Listen: MediaTalk | Season 2 | Ep. 42: Shifting sports rights, cable write-downs defined 2024

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence tech, media and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. Today, I'm joined by a trio of S&P Global Market Intelligence Kagan analysts: Principal analyst Justin Nielson, who specializes in broadcast, among other areas; principal analyst Scott Robson, who tracks US TV networks and sports; and research analyst Michael Johnson, who is on the US Sports Watch.

We're going to start with Justin, who wears a lot of hats very well at Kagan. I'm going to ask him some of the big stories in the broadcast realm this year. On the advertising side, there was a lot at play, including the Summer Olympics from Paris. There were gains for stations with the NBC footprint, maybe less so for others. Justin, what were your thoughts about the Summer Games?

Justin Nielson: The Summer Games were great, a huge uptick for NBC (US) affiliate and owned and operated stations as well as Telemundo. They had record-breaking ratings for the Summer Games as well as advertising revenue. So it was a huge uplift for those stations, albeit a two-week window.

Reynolds: On the other side, the even years are also the political years; the 2024 presidential election cycle is a big year for broadcast, as we always expect.

Nielson: As we always expect, but it was a little different this year. It was a little slower at the beginning because we really didn't have a primary season with [President-elect Donald] Trump basically running away with the Republican nomination and then the switch-up with [President Joe] Biden and [Vice President Kamala] Harris. So there wasn't that large lead-up in terms of political around the primaries, but it came in full force halfway through the year and then into the conventions and then obviously to the November elections. A lot of spend on both parties, but it seems Harris actually outspent Trump in this one.

Reynolds: Yeah, I think she did. With political ads, there always comes displacement for the usual spots that run, especially in the third and fourth quarter. Core advertising continues to be sluggish. Any sense for how it's going to wind up doing overall in 2024? And is there improvement on the horizon?

Nielson: Yeah, it's interesting because, you know, I came away from a broadcast conference in New York last week, and a lot of the broadcasters were saying that they were almost pleasantly surprised with some of the core ad spend coming back in the fourth quarter. So, they were very optimistic in terms of kind of the retail season into the holidays, also in some of the categories that have been relatively soft, like retail and auto. They were optimistic looking into 2025 that core ad revenue would be coming back to the station business. And then local has always outperforms national, and so it's very specific in terms of the different markets, but on the uptick, from the prospects of potential tax cuts, lower interest rates, and then just general sense of demand from the consumer side.

Reynolds: Let's go to the distribution end. Retrans fees are still going up, maybe not at the rate of in the past, but retrans remains a very positive revenue stream for the broadcasters at this juncture.

Nielson: Yeah, and it's a large part of their business model. In most cases, it's 40% to 50% of their revenue. And then looking at it from a cash flow perspective, even though they're sending more in reverse retrans back to the networks, it's still a healthy 40% to 45% margin in most cases. We do see a slowing trend on the top line for gross retrans revenue. The traditional, just based on the subscriber declines at the cable, telco and [direct broadcast satellite] operators, we do see a little bit of dip in those revenues, but an uptick in the virtual side: the YouTube TVs, the Sling TVs, and the DIRECTV Streams and others. So from that perspective, it's going to be a little bit more lumpy in terms of growth and declines at some of the broadcasters. Most recently reported Gray Television Inc. was down on the top line just because of where some of these contracts and renewals have fallen, but then you look at Sinclair Inc. and others and Nexstar Media Group Inc., and they're on the upswing just based on where those renewals are upcoming. Timing is essential, especially on the affiliate side. So they stagger their affiliate agreements with the distribution agreements so they have a little bit more clarity in terms of what their margins are and cash flows. Still on the uptick, but at a slower pace.

Reynolds: On the cable side, networks continue to lose subscribers. Write-downs at Warner Bros. Discovery Inc. and Paramount Global, and now Comcast Corp. is looking to spin off NBCUniversal Media LLC's cable roster, or most of it anyway. The attrition is not nearly as fast in terms of consumer losses on the broadcast side though, right?

Nielson: That's true. And a lot of it has to do with sports. So the NFL is still king when it comes to live TV and the broadcasters have the majority of the games. That has kept them in the forefront in terms of the viewership as well as the advertising. But we've seen some erosion in ratings, but it's all about sports, given that uptick in the prime season of retail and consumer spending. It's all about live sports.

Reynolds: All right, let's finish up here. Speaking of sports, we're going to go to the local front. Yourself, Scott Robson, Michael Johnson and me — we've all kept a close eye this year on what's basically a back to the future of sorts, local sports rights for a number of NBA and NHL teams that reverted to the local stations amid the Diamond Sports Group LLC bankruptcy and the transformation of the RSN model overall. Justin, your thoughts here?

Nielson: Yeah, it's a very interesting development, especially in certain markets where they've gone full over-the-air and streaming in the case of, let's say, the Utah Jazz and the Phoenix Suns and the Las Vegas Golden Knights. It's been a huge uptick in terms of viewership for those teams and for the broadcasters themselves, although it's very market-specific. So they are still working through their RSN model in certain cases and dependent upon when their contracts are coming up and then the teams that have been dropped by the Diamond Sports Group. And then also looking at it from a perspective of how they can attract new audiences and new fans. So the widest reach, the broadcasters deliver. And that's been a huge win for certain station owners.

Reynolds: Thank you, Justin. We appreciate it. And obviously, we will be in touch in the weeks ahead. Happy New Year.

Nielson: Thanks, Mike. Happy New Year.

Reynolds: Next up, we're going to speak with Scott Robson, who follows lots of things, including the economics of cable networks, including distribution fees and advertising revenue. He also knows a thing or three about sports, the sports media realm as one of the authors of the Kagan Sports Report.

Scott, let's start on the cable side. The narrative continues to be that people continue to cut the cord in favor of streaming services and that many younger Americans never opt in to be part of the traditional pay TV landscape. 2024 has been a tough year for the traditional cable business overall.

Scott Robson: Yes, hello, Mike. Thanks for having me on. Yeah, 2024 has posed some challenges for the basic cable network industry. I think many people have looked at COVID as a time when streaming accelerated and linear TV lost some of its mojo, but I think that was further amplified in 2024. There've been carriage disputes, impairment charges, spinoff announcements, and basic cable lost one of its marquee sports with the NBA going to NBC and Amazon.com Inc.

Reynolds: Absolutely. There's also less viewing, which in turn means not as many impressions on the advertising side.

Robson: Yeah, so cord cutting continues to be a problem. In the most recent earnings releases, so third quarter 2024, there were some positive statements about some declines lessening in some cases, but they're still declining at about 8% on a year-over-year basis. So that negatively impacts affiliate fees as well as advertising revenues. At the same time, pay TV operators are pushing back on rate hikes from the networks. So we saw another high-profile carriage dispute in 2024 when the Walt Disney Co. networks were taken off of DIRECTV systems for about two weeks, right around the start of the football season.

Reynolds: Yeah, that seems to be the time. Same thing with Charter Communications Inc. the year before. Scott, you just alluded to it. Some of the impairments, two of the top, maybe the top two cable owners, Warner Bros. Discovery and Paramount Global. They both took billion-dollar impairment charges against their cable businesses. What's your sense there?

Robson: Yeah. So in my opinion, these impairment charges, which were announced during second-quarter earnings, you had Warner Bros. Discovery over $9 billion, Paramount Global around $6 billion. That was one of the biggest stories of the year, in my opinion. It wasn't that surprising to anyone who's been closely following the industry. But I think it was still important from the standpoint of reframing expectations and the big network owners conceding that the landscape has changed. The linear network industry is in the mature stage of its life cycle. And so like things like the loss of the NBA was a factor that triggered the Warner Bros. move, but it seemed to be inevitable as the linear networks business, these companies needed to be reevaluated.

Reynolds: The NBA is not going to be on TNT (US). It's been there for 35 years. They've bolstered their sports rosters in many other capacities. Are they going to be in a brawl about the value of TNT and the cable networks overall?

Robson: Absolutely. And I think that was one of the factors that triggered the impairment charge. I don't think that Warner Bros. Discovery can come to the negotiating table and demand around $3 per subscriber per month for TNT when they don't have that NBA deal in place. So it's going to be interesting to see how much of a haircut they're willing to take on this, but I expect for affiliate revenues to decline.

Reynolds: Comcast on their third-quarter earnings call said yes, we're contemplating spinning off our cable properties, and then they went ahead and did it. You know, what's your sense there, Scott? Again, they're keeping Bravo (US), which I understand, it's a big original producer; and I think they're keeping the RSNs, but the other networks, including USA (US) and CNBC (US) and MSNBC (US), are going to be in a different company or not?

Robson: Yeah. So Comcast has been one of the most active media companies in shutting down networks. They've closed seven since 2015. During that time, other media companies rebranded networks or sold networks to capitalize on the distribution that was already baked in, but not Comcast. I think the most head-scratching move was shuttering NBC Sports Network at the end of 2021, when the network had over 65 million subscribers. I think Comcast is looking to separate its assets so that the declining cable networks aren't really dragging down the growth business of Peacock and NBC. The broadcast networks are in a better position than the cable nets in terms of growth potential. The inclusion of Bravo is interesting. I think NBC looked at things and saw that a lot of Bravo content is driving viewership at Peacock. How's that network in the same place as Peacock? Still, the networks being spun off — you've got USA, MSNBC, Golf Channel, some pretty solid brands. So I don't think the new entity is going to struggle. What might happen is that the new entity becomes a larger grouping of networks that serves as a true cable network play for investors. So maybe they acquire the AMC Networks Inc. or some of the Paramount channels after the Skydance deal goes through, but who really knows?

Reynolds: We'll be keeping our eye on that as 2025 develops and going forward. Scott, thanks for spending a lot of time with us, and Happy New Year.

Robson: Thanks. You too, Mike.

Reynolds: Next up, we're going to speak with Mike Johnson, or MJ on our staff where there are just a few too many Mikes. MJ joined Kagan in June, and he's on the Sports Watch. He certainly came on board in a big year for many things athletic.

MJ, where to begin? Let's start with a story that dates back to last April when ESPN (US) and Warner Bros. Discovery had their exclusive negotiating windows with the NBA. A lot has happened since then.

Michael Johnson: Yeah, absolutely. And thanks for having me on. So as we all know, the NBA signed a massive new rights deal for next season with Disney and ESPN, NBC Sports, and Amazon valued at nearly $80 billion over the next 11 years. So, in short, Warner Bros. Discovery was left out and sued the NBA in July, alleging the league violated matching rights clauses with TNT and by putting games on Amazon's Prime Video. They've now settled that lawsuit with the NBA, keeping the company in business with the league for at least the next decade. So, it's a big win for us fans, for sure. So while they're losing rights to regular season and postseason games on its TNT network, the settlement gives Warner Bros. rights to a significant amount of NBA content, both domestically and internationally as well. And it's a big win just because the league will avoid this continued legal battle.

Reynolds: If it went through the court processes, it could have been starting when the playoffs started in April.

Johnson: Yeah. Could have been side by side with the playoffs and just a headache for everybody tuning in. Yeah, so a few key takeaways from the settlement: The deal gives Warner Bros. the ability to develop new shows with NBA content in the US and abroad, and they've been granted international NBA media rights as well in parts of Europe and Latin America as well. And another big winner is Warner Bros.' digital platforms — Bleacher Report and House of Highlights; they'll continue to have access to NBA content and then they'll just be continued partners with the NBA's digital operations over the next several years, which will bring in significant revenue for the company as well.

Reynolds: Turner Sports, before acquired by Warner Bros., goes back 40 years with the NBA, 35 [years] with TNT alone. So I'm going to miss that, but at least they're still in the game. And one of your favorite shows, still going to be there.

Johnson: Yeah. Maybe the biggest news to me personally is Warner Bros. struck a deal with Disney to license "Inside the NBA" to ESPN and ABC (US) starting next season. That's a huge win for US fans, just to continue to see the show and see how it evolves over the next few years.

Reynolds: Another major story in 2024 is Diamond Sports, the nation's largest operator of regional sports networks, and it actually goes back to March of 2023, when they filed for bankruptcy amid declining linear distribution fees and, I think, more than $8.5 billion in debt. Been a major part of the ongoing transformation of the RSN industry. I've written way too many stories about this. So Mike, I'm interested to hear how you summarize what happened and what may happen.

Johnson: Yeah, definitely. So Diamond Sports Group, they've been in the news all year. And now they've received approval to emerge from bankruptcy. It's been reported. The company reduced its debt by, I think, 95% from when it first filed for Chapter 11 protection. So with the new reorg, Diamond will operate as a stand-alone entity with the restructured company being smaller than it was when it first started five years ago. The former parent company Sinclair initially bought 21 regional sports networks from Disney and ...

Reynolds: Yep, that's right.

Johnson: They had local rights to, I think it was 42 professional teams across the NBA, MLB and NHL.

Reynolds: It was good for them that they wound up getting some baseball teams back in the mix because MLB has historically been the driver for the RSN business.

Johnson: Yeah, absolutely. And another quick note from the hearing as well that's pretty interesting is local streaming will now become more of an important revenue source for Diamond going forward just with the continued erosion of the linear landscape. So I believe it was reported the financial projections expect streaming revenue to rise from, I think it's $63 million this year to $580 million in 2027.

Reynolds: Yeah, that sounds right, I think. Those are two of the bigger sports stories, but there's been a couple others that you want to talk about.

Johnson: Yeah. Our main focus was tracking the regional sports network industry throughout the year. You saw as contracts expired between the networks and professional sports teams, a lot more experimentation going forward with certain teams. Going into 2025, we'll be putting an emphasis on tracking these performances, with teams like the Suns with Suns Live, or the Trail Blazers with Blazer Vision and the Pelicans with Pelicans Plus, just to name a few. And another focus was the massive shifts in college sports and then the 12-team college football playoff going on this year. There's ongoing discussions with conference realignment, with the possibility of super conferences. I think it was touted as the College Student Football League was thrown around as the potential name for a super conference down the road. We'll be tracking that as well.

Reynolds: All right. Certainly been a busy 2024 in the sports realm. Mike, thanks for bringing us up to speed on some of that.

Johnson: Thanks, Mike.

Reynolds: That concludes this episode of "MediaTalk." I wanted to thank Justin Nielsen, Scott Robson and Michael Johnson for sharing their insights. Thanks, guys.

Nielson, Robson, Johnson: Thanks, Mike.

Reynolds: All right. This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of "MediaTalk."

 

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.