Research firm SNL Kagan has discouraging news for sports networks, pay TV distributors, and subscribers who don’t watch sports, in a new deep-dive study of the market.
Sports programming costs consumed 24.1% of the revenue distributors typically collected from each subscriber last year, up nearly a percentage point from 2015, according to the research group within S&P Global Market Intelligence.
Distributors paid an average of $16.88 per subscriber per month for sports last year, up from $3.50 in 2002.
And Kagan expects sports costs to keep growing at an average of 7.8% a year through 2020 — a slowing of the 10.1%-a-year average from 2012-16.
“The high cost of live sports is being handed from network to operator to consumer,” the firm says.
Faced with rising rights costs, sports channels likely will increase their prices an average of 6.4% a year to 2020, up from 5.1% a year in the four years that ended in 2016.
Partly as a result, video cash-flow margins for cable operators have “declined precipitously,” Kagan says. They were close to 40% last year — an impressive number but way down from the turn of the century, when they averaged about 70%.
The profit measure could decline to a little more than 20% in 2020, the firm forecasts. (Cable companies also collect hefty profits from broadband services.)
Regional sports networks, including new ones that specialize in games for a few teams, contributed to the rising costs. Many, including the Los Angeles Dodgers’ SportsNet LA, also struggled as some distributors refused to pay for them.
Paradoxically, the fights with operators were “the best thing that happened” to RSNs, Kagan says. If cable and satellite companies had played ball, then “RSNs would likely have priced themselves outside of the market for skinny bundles and OTT packages” that want to hold their subscription prices to about $40 a month.
As a result, many have “shifted their focus from massive sports rights payouts to providing deeper connections between the sports team, the network and its fans.”