The Week the Pay-TV Bundle Died

NEWS ANALYSIS — Fox Corp. and Disney-owned ESPN March 18 became the latest media companies to ink 11-year carriage agreements through 2033 with the National Football League that include landmark direct-to-consumer distribution via ad-supported VOD platform Tubi and SVOD service ESPN+, respectively.

When combined with the NFL’s other new contracts with ViacomCBS, NBCUniversal, Fox Corp., Amazon and Disney, the deals are reportedly worth a staggering $113 billion to the world’s biggest-revenue sports league. Despite slumping ratings and empty stadiums, live sports remains one of the most coveted prizes in the television business.

Why? The pay-TV market ended 2020 on record as the one of the worst for churn, or subscribers canceling the cable bundle — losing 1.4 million combined subs in Q4 alone. Cable operator WideOpenWest in February revealed it would lose 66% of its sub base in the next three years. Household subscriber penetration now stands at 60% — the lowest level since 1994.

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“The media industry just suffered from the worst year ever for cord cutting,” analyst firm MoffetNathanson wrote in a note.

To stanch the bleeding, media companies, whose assets include pay-TV, now covet over-the-top access to the NFL in order to gain a stronger digital foothold. And the NFL was willing to oblige — for a price.

ESPN+, which ended Disney’s most-recent fiscal period with 12 million subscribers, for the first time will stream a Saturday doubleheader during the season’s final weekend and one Sunday morning game.

“There are so many exciting new components, including Super Bowls and added playoff games, new end-of-season games with playoff implications, exclusive streaming games on ESPN+, scheduling flexibility and enhancements,”  Jimmy Pitaro, content chairman at ESPN, said in a statement. “It’s a wide-ranging agreement unlike any we’ve reached [previously] with the NFL.”

Fox will create an “NFL experience” on Tubi consisting of fee-based premiere VOD as well as condensed free ad-supported games throughout the NFL season.

“We are pleased to broaden our deal to include new digital rights that provide us with the flexibility to deliver NFL to customers in expanded and innovative ways,” Fox CEO Lachlan Murdoch said. “This long-term agreement ensures that we will continue to deliver the best in football coverage to our viewers while also strengthening and providing optionality to our business.”

The “optionality” to deliver live football to consumers via subscription streaming video and AVOD is relatively new in the U.S., and underscores the changing dynamics surrounding content distribution in the digital age.

“People want to watch it whenever it is convenient right now,” David Mowrey, VP of product management with Clearlap, which conducted a 2015 consumer survey gauging consumer interest paying for live sports streaming access, told CNET. “There’s still a lot of opportunity to create better experiences particularly around streaming sports.”

Industry data contends there was a peak 105 million pay-TV households in 2010, a tally that has been plummeting ever since. Despite the pandemic putting increased eyeballs in front of the television, the pay-TV market declined to less than 83 million households in 2020 — with new estimates dropping that number by another 10 million in two years.

As a result, live sports delivered on cable, satellite and telecom premium channels was seen as the industry’s Ace card against further subscriber churn, according to Mike Vorhaus with Magid Advisors.

“Sports is a major deterrent to cord cutting,” Vorhaus said in 2015 — a lifetime ago in the rapidly evolving digital media landscape.

“I think it’s 10 years, and there’ll be a total change of the guard,” Chris Long, a former DirecTV executive and now CEO of Cedar Park Entertainment, told Variety last summer. “At some point, people will make that decision of ‘I can get everything I want [in streaming]. I no longer need to have 180 channels that I only watch 12 of.'”

Indeed, sports’ move to digital marks another blow to the channel bundle business model that branched out into online TV (Dish Networks’ Sling TV, AT&T TV and ESPN+ Live TV) in an effort to thwart subscriber churn.

But with OTT video behemoth Netflix uninterested (thus far) in live sports, ViacomCBS’ streaming platform Paramount+, NBCUniversal’s Peacock and Amazon Prime Video jumped in the deep end this week, inking separate deals with the NFL, including Peacock and Prime Video being granted exclusive streaming access to “Sunday Night Football” and “Thursday Night Football,” respectively.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said ad-supported SVOD/AVOD platforms give media companies dealing with declining pay-TV revenue the ability to increase revenue and offset live-sports carriage fees.

The analyst said Hulu, through its ad-supported options, generates as much as $10 per user per month. The lower tier subscription is limited in its ability to deliver ads (usually three to four minutes per hour), but the completely free versions can advertise as much as 10 to 12 minutes per hour.

“So, there is plenty of room to grow revenue for most of these guys,” Pachter said.

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