Inside Live Sports’ Cloudy TV Future as Streaming Swallows the Cable Bundle

Ahead of TV’s biggest night with next Sunday’s Super Bowl LV, the sports industry finds itself at a crossroads. While TV ratings declined to record lows during the pandemic year of 2020 — even with people stuck at home — live sports continued to command the greatest share of overall TV viewing. In fact, as the linear TV industry continues to suffer a massive erosion of viewers, TV sports has never been more important. But how good is it to be the biggest fish in a rapidly fading business model? Live sports have been the last pillar holding up the old pay-TV model — but it’s not enough to keep people from cutting the cord or from failing to sign up in the first place. The fallout threatens to shove the industry into irrelevance as younger consumers grow up without watching the NFL or NBA in favor of Twitch streams or the endless Netflix scroll. While most experts and TV executives agree streaming is going to become more important in the years ahead, they still note that the legacy TV model is not dead just yet. Few if any executives have a better reason to keep linear TV a top priority than CBS Sports chairman Sean McManus, whose network will broadcast Super Bowl LV. But even McManus admits that streaming is going to play an increasingly important role. “Our primary focus is the broadcast distribution on CBS Television Network,” McManus told TheWrap. “And I think, for the foreseeable future, that’s going to be the most important and the most-widely viewed distribution platform that there is. Having said that, we’re trying to be very innovative. All of our major sports programs are on CBS All Access (soon to be Paramount+). It’s a very important part of our audience and in our sales effort.” Streaming’s role in distributing live sports has been slowly increasing over the years, stretching back to the days of “TV Everywhere” in the early part of the 2010s. In fact, the Super Bowl has been streamed for free since 2012 and March Madness has been available for cord-cutters since CBS and Turner first partnered on the tournament in 2011. But those were seen more as exceptions rather than the rule. Most major sports, including the top primetime series “Sunday Night Football,” ESPN’s “Monday Night Football” or crown-jewel events like the World Series and NBA Finals, have been unavailable to those who don’t subscribe to a pay-TV package. There’s been good reason for that. Despite the pandemic-fueled dip in TV ratings last year, sports programming accounted for eight of the top 10 programs of the year. The only scripted program on the list was Fox’s episode of “The Masked Singer” on Feb. 2, which aired following Super Bowl LIV. Despite a COVID-shortened season, the 60-game MLB campaign last year still drove more than $574 million in advertising dollars, according to Kantar Media. The NBA playoffs, which aired three months later than normal, garnered more than $1 billion for WarnerMedia and Disney. When March Madness was canceled last spring, it wiped out more than $900 million in ad dollars.

“I think it’s evolving, but the lion’s share of our of our revenue and our audience is still on CBS,” McManus says. “That’s never more true than during the football playoffs when you know, 30 or 40 or 50 million people are watching. That really is still our bread and butter.” But that shift is likely going to accelerate in the coming years, perhaps starting with the NFL’s next round of TV rights deals, which are set to expire within the next couple of years. They could serve as a bellwether for the rest of the industry with the NHL’s deal with NBCUniversal expiring after this year, and the NBA’s coming up for renewal midway through the decade. Major League Baseball is also rounding third on its new deal with ESPN. “Streaming absolutely is going to be a part of all these sports rights going forward. But the vision of some kind of zero sum between the established system and the new system is really off the table,” Pat Crakes, a former Fox Sports executive who works as a consultant, told TheWrap. “The question is how you twist the dials, and that enables you to keep the revenue from the old system going while you’ve launched the new one, which is unprofitable, but won’t be some day.” ESPN had 83 million cable TV subscribers as of the end of 2019 and has lost more than 16 million subs since 2013. On the other hand, ESPN+ has nearly tripled its subscriber base in a year to 10.3 million, largely because of a Disney streaming bundle that also includes Disney+ and Hulu. But Crakes argued that even as the cable bundle declines, a subscriber base as low as 50 million to 60 million would still be “so damn profitable.” For years, networks have been raking in the cash with subscriber fees. Despite subscriber losses, ESPN has been a cash cow for Disney bringing in more than $10 billion in revenue a year, according to S&P Global Market Intelligence. Even the soon-to-be-defunct NBCSN, which cost distributors a fraction of ESPN’s price, generated roughly $400 million a year in sub fees. Over the last few years, some of the biggest sports rights holders including Disney and Comcast have launched streaming services in a bid to win over, or win back, an increasing number of viewers who exist outside the bundle.

Games from the NHL and MLB have been available on ESPN+, which will add more college football next year thanks to its new rights deal with the popular Southeastern Conference. CBS All Access, thanks to its ability stream viewers’ local CBS station, has been able to offer its sports, including the Feb. 7 Super Bowl, for the past couple of years. NBCUniversal is putting a lot of Premier League matches on Peacock, and earlier this month simulcast one of its NFL playoff games that aired on NBC. “It was important for us to also acquire the rights for Peacock,” NBC Sports chief Pete Bevacqua told TheWrap during a media conference call in early January. “Peacock is obviously a major part of our future. And we are seeing that sports on Peacock will have great success. We’ve seen success with the Premier League. We have success with the U.S. Open. So we’ll continue to chart that success.” Crakes described the next few years as more of an evolution rather than a revolution. “Established media companies now have all pretty much built, contrary to market opinion just two years ago, elite level direct to consumer platforms that are, for all practical purposes, complementary to the current system,” he said. “The current system is in secular decline, but they now have the backstop.” There has been talk for years of tech giants like Amazon or Apple swooping in and edging out the established media partners and grabbing rights for themselves. While Amazon has quietly been grabbing more and more rights, most notably as the streaming partner for “Thursday Night Football,” Crakes said he did not see a world where Amazon owns a major TV package outright. Amazon has been mentioned frequently as a target to get DirecTV’s Sunday NFL Ticket out-of-market TV package. It’s not as if Amazon doesn’t have the money, Crakes argued. It’s just that live video is only a small fraction of the online retailer’s business.

“If they choose to do it, they can do it. And they’ve never chosen to do that,” he said. “They think there’s value here, but they don’t know what it is. They’re good business people. Yes, they have all this money, but that’s not a reason to go spend.” More than most other forms of content, live sports is caught in between the old and new media models. Over the next handful of years, it’s a tightrope that leagues and their rights-holders will have to walk. By making more content available on streaming to those without a TV subscription, are they accelerating the demise of the old model? “It’s kind of like death by 1,000 cuts,” Lee Berke, president and CEO of sports consultancy LHB Sports, said. “They say, ‘Yeah, we’re trying to support the bundle. We’re trying to support the broadcast stations and the affiliates.’ At the same time, everybody returns to their corners into coming up for various ways to do streaming and all the ways to undercut the model that they’re in.” That’s part of the tightrope everyone has to walk. Ask any TV executive, and even they will admit they don’t know what the future holds when it comes to streaming. “I don’t think anybody knows the answer to that question,” McManus admitted. “If they tell you they do, they’re probably not telling the truth.” Though Disney, ViacomCBS and Comcast all have streaming platforms, they also have broadcast stations to keep happy. It’s one thing for the local stations in major markets like Los Angeles and New York, which are owned by the companies; what about the local affiliates in Omaha or Oklahoma City, which are owned by separate station groups? Sinclair or Nexstar has no vested interest in propping up Peacock, nor do distributors like Charter or AT&T. Crakes said he could see a situation where station groups use their muscle to keep more of their retrans money (the fees they get from cable and satellite providers to carry their channels) as a tradeoff for their locally broadcasted games to be available for non-TV subscribers. “You want 25% of my retrans money? You’re gonna get 22%. And that’s the negotiation,” Crakes said.