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For the past couple years, ESPN has been stuck with a seemingly unsolvable problem: It is on the hook for expensive sports deals that keep getting more expensive. At the same time, its subscriber base — and the revenue that generates from subscription fees and ad sales — has been melting.
ESPN’s proposed solution is a surprising one: It is going to put itself on the hook for even more expensive sports deals.
That’s what will happen if Disney gets the go-ahead for the $66 billion Fox deal it wants to make. Because included in the deal are the rights to Fox’s big regional sports networks.
Fox has 22 RSNs across the country, which have deals with 44 pro sports teams to deliver local games to cable TV subscribers that carry the networks.
If you want to watch a Yankees game in New York, you do it via Fox’s YES network; if you want to watch a Timberwolves game in Minnesota, you do it via Fox Sports North.
The deals to secure that programming cost a ton of money. And just like the national programming deals, they keep getting more expensive. Up until now, it has been worth it for Fox. Pay TV subscribers pay more for RSNs — generally, whether they want them or not — than any other network. Except for ESPN.
But if locking into big-ticket sports deals at a time when pay TV subscribers are swapping out big subscription packages for skinny ones — or simply dropping subscriptions altogether — is a problem for ESPN, why sign up for more of the same?
Some of the commentary I’ve seen suggests that adding Fox’s sports deals to ESPN is good for ESPN Plus, the digital subscription service it will (finally) launch this spring.
But that doesn’t make any sense.
None of the valuable stuff Fox owns can go into ESPN Plus, for the same reason none of the valuable stuff ESPN owns will be in ESPN Plus — it’s all tied up in pay TV deals, and will be for years to come. The stuff you’ll see on ESPN Plus will be the stuff ESPN doesn’t think is worth putting on TV. Adding more leftovers from Fox won’t make it much more appetizing.
There are more compelling arguments. For instance, buying up the Fox sports channels means those local deals won’t end up in the hands of someone else, like Comcast’s NBCUniversal*, or a theoretical tech bidder like Amazon or Apple.
Another decent argument: Scale. Adding dozens of teams and territories should make life better for ESPN’s sales force, who can tell advertisers they can deliver even more valuable sports eyeballs. In theory, it could also give ESPN more leverage when it comes to negotiating future rights deals.
In other words, if you’re going to be in sports TV, why not really be in sports TV and go all in? There are lots of hardcore sports fans in the U.S. (and around the world, where Disney will also be buying some Fox sports assets). So why not direct more of their dollars your way?
Except: Local sports aren’t different from national sports, which aren’t different from anything else on TV — they’re having a hard time hanging onto eyeballs. And if you’re the kind of person who wants to pay for TV but doesn’t want to pay for ESPN, you won’t want to pay for a Fox sports channel, either.
So the most logical argument would be that at some point, the number of people who want to pay for sports will stabilize, and that number will be pretty big, and sports rights deals will eventually rationalize to fit that number.
Fair enough! Except that Rupert Murdoch doesn’t think so:
Source says Murdoch has not been high on the RSNs for several years. Same old media story: rights fees rising at a faster rate than affiliate revenue. https://t.co/cqODqsOcoU
— John Ourand (@Ourand_SBJ) December 5, 2017
And if Rupert Murdoch is selling, I’d think very, very carefully about what I’m buying.
* Comcast is an investor in Vox Media, which owns this site.
This article originally appeared on Recode.net.
