While all the rapturous talk about the rise of direct-to-consumer streaming platforms likely won’t die out until some app developer tosses the last shovelful of graveyard clay over linear TV’s final resting place, the chatter as it relates to the migration of live sports content needs to die down a bit. As was made abundantly clear throughout this week’s JPMorgan Global Technology, Media and Communications Conference, the outlets that own the most valuable sports-rights packages agree that a headlong shift in platforms would amount to a destabilization of the dominant delivery system.
Walt Disney Co. CEO Bob Chapek got the ball rolling earlier this week when he spoke about working to maintain a balance between expanding the ESPN+ footprint and not doing anything to maim the golden goose that is Bristol’s flagship sports network. (There’s really no overstating the value of that gilded waterfowl: Including the $8.6 billion in affiliate fees they rake in just for turning the lights on every morning, the ESPN-branded cable channels are on pace to book some $11.4 billion in overall revenue.)
After addressing “the need to pivot towards a direct-to-consumer, ESPN+ type platform,” Chapek acknowledged that the TV networks not only remain the mitochondria of Disney’s media empire, but they’re also paying for the company’s direct-to-consumer investments. “Our linear businesses right now are just generating a ton of cash flow,” Chapek said. “And frankly, they’re also funding our DTC investments. That’d be pretty difficult without that cash flow.”
Disney’s media-rights deals have been constructed to accommodate a DTC-centric future, and the Mouse House will continue to ramp up its streaming content as consumers migrate to the non-linear platforms. But given the volume of cash that TV keeps pumping out, there’s no rush to flood the DTC zone. “‘Balance’ is a good word. The speed of how we do this is going to really depend on … consumer behavior, and where they want to watch,” Chapek said. “At the same time, there’s rights constraints that we have that might meter how fast or how slow we go.”
As with every aspect of Disney’s sprawling portfolio, the velocity with which the coming paradigm shift will play out depends largely on how each move will impact the stock price. “Of course, we’ll only do it if it’s accretive to our shareholders,” Chapek said. “So when the time is right to really stomp on the gas and go even stronger into our direct-to-consumer platforms for sports, we’ll do that.”
If a desire to keep investors happy lies at the heart of Disney’s strategy of cautious proactivity, Fox’s own eggshell walk seems designed to prevent an affiliate revolt. As Fox Corp. chief financial officer Steve Tomsic noted earlier this month during the company’s third-quarter earnings call, the broadcaster isn’t about to exercise its options to stream NFL games.
“We are very mindful of the exclusive value of live NFL on broadcast television, and we’re very mindful of the value that that attributes to our O&Os [owned-and-operated stations] and our affiliates,” Tomsic said. “So we don’t have a streaming service behind a paywall where we would currently put a simulcast of our NFL games, and we have no plans to currently do so.”
Fox Corp. chief operating officer John Nallen on Wednesday reiterated Tomsic’s streaming take, telling the virtual JPMorgan crowd that while no live games will stream this fall on Fox’s free, ad-supported Tubi service, fans will be able to stream condensed games via an NFL-branded VOD channel. As time goes on, Fox will reassess its streaming strategy; thanks to the March NFL rights extension, the network has 13 years to work out how best to distribute TV’s highest-rated content.
“It’s the longest contract the NFL has ever done, and for us, that’s good,” Nallen said. “It gives us the ability to look long-term, to plan. And importantly, as our business will evolve during that period, we have the flexibility in these rights to pivot to any new model that might emerge. So we’re not locked into the broadcast model. Having said that, we still think that TV drives the biggest audience scale, it’s the best business for us, and it’s a great arrangement we have with our station affiliates. But if any new business model eventually [takes precedence] … we have the ability, just like anybody else, to move into those business models.”
Aside from ensuring that shareholders and station-owners remain chipper, the networks have little to gain from offloading sports content when the upfront marketplace is humming along at pre-pandemic strength. The feverish and rather early sell-off of TV’s fall sports inventory coincides with a massive crush of investment from the advertisers that account for the bulk of all in-game NFL, college football and MLB buys. After a year characterized by economic uncertainty and free-floating anxiety, the brands with the deepest pockets are snapping up as much of the big-reach, high-engagement sports inventory as they can afford.
The strength of the sports-TV upfront—execs on the supply side are calling this the most robust market in a decade—was presaged by the ongoing rise in scatter pricing. Always a leading indicator of a lucrative spring sell-off, scatter premiums effectively serve as a goad to accelerate upfront buys. Last-minute ad buys made in TV’s elite sports properties are currently commanding a 30% premium compared to the unit costs set in last year’s upfront, and advertisers are keenly aware that hesitation in the spring bazaar will only find them paying through the nose when all the top-shelf sports events hit the airwaves this fall.
Here’s the impact a strong scatter market can have on an already marquee property like NBC’s Sunday Night Football. Ahead of the 2019-20 NFL season, when the scatter market was healthy, if not as hyper-steroidal as this year’s, NBC sold 30-second in-game units for around $619,000 a pop. According to Standard Media Index data, those same spots averaged $750,000 in the fall scatter market.
Nallen said the strength of this year’s upfront has to do with greater visibility in the sports calendar and a spike in consumer confidence. “A year ago, it was all uncertainty. This year there’s a complete lack of uncertainty,” Nallen said. “Advertisers, compared to where they were last year, there’s a feeling of a return to normalcy.… So, the result of that is a quite buoyant and very strong demand. We’ve got a really healthy upfront right now.”
Comcast chief financial officer Mike Cavanagh earlier in the week said the upfront market is moving at a breakneck pace, and along with a spike in overall dollar volume, the company is notching “some of the best pricing we’ve seen since we acquired NBCU.” Equally bullish is Naveen Chopra, executive VP and CFO of ViacomCBS, who said that scatter inflation and a limited supply of linear impressions have conspired to generate “CPM increases that could set new watermarks this year.”
Much of CBS’ early upfront activity has centered around the network’s NFL slate and its SEC football schedule. While CBS will simulcast its fall NFL games on Paramount+, fans will be limited to simulcasts of the in-market games airing on their local CBS affiliate.
That broadcast’s general-entertainment fare hasn’t started selling, in keeping with the unofficial rhythms of the upfront calendar. As the media agencies typically spend the last two weeks in May registering their clients’ budgets with the networks, the dramas, sitcoms and unscripted shows don’t start moving until after Memorial Day weekend. Not that there will be a mad rush to lay claims on TV’s primetime inventory; per Nielsen, the Big Four broadcasters during the 2020-21 season averaged under a 0.8 rating when sports deliveries were stripped out of the primetime data stream. That translates to just 1 million adults 18-49 per network per night, out of a total population of 129.4 million advertiser-coveted consumers.