Mic Drop #27: NBCU & WarnerMedia Seem Skeptical About Sports Streaming's Future

Bids on NHL national TV rights, and the expiring EPL deal with NBCU, tell a surprisingly bearish story about the future of sports streaming

There is a detail from the Sports Business Journal reporting on the NHL-WarnerMedia rights deal that sticks with me: why did NBCU only offer $100MM/year to keep its NHL rights, before pulling out of the bidding altogether?

Several weeks ago, the network put forth a bid for the league’s second package that would have put most games on its Peacock streaming service. The bid came in below $100M, which was well below the figure that the NHL sought. NBC is in the last year of a 10-year deal that pays an average of $200M per year. Last month, ESPN signed a seven-year deal worth around $400M per year.

The key detail here is NBCU’s $100MM bid “would have put most games on its Peacock streaming service”. NBCU was telling the NHL that an emphasis on streaming over linear makes a broadcast package worth less than half the annual value of its previous $200MM/year 10-year deal.

WarnerMedia’s winning $225MM/year bid had the opposite emphasis of linear over streaming:

The NHL deal includes the ability for Turner to stream some games on HBO Max, which is owned by Turner’s parent company, WarnerMedia. But Jeff Zucker, chairman of WarnerMedia News and Sports, said the network had no immediate plans to stream games.

“For now, the focus will be on the Turner networks,” he said. “We want to be where the consumer is and where the consumer is skating to, as it were, and so we’re going to go where the puck is going. That will happen over time.”

Streaming sports on HBO Max is on their radar, but not a priority. This points to an important question: was NBCU communicating to the NHL with its $100MM/year Peacock-mostly bid that in streaming, the value of sports rights is lower than linear because audiences will be smaller?

Or was WarnerMedia/Turner communicating to the NHL that there is a future in linear that is being discounted or simply not being met by NBCU’s focus on Peacock?

Either way, both bids seem skeptical about the future of sports streaming, and it’s worth diving briefly into that.

Revisiting my July 2020 Analysis

In this week’s Member Mailing I wrote about the sports streaming marketplace through the lens of World Wrestling Entertainment President and Chief Revenue Officer Nick Khan in WWE’s Q1 2021 earnings call: the demand for sports rights is inelastic despite declining audiences.

So, in that light, WarnerMedia’s $225MM/year bid was more reflective of WarnerMedia needing NHL rights than an audience need to watch the NHL. It’s a compelling argument, and I recommend taking advantage of the last two weeks of this discount offer of 33% off monthly or annual plans to read it.

Another helpful lens comes from my analysis of sports rights from July 2020. That week, the pandemic forced Turner to prematurely opt out of its UEFA Champions League deal, which was later picked up by CBS, and forced Fox to end its distribution deal with the U.S. Golf Association, transferring it to NBCU. I wrote:

So, we saw all these developments this week because returning sports leagues, a cramped schedule, and changing audiences due to cord-cutting are forcing networks to make difficult choices as we rapidly approach September.

I thought both Turner and NBCU were sending particularly ominous signals for the future of sports streaming:

These two stories - Turner and UEFA and Fox, NBCU and the USGA - also share less than bullish signals for where the sports streaming marketplace is headed: Turner struggled with its [B/R Live paywall for UEFA Champions League], and NBCU is describing the USGA's presence on Peacock as "an opportunity to have its games showcased".

First, a quick mic drop on how I picked up on both companies’ skepticism about sports streaming, a year ago, with that analysis:

Second, NBCU went as far as seeming to minimize the importance of Peacock to the USGA deal:

When NBCU describes the USGA's presence on Peacock as "an opportunity to have its games showcased", it is implying that streaming can give them additional households, but broadcast still wins at scale (and use case) for sports consumption.

The Turner UEFA story was also interesting because it made numerous mistakes around production and paywall decisions that left ”fans [rubbed] the wrong way”. It wasn’t just that streaming didn’t scale, Turner didn’t have the right personnel or operations for productions.

NBCU has been communicating to the market for almost a year now that it sees online streaming as better for niche sports, and WarnerMedia has been communicating that it is willing to navigate the risks of cord-cutting than returning to sports streaming anytime soon.

But I also need a little crow: both WarnerMedia’s and NBCU’s strategies with the NHL agreement should not have been a surprise to me given that I wrote the above less than a year ago. But I was admittedly surprised, so…

NBCU & The EPL

There are two additional angles worth highlighting here. First, does both its NHL bid and its overall strategy for sports on Peacock mean that NBCU perceives the English Premier League (EPL) to be a niche sport in the U.S.?

I ask the question because its $80MM/year contract with the EPL expires in 2022, and it was reported Premier League executives were “blindsided” by NBCU’s announcement that it was sunsetting NBCSN in 2021 and moving EPL games to USA Network. The piece on EPL executives being “blindsided” on World Soccer Talk from January has a notable paragraph about USA Network:

While the USA channel is in more households than NBCSN, USA isn’t synonymous anymore with sports, which was a similar issue that TNT struggled with when the entertainment channel televised games from the UEFA Champions League.

Neither of NBCU’s choices to solve for its EPL deal seems like strong solutions to ensure audiences at scale for EPL matches in the U.S. That said, this article by TVREV’s John Cassillo is skeptical that Comcast would lose the EPL rights because it “owns both NBCU and the league’s U.K. broadcast partner Sky.” But, again, NBCU told the marketplace in its NHL bid that streaming sports does not deliver audiences at scale, and that is a key objective of any rights deal the EPL signs in the U.S.

If Turner is precedent and linear can still deliver better scale than streaming despite cord-cutting, NBCU either needs to better solve for USA Network as a sports network, or it will face being outbid on EPL rights in 2022.

Disney & The NHL

It is also worth mentioning that Disney/ESPN secured the national TV A package of NHL rights in a seven-year deal worth $2.8B. As I wrote on Wednesday,

Disney has solved for achieving scale in sports distribution on streaming already, in addition to distributing sports content on linear channels ABC and ESPN. It has:

• ABC and ESPN in 75MM+ linear TV homes (though ESPN averages 115MM viewers per month)

• 40MM+ subscribers for Hulu including 4MM+ for its Hulu + live TV vMVPD offering, and

• 12MM+ for its ESPN+ service.

Hulu has only become a channel for sports distribution recently, having integrated ESPN+ only last month. Also, Hulu + live TV is no longer distributing Sinclair RSNs.

If there is one difference between Disney’s bet on the NHL’s national TV A package, Turner’s bet on the NHL’s national TV B package, and NBCU’s bet on the EPL, it appears to be iteration.

Disney moved from Hulu and ESPN+ as separate apps in a bundle to becoming integrated apps, much like the recently launched Star+ app. Their entire sports strategy seems to be an ongoing, iterative experiment across platforms. There is no better example of this than its recent broadcast schedule for Rounds One and Two of The Masters. Here’s an example of how they executed across platforms:

Thursday

• SportsCenter at the Masters: 10 a.m.- 3 p.m. on ESPN

• Masters Featured Groups: 9:15 a.m.-7:30 p.m. on ESPN+

• Masters Featured Holes (4, 5, 6): 9:25 a.m.-6:55 p.m. on ESPN+

• Masters Amen Corner Live: 10:45 a.m.-6 p.m. on ESPN+

• Masters Featured Holes (15, 16): 11:45 a.m.-7 p.m. on ESPN+

• ESPN Social Media Show: 2:30-3 p.m. on ESPN Facebook, Twitter, YouTube

• First Round of the Masters: 3-7:30 p.m. on ESPN

• SportsCenter at the Masters: 7:30-8 p.m. on ESPN

• First Round of the Masters (encore): 8-11 p.m. on ESPN

Every single production has a logical place and unique value proposition within the ESPN linear and digital broadcast ecosystems. Whereas, WarnerMedia isn’t sure that NHL belongs on HBO Max, yet, and NBCU struggled with finding audiences for EPL matches on NBCSN and Peacock, and now needs to solve for finding audiences for the EPL on USA Network and Peacock.

There is no iteration, and there is no vision. This brings to mind one of my favorite quotes about streaming, which I’ll end this piece on:

“Disney will remain relevant into the future,” said Barry Diller, who once headed Paramount and Fox and is now chief executive of the digital media company IAC. “All of the rest of them are caddies on a golf course they’ll never play.”