Streaming directly to you
According to the Nielsen report published in July, US streaming in July passed cable viewership for the first time with streaming viewership at 34.8% vs cable at 34.4% and 21.6% for broadcast TV.
Analysis conducted by media analyst Moffet Nathanson highlights another interesting fact discovered that broadcast viewership among 18-49 years old was down 39% from a year earlier. Similarly, cable viewing hours are down by 18%. What is shocking to see is that broadcasters’ loss is not the cables’ win. Direct-to-consumer service (streaming) is where the population is shifting. To simplify the use case, I am dividing the population into sports fans and non-sports fans.
Currently, on cable or broadcast TV, sports fans are subsidized by non-sports fans. Sports rights are expensive. The price of cable TV has continuously risen. A decent package of cable tv costs more than $100/month. For non-sports fans paying for cable tv is expensive compared to cheaper online streaming SVOD options (like Netflix, Disney, or Peacock). As more and more non-sports fans move to streaming services, the costs will be passed on to the consumers, i.e. sports fans in this case.
I can explain how costs will go up for sports fanatics. Look at this example. Pay Tv distributors pay Disney about $10 per month per subscriber for its ESPN family of channels. Likewise, Sinclair collects around $5/month for most of its RSNs. The cost of sports rights is staying the same, it’s being shared by a lower number of people.
But as non-fans cut the cord the prices of these sports networks will rise. Disney will charge more prices to cable tv aggregators (like Comcast) and in turn, cable tv aggregators will charge even more to secure their margins. This provides Disney or Sinclair with a great opportunity to stream directly to the customer and generate more money.
It is a win-win. Disney and Sinclair get more subscribers at a higher price (get paid more than $10/subscriber, say $20/subscriber). Subscribers get to watch sports at a lower price ($20, which is lower than $100/month in cable cost). It’s a great future and Disney and Sinclair are already prepared for this future. To sum it up – You pay for what you watch. Both sports and non-sports fans are the winners in this case.
This is the opportunity that big tech is seeing and hence gushing towards acquiring sports rights. It is simple, as a subscriber you will flock to the service that runs your favorite sports plus more. Hence the service with more sports rights will enjoy a larger audience base.
What does this mean for Media and TV Companies?
Consolidation of media companies
As the cable subscribers reach a point where 100% of the population is sports population, it will make more sense for them to stream direct to consumer. Television media companies have vested interests in maintaining the cable bundle. However, as the pay-tv subscribers decrease, smaller media companies may not be able to survive, as the cost of distribution and production will be higher than the revenue generated from their content. Therefore industry could see consolidation. Smaller media companies getting acquired by larger ones.
Cable companies will not make a fuss about it
Cable companies, like Comcast, Charter, or AT&T, have accepted the fact that consumers are moving to stream. They are fine with it as long as customers continue to use their internet service. They are more interested in selling subscribers’ phone services. AT&T is an exception with its Direct TV suffering a huge loss with cable cutting. In the next couple of years, Direct TV could be a huge loss to AT&T.
Cable companies could maintain their presence by offering bundles. Xfinity + Netflix which Comcast launched by being a happy internet provider. Since then Comcast has launched Xfinity Flex, a 4k streaming box for internet-only subscribers that included a storefront for buying streaming services.
Big Tech is Spending Billions to Get Rights
Direct TV has rights to Sunday night NFL games since 1994, but the contract is set to expire next year. Big players including Apple, Amazon, Disney (ESPN+), and Google are ready to lighten their pockets to get Sunday Night NFL rights. BTW Direct TV pays $1.5B a year to air Sunday night NFL. It is expected that the new price could be around $2.5B for the new streaming players.
Among all these players, Apple has the deepest pockets, with $200B in cash. Apple already has spent billions in securing exclusive rights to air Friday night MLB and MLS. In past, Amazon secured rights to air Thursday night football games. Amazon is spending $1B per year for just 15 games in a season.
Disney is not far behind and understands the reason to stay in sports races. India is a big market for live streaming especially cricket and Disney secured the rights to air all international matches in India till 2027. Disney paid $6.2B to get these rights beating India’s Reliance group.
This is an important step for streaming players like Apple and Amazon to position themselves in households. As I noted above, Sports have proven to be the most important medium for drawing subscribers. Continuing the NFL example here, Sunday Night NFL is watched by approximately 19.3M Americans according to the data released by Neilsen. Even if Apple (or Other contenders) lose money in airing Sunday night NFL, they should do it.
Big tech’s deep pockets give them the ability to bid for live sports content which is a magnet to more and more subscribers. We have seen subscriber growth stagnating across big OTT and streaming platforms. Netflix has seen two-quarters of continuous subscription declines, losing almost 2M subscribers. Creating commercial content (movies and series) is not cheap. Moreover content is always at the mercy of the viewer. You may spend millions making it but if viewers don’t enjoy that’s the money down the drain.
Sports on the other hand are the last holdouts of the world’s scheduled content with market appeal and significant advertising potential. Sports will enable Apple to differentiate itself in the increasingly crowded market.