Sports are a pillar of the linear television ecosystem and have been a key component in media companies' ability to generate meaningful affiliate fee and advertising revenue due to strong consumer interest and the live nature of the event.

In 2023, based on Nielsen TV ratings data, 97 of the top 100 watched TV broadcasts in the U.S. were sports events. This concentration has only grown over the years as viewing of general entertainment content continues to migrate toward streaming and on-demand. In this article, S&P Global Ratings will discuss why streaming companies are becoming more interested in sports content, what that means for the linear TV ecosystem, and how it could affect credit ratings in the media and entertainment sector more broadly.

Streamers Look To Supercharge Their Advertising Platforms With Sports Programming

Streaming monetization is evolving from its early days, when the business model relied primarily on an ad-free model popularized by Netflix. As advertising has continued to migrate toward digital platforms, including connected TVs, streamers have created ad-supported tiers to entice cost-conscious consumers and to tap the vast pool of linear TV advertising that is beginning to migrate toward streaming. Streamers, particularly the major tech companies, have slowly acquired sports rights.

Sports leagues were initially hesitant to have major packages exclusively on streaming. However, as viewing continues to shift toward streaming, we expect leagues will be more willing to engage with streaming platforms for major sports packages and for streamers to aggressively pursue them as advertising becomes a more important part of the monetization strategy.

Cost per thousand impressions (CPMs) for sports are materially higher than for other types of content and continue to demonstrate strong growth, which can help boost the nascent efforts to build an advertising platform among streamers. Every major streamer--except Apple TV+--now has an ad-supported option, and both new entrants and legacy companies are using sports to spur their growth plans.

New entrants to the media landscape like Apple Inc., Amazon.com Inc., Alphabet Inc., and Netflix Inc. have been making meaningful investments in sports rights over the past few years to enhance their streaming platforms and advertising infrastructure. Below is a timeline of sports rights or exclusive showings acquired by streamers.

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Increased Interest In Sports Rights Will Further Intensify Competition And Prices

The cost of premium sports content continues to increase as streamers become more interested in building their sports portfolios to further increase subscriber and advertising growth. Additionally, legacy media companies are increasingly employing a hybrid strategy where they simultaneously broadcast sports on their linear networks and streaming services. This has been a key component in the growth strategy of both Paramount+ (Paramount Global) and Peacock (Comcast Corp.). Warner Bros. Discovery Inc. (WBD) also employed this strategy on its streaming platform, Max, in 2023, and The Walt Disney Co. (Disney) will pursue it on a major scale in 2025 with the roll out of its ESPN streaming product.

While sports are still primarily aired on linear networks, streamers have paid significant premiums to wrestle away certain packages and gain an entry into the larger sports ecosystem. Initially, there were technological limitations that hindered the ability to broadcast a sporting event with tens of millions of concurrent streams, but as technology has improved, this has become less of a barrier.

In January 2024, Peacock was the sole broadcaster of the Dolphins vs. Chiefs NFL wildcard game that was estimated to have over 30 million viewers. Amazon will air an NFL wild card game in 2025 and Netflix will have NFL Christmas day games this year. All of these will likely have a concurrent audience of more than 30 million viewers, which demonstrates that technological limitations are quickly declining. This will allow streaming services to broaden their scope of potential sports rights acquisitions going forward.

NFL Will Remain On Linear TV For Several Years

The NFL continues to be the marquee sports league, with strong and growing ratings. While the NFL has given more packages to digital platforms in recent years, the bulk of its packages are on linear networks and will remain so at least through the 2029-2030 season, after which the NFL has an opt-out clause of their 10-year contract ending 2033.

The NFL has prioritized maintaining broad reach, and linear television has facilitated the broadest reach possible. It is likely that the NFL will continue to prioritize reach and maintain its largest packages on linear or broadcast television beyond the expiration of the existing contract.

However, even if that isn't the case, legacy media companies like Paramount (CBS Corp.), Disney (ESPN), and Comcast (NBCUniversal Media LLC) have ample time to transition their offerings toward streaming platforms if the linear TV universe declines at an accelerated rate.

Credit Implications For Legacy Media Companies

The media industry is becoming more competitive as streamers broaden the type of content they offer on their services. We believe the push into sports will maintain that trend. Legacy media companies' ability to effectively compete will depend on their ability to capture the advertising spending that is transitioning from linear to digital. All the legacy media companies have significant exposure to this transition due to their large share of linear advertising revenue, which is declining at a 6%-9% annual rate.

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Disney

The largest share of advertising revenue at Disney comes from streaming because of the strength of the streaming platform Hulu. Additionally, Disney is aggressively growing its ad-supported Disney+ customer base through its recent pricing initiatives and the carriage deal with Charter that gave millions of customers access to ad-supported Disney+.

We believe these initiatives will help Disney capture a good percentage of the advertising that is shifting from linear to digital, which is a key factor in its ability to maintain credit metrics. The most important contributor to long-term success for Disney will likely come from how successful its announced ESPN streaming product is in capturing viewership and advertising spending as linear video bundle subscribers continue to decline.

Up to this point, Disney has kept its premium sports content only on its linear networks, but in order to maximize its revenue potential, it will need to have an option for nonlinear viewers to watch its premium sports content, which will be the case after it launches its ESPN streaming service in 2025. The announcement of a joint venture with Fox Corp. and WBD for a virtual sports multichannel video programming distributor (MVPD) that will launch later this year will also give consumers an option to consume ESPN content without a traditional linear TV bundle.

Paramount

Paramount has seen its share of advertising revenue from streaming grow to about 18% in 2023. This larger percentage is partly due to its Pluto TV streaming service as well as the growth of advertising on Paramount+. From its inception, Paramount+ has had sports as an integral part of its content offering because it provides access to all the sports content that is on the CBS network. In this way, it can potentially capture customers that don't subscribe to a linear bundle and offset linear advertising declines with growth in digital.

However, Paramount's streaming segment had operating losses of over $1 billion in 2023 and needs to continue to generate strong growth in its streaming platform, both from advertising and price increases, to offset the increasing cost of sports programming and build a sustainable long-term streaming business. If it is not successful in this transition it could further strain credit metrics and pressure the rating.

Comcast/NBCUniversal

Peacock, the streaming service of NBCUniversal, is far smaller than many of its streaming rivals, but it has employed sports as a key part of its growth strategy. Due to its more limited scale, it has made advertising a central part of its monetization strategy since its inception. These factors have helped to accelerate growth and increase streaming advertising to 17% of total advertising revenue in 2023.

Additionally, Peacock exclusively streamed an NFL wildcard playoff game in 2024 for the first time. This strategy is helping it quickly scale up its streaming advertising business as it experiences meaningful linear declines. However, similar to Paramount, Peacock is still generating large operating losses and needs to increase scale across its entire streaming operation to build a sustainable long-term business. However, despite these losses, Comcast's credit metrics and ratings trajectory are affected more by the performance of its broadband business, which comprises the majority of its earnings and cash flow.

WBD

WBD's streaming platform (Max) launched in 2021 and has still not gained significant advertising scale, partly due to HBO's history as an ad-free platform. This makes WBD more vulnerable than its peers to the decline in linear advertising because it does not have the same scale to capture digital advertising. Max has recently started to incorporate its sports content that airs on WBD's linear networks to garner more interest from advertisers.

For WBD to fully monetize its extensive sports networks it needs to be able to reach them outside of the linear TV bundle. This is also partly being addressed through the recently announced joint venture with Fox and Disney for a virtual sports bundle, but it remains to be seen how compelling that will be for consumers. This dynamic is undoubtedly a factor in the ongoing negotiations for the NBA contract (set to expire after the 2024-2025 season), for which we expect prices will substantially increase given greater competition for the rights from new digital players and more diversified media companies that have more financial flexibility.

WBD's ability to offset the declines in linear revenue at Max--both through advertising and subscriber growth--will be a key determinant in its ability to stabilize and grow earnings and reduce leverage toward our 3.5x rating threshold. If it is unable to do so, we could lower our ratings on the company.

Fox

Fox is not a major player in the streaming ecosystem and has taken a different approach through its free Tubi service. While Tubi is generating strong growth, it is more of a supplemental product to the core linear networks that Fox has. Longer term, this could pose a challenge to Fox, but its most profitable networks are focused on news and that remains less of a focus for streaming services. Additionally, Fox's sports streaming bundle joint venture with WBD and Disney is an attempt to access customers outside the linear ecosystem without having to make large investments on its own.

Sports Rights Will Provide The Competitive Edge

Sports rights have been a major competitive advantage for media companies in commanding strong affiliate fees and advertising. In our view, as the market for this content gets more competitive, it will be imperative for these companies to maintain a large and diversified portfolio of sports rights to stay competitive as the evolution of streaming continues.

Companies that are not successful in securing sports rights will likely see revenue and margin pressure because their streaming services are unable to offset declines in their linear businesses. Paramount and WBD continue to experience the most pressure of the legacy media companies due to their higher leverage than peers and greater reliance on linear TV earnings and cash flow.