What happens with the next NBA media rights deal is one of the great parlor games in sports media right now. The landscape that Silver and Co. walk into is far different than when the contracts were announced in 2014. As my colleague Bill Shea chronicled here last year, consumer habits and consumption have changed dramatically in a short period. Tech giants Apple and Amazon are now players in the sports media rights space, and the cord-cutting trend has seen U.S. pay-TV homes (cable and satellite) plunge from more than 100 million a few years ago to about 70 million today.
But Silver has a hot commodity. His league has young fans and deep inventory, and he will have multiple media parties interested in his product. Linear and cable viewership numbers are durable compared to the rest of the non-NFL universe. (Sports Media Watch’s Jon Lewis had a great deep-dive on the positives and negatives of the league’s viewership this week.) Yes, the RSN issue will be challenging. The bankruptcy of Diamond Sports Group — the largest owner of regional sports networks that owns broadcast rights to 42 professional teams, including 16 NBA clubs — potentially jeopardizes a chunk of team-level revenue. But this is the easiest prediction in history: The NBA is going to double its previous deal at a minimum — and then we’ll see how many more billions from there.
That’s the background for a conversation I had this week with Michael Nathanson, co-founder of the research firm, MoffetNathanson. Nathanson provided trends in media, communications and technology to institutional investors as an independent research outfit for decades before his company was acquired by the SVB Financial Group in 2021. (MoffettNathanson said in a note to clients that it’s parent company, SVB Securities Holdings, was and is a separate entity that is not directly impacted by the events at Silicon Valley Bank.) He has covered and written about the likes of Disney and Fox for years. (If you are a frequent CNBC watcher, you may recognize his name.)
Both Nathanson and I subscribe to the thesis of looking at sports media rights into “must-haves” versus everything else. As it sits now, the pay-TV universe is currently around 70 million homes, and Nathanson and others estimate it will get down to 50 million. (No one knows where the floor is, but 50 million is a guess).
“I think we’re cutting the cord down to 50 million subs and I’ve not seen a streaming model, aside from Netflix, that makes any sense,” Nathanson said. “Where this is going, I think, is that everyone was fortunate to do the (sports) deals they did before cord-cutting really started to accelerate. Why we’re still relatively bullish on places like Fox and Disney having a sports-led programming strategy is that I see stickiness in advertising. As long as you don’t do anything dumb on rights, you have a business that will be relatively healthy in terms of getting paid by distributors.”
Advertisers want to buy reach efficiently and, as Nathanson says, sports offers efficient reach. Which gets us back to the NBA. Nathanson believes incumbent ESPN will retain the NBA with an obvious increase in payment. That tracks with nearly every person you speak to in this space. The NBA represents a must-have for ESPN in terms of its economic ecosystem. Think of the inventory it provides ESPN/ESPN+ and the shoulder programming and social content around the NBA.
Nathanson predicts the NBA is going to try to create three or four media rights packages. He thinks they will emulate what the NFL did by going heavy on reach with broadcast entities and then bringing in one or two streamers. In a world of content fragmentation, Nathanson says it’s a better position to have ESPN as your cable base, some broadcast partners, and either Apple or Amazon or both as streaming partners.
“Adam Silver is smart,” Nathanson said. “He knows the problem with his TV package is that it’s too cable-centric. TNT for people in their 20s or teens doesn’t exist as a destination at all. ESPN does, but cord-cutting is happening and maybe it’s half the country by the time the deal comes up. So I would suggest if you follow the NFL model, you get ESPN and ABC, and then if you are Adam, the outcome is maybe you go to Fox/FS1 or Comcast (NBC). I think you need to go to a more broadcast-centric model because I think it hurts your brand long-term not to have wider reach. I see the NBA creating something like a Monday or Friday Game of The Week on broadcast in an attempt to create more event programming around games of the week. (Silver) is fortunate in that he doesn’t have to worry about RSNs after he struck a national deal. That’s different than Rob Manfred and baseball. They’ve done their national deals and now the RSNs are imploding.”
William Mao, a senior vice president of Global Media Rights at Octagon, agrees the NBA needs another major national partner.
“From a channel reach perspective, being on ABC free to air is the most important piece of the NBA’s current distribution footprint as it reaches 100 million TV households,” Mao said. “When it comes to the cable channels, TNT technically reaches slightly more households than the main ESPN channel with a similar average 24-hour rating. That’s why the current combination of Disney and WBD has been a successful one for the NBA. If increasing overall reach is the 1A goal of the NBA, increasing its free-to-air count of ABC games, maintaining its presence on ESPN and TNT, and then adding another national free-to-air window partner in CBS, NBC or Fox could be a needle-mover.
“Each of these networks comes with additional considerations that impact the NBA’s distribution,” Mao continued. “For NBC Sports, USA Network has proven to be a solid sports landing spot for the likes of EPL and NASCAR, but NBC will likely have a desire for games on Peacock as well. More importantly, NBC will still have to sort through its free-to-air window availabilities during upcoming Olympic and Olympic trial years. For CBS Sports, they may want games for CBS Sports Network or Paramount+. But CBSSN is not audited by Nielsen, and Paramount+ is not yet known for its consistent sports programming traction aside from UEFA Champions League. While Fox could want a package of games for, say, both free-to-air and FS1 distribution, because Fox doesn’t operate an SVOD (subscription video on demand) service like ABC/CBS/NBC each do, the NBA does not have to consider moving games behind a paywall when it comes to a potential conversation with Fox.”
What about Warner Bros Discovery? Well, as Nathanson sees it, WBD will not be getting any kind of incumbent discount from the NBA. (I agree.)
“The idea that (WBD CEO) David (Zaslav) is able to get a (sweetheart) deal from Adam on this is wrong,” Nathanson said. “Adam knows what he has here. I also think that TNT’s affiliate fees have been backstopped for years by having the NBA. You don’t want to risk losing that. But if I am the NBA owners, I’d look at the NFL strategy. I’m looking for reach and predictability of the same windows. The NFL figured out a recipe, and basketball could be more national in terms of the packaging of it.”
Mao sees things differently when it comes to WBD, which I thought was interesting.
“Putting aside the strategic Jekyl & Hyde public comments from Zaslav, the increasingly multi-faceted nature of the relationship is what provides them negotiation leverage in my view,” Mao said. “WBD has long been an operational partner of the NBA across more than just the games on TNT; they also help power NBA TV and the NBA’s digital ventures. There is an international dimension to this negotiation with the rest of the Discovery Eurosport footprint. Then add the association of (Charles) Barkley, (Shaquille O’Neal), and the TNT studio show and I find it hard to imagine the NBA not preserving a partnership with WBD in its next cycle.
“Does all the above mean WBD maintains a slice of NBA rights at a relative bargain compared to other deals the league may strike in this next cycle? TBD. If overall reach (and not overall revenue) is Silver’s 1A goal, the games distributed on TNT and the WBD halo programming across TNT and B/R, plus its partnership on NBA TV and NBA Digital, all remain compelling foundational pieces towards that goal. Both Disney and WBD have invested heavily into NBA on-air talent and shoulder and studio programming, which also contributes materially to the NBA’s overall reach. If the league were to swap one of these horses, they would have to be assured that the new partner network would invest significantly to drive audience on this front as well.”
We are still a ways off from the announcement of where you’ll be watching NBA games for the next decade. But I hope this gives you something to think about.
