankruptcy, inasmuch as the phenomenon has happened “gradually, then suddenly.” As the cable bundle continues to unravel, regional sports networks have been downgraded from industry darlings to near-revenants, and while some might argue that the wheels started flying off in spring 2020, when the pandemic brought the world to a shuddering halt, the cautionary klaxons began blaring five years ago.
No single event tripped the alarms, but anyone who was keeping a close eye on the U.S. media space saw what was coming. In the first quarter of 2016, the number of households that subscribed to cable, satellite or telco TV had slipped to 95.6 million, and while that still qualifies as a staggeringly high figure, it also meant that the penetration rate for the traditional bundled video packages had fallen from 90% of all TV homes to 80%, in the course of just a few trips around the sun. As operators began coming to terms with this reversal of fortune, they began looking for programming to weed out of their channel lineups, and the RSNs and their nosebleed distribution fees all but jumped off the balance sheets.
A few high-profile carriage skirmishes broke out; most notably, Comcast and YES Network went at it hammer and tongs during a 16-month blackout, while DirecTV and other providers outright refused to carry the Dodgers’ new SportsNet LA offering. The U.S. Department of Justice in 2016 sued DirecTV for allegedly colluding with other carriers in a scheme to keep SportsNet dark in Los Angeles, and while that case was settled a year later, the RSN didn’t hash out a carriage deal with the satellite firm until April 2020.
Outsized fees were at the heart of the Yankees and Dodgers dust-ups. At an average cost of $5.36 per household per month, YES was—and still is—the second-priciest channel on the dial, trailing only ESPN; SportsNet LA at the time was the next-most expensive feed at $4.59. But operators also claimed that the RSNs only scratched out decent ratings during live games, and that almost no one was watching the other 21 hours of the day. For what it’s worth, the local Nielsen data tends to back that assertion in most markets.
While Comcast and DirecTV enjoyed the sort of scale that allowed them to throw their weight around—the nation’s No. 1 pay-TV service boasted 22.4 million video subs during its back-and-forth with YES, while the satellite provider tucked in right behind it with 22.8 million customers—other operators continued to fork over the high carriage fees. Damned if you do, etc.: Fearing that their failure to provide local sports content would send a significant percentage of subscribers scrambling for an alternative service, the smaller outlets maintained their RSN deals. But in so doing, the carriers had no alternative but to pass along the elevated cost of carrying those channels to a cohort of customers which didn’t necessarily have any interest in local sports. In other words, the price of retaining the sports junkies was increased churn among non-fans who were fed up with their steadily rising monthly bills.
Of course, while all this brinksmanship was going on between programmers and operators, Netflix’s sub base began metastasizing. Current estimates put the streaming service’s domestic sub count at some 67.3 million customers, which marks a 35% increase compared to 49.7 million at the end of 2016. It’s no coincidence that Netflix’s growth has coincided with the cord-cutting phenomenon, and while the streamer’s stateside gains have leveled off of late, the losses on the pay-TV side are snowballing. In the past two years alone, more than 12 million cable/satellite/telco subscribers have fallen off the rolls, accounting for nearly half of the 25.5 million cords that have been cut since 2014.
As of the end of the first quarter of 2021, the traditional pay-TV bundle served approximately 75 million subscribers, per MoffettNathanson estimates, which brings the industry’s overall household penetration down to just 60%. In less than a decade, the overall customer base has shrunk by some 30 million homes. Those cable apostates aren’t expected to return to the fold, and the young millennials and Gen Z-ers and Alphas who have been raised on streaming will have about as much use for pay-TV as they would a dial-up modem or velocipede.
The impact on the RSN business is impossible to ignore. According to a recent report from Kagan, the media research unit of S&P Global Market Intelligence, the regional sports networks peaked in 2014, around the same time pay-TV was at its apogee. Seven years ago, the cumulative reach of the RSNs topped 190.2 million subscribers, as many consumers in large media markets received signals for multiple networks. But cord-cutting has had a chilling effect on RSN distribution, so much so that Kagan projects that the segment’s overall sub figure will fall below 100 million by 2024. At the moment, the RSNs reach some 145 million subs.
As the number of prospective customers withers, the cost of subscribing to the RSNs is ballooning, thanks to the massive fees associated with media rights deals. Seven years ago, when the RSN sub count was flirting with the 200 million mark, the average license fee for the 45 extant channels was around $2.60 per sub per month. Next year, it will have climbed to around $3.53. The marquee team-owned RSNs will leave that already sturdy industry estimate in the dust; per Kagan projections, YES Network’s carriage fee in 2022 will rise as high as $7.27 per sub per month, while SportsNet LA will jump to $6.48, MSG Network will hit $5.42 and NESN looks to cross the Lincoln line at $5.14.
Kagan also forecasts that four of the 21 Bally Sports RSNs will be among the top 10 most expensive local sports channels, with Bally Sports Detroit leading the charge with an average monthly sub fee of $7.17 a pop. Owner Sinclair Broadcasting hopes to keep raking in the cable cash while prepping its DTC launch, but concerns about the company’s ability to pay down its massive debt have Wall Street wondering if the clock might be running out. The Sinclair subsidiary Diamond Sports Group holds more than $8 billion in distressed debt, and a recent failure to ease the load via a potential bond exchange suggests it may be in danger of going under well before the RSNs have a chance to pivot to a streaming model—or legalized gambling can save the day. Take your pick.
That Sinclair was able to take the Fox Sports RSNs off Disney’s hands, for less than half the $20 billion anticipated sticker price, spoke volumes about the perceived value of the segment. Less than a year later, the coronavirus pandemic slammed the door on all U.S. sporting events for four months. Between the time Sinclair closed the RSN acquisition and baseball returned on July 23, 2020, another 6 million consumers had cut the cord.
While only someone who goes around introducing himself a futurist would be foolhardy enough to try to carve the terminal date on the bundle’s tombstone, there’s also no sense in waiting around to order the marble slab. The end is coming, eventually, and in the best-case scenario, a good chunk of the extant RSNs may be able to survive the final collapse under the direct-to-consumer model. But anyone thinking of making the transition had better make it snappy. Once we come to the end of the gradually, that suddenly is going to come down like a ton of bricks.
