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BFD Expert Voices - Media Deals

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Data: S&P Global; Chart: Simran Parwani/Axios

Amid cord-cutting and the secular decline of linear TV viewership, sports networks are charging distributors more to carry their networks, data from S&P Kagan shows.

Why it matters: The ongoing push-pull between rising costs for rights fees and the decline in pay-TV subscribers may signal looming carriage fights between networks and distributors.

Distributors have been trying to fight back against rising affiliate fees that ultimately get passed down to consumers. This has created a particular pain point for Regional Sports Networks.

For example, Kagan found that Comcast subscribers were hit with a $19 "regional sports fee." Other operators like Verizon, Cox and DirecTV charge an extra $7-$10 each month. 

Last year, Dish Network severed all ties to the RSN business, removing RSNs from Sinclair, AT&T and the New England Sports Network. 

By the numbers: The average license per subscriber each month that RSNs charge distributors is expected to rise from $3.67 in 2021 to more than $5 by 2025. At the same time, the RSN subscriber base is expected to drop from 123 million in 2021 to under 90 million in that same timeframe.

Those licensing fees are rising among the national networks, too. ESPN, the most expensive channel among basic cable networks, charged more than $8/month per subscriber and has grown an average of 5.6% each year. 

The next most-expensive sports-related network is TNT with a monthly affiliate fee of $2.78. NFL Network, at $1.91, is more expensive than USA Network, which costs distributors $1.71 per subscriber.

Yes, but: Live sports, especially the NFL, are the only programs on linear TV that still show any growth.

Most sports have regained all their lost audience from the COVID-affected 2020 seasons, though some are still down from pre-pandemic days.

The ones that are up compared to 2019 and earlier are getting some help from Nielsen's inclusion of out-of-home viewing, a practice it only began in 2020. 

The big picture: Rights fees are only getting more expensive — and more complicated, with the consumer shift toward streaming. In fact, this morning's earnings release from Fox says that sports programming hurt profits.

Fees have risen faster than inflation, with the major leagues bringing in more than $15 billion each year under their current contracts. 

The NFL pulls in $5.6 billion each year by itself. When the league's new deals kick in next year, that number will surpass $10 billion. That's not even including its upcoming Sunday Ticket renewal (more on this below).

Most recent deals have included streaming distribution as a key pillar: ESPN+ and HBO Max were included in the NHL's current rights deal, while the NFL will put "Thursday Night Football" on Amazon Prime Video exclusively starting this fall. HBO Max will also play a major role in the U.S. Men's Soccer team's new rights deal. 

What's next: Sinclair is launching a regional sports-themed streaming service called Bally Sports+ this quarter that will cost $19.99 a month. 

Disclosure: Cox and Comcast are investors in Axios.  

1 big thing: High cost of TV sports

AMC Entertainment plans to acquire or invest in more companies that are outside of its main theater business, its CEO Adam Aron said yesterday.

Why it matters: AMC wants to transition from being a theater company to a full-blown conglomerate. 

"Those who think of AMC just in terms of the company that existed pre-pandemic are looking through a rearview mirror at the past," Aron said. "As we build a new AMC and grow our way, through value-creating initiatives, there will be more Hycrofts ahead."

By the numbers: AMC's losses are shrinking. The company reported a net loss of $337.4 million during the March quarter, an "improvement" from losing $567.2 million a year ago. 

AMC's stock closed down 9% yesterday at $12.52 amid a broader market sell-off. Shares have fallen more than 50% in 2022 and are off more than 68% in the past six months.

But Aron argued that their $28 million investment in Hycroft is more than paying off: "At a time when the NASDAQ is off 9% of overall value, our investment in Hycroft Mining has increased by more than 30% as of Friday's closing price."

Yes, but: Hycroft's stock price has doubled since the year began, but it closed yesterday at $1.28 a share — lower than when AMC made its investment back in March. 

Be smart: The theatrical business is still AMC's main priority, and the box office is primed for a comeback this year led by multiple big-ticket blockbuster films. 

"Sonic the Hedgehog 2," "The Batman" and this weekend's "Doctor Strange in the Multiverse of Madness" have so far proved that the theater can still draw boffo box office numbers.

That portends good things for the rest of the year, with sequels to "Top Gun," "Jurassic World," "Thor," and new "Minions" and Pixar ("Lightyear"). 

AMC has been an active buyer of theaters as well. Aron said it now owns one-third of the former Arclight-Pacific Theater group and three-fifths of Bow Tie Cinemas locations. 

What's next: AMC is getting into the retail popcorn business later this year and will start selling its popcorn outside the theater in retail stores, malls, grocery stores and via home delivery from local theaters.

"We plan to be deliberative and disciplined in investing in opportunities to enhance our existing business or to diversify into previously unexplored markets," Aron said. 

2. The BFD: AMC plans shopping spree

Illustration of a stock trend line on a movie theater screen

Data: S&P Capital IQ; Chart: Thomas Oide/Axios

Less than a quarter of DirecTV's subscriber base paid for NFL Sunday Ticket last season, according to S&P Kagan data. 

Why it matters: If you're looking for a reason why DirecTV has no interest in keeping Sunday Ticket, look no further. 

DirecTV, which has held Sunday Ticket rights exclusively since 1994, has one season left on its current deal with the NFL, for which it pays the league $1 billion annually. 

By the numbers: More than half of DirecTV subscribers in Kagan's survey did not have Sunday Ticket last season.

An additional 16% received Sunday Ticket for free as part of a new customer promotion, while 7% said they weren't sure if they subscribed.  

What's next: Along with Sunday Ticket, the NFL is also in the middle of selling a stake in its media business, hoping to land a single buyer for both.

Sunday Ticket is currently seen as being Apple's to lose, with Amazon still in the picture.

The NFL is expected to command north of $2 billion for Sunday Ticket. 

3. Charted: Why DirecTV is punting on NFL Sunday Ticket

Arianee, a Paris-based provider of digital ownership and authenticity certificates for brands, raised €20m ($21.1m). Tiger Global led, and was joined by Bpifrance, ISAI, Noia Capital, Cygni Labs, Commerce Ventures and Motier Ventures. http://axios.link/6xRQ 

My Code, a Santa Monica, Calif.-based advertising network, acquired Impremedia, which owns some of the largest Spanish-language daily newspapers in the U.S. including El Diario in New York and La Opinión in Los Angeles. The price was more than $10m, per NYT. http://axios.link/nemI

Dirt, an entertainment and culture newsletter, raised $1.2m in seed funding. Collab+Currency led, and was joined by Offline Adventures, Flamingo DAO, Spice Capital, Unicorn DAO and Matt Hackett, Axios' Sara Fischer scoops. http://axios.link/902Z

Hart, a Toledo-based marketing and advertising agency, acquired MDB Communications, a Washington, D.C.-based advertising and PR agency. http://axios.link/McoL

LWKS Software, the U.K.-based maker of the Lightworks editing system, acquired ioGates, a Copenhagen-based developer of cloud-based file-sharing software for entertainment production. http://axios.link/rGPK

Fremantle, the European production giant, acquired a majority stake in Element Pictures, the Irish production company behind "Normal People," The Favourite" and "Room." http://axios.link/7WG5

Grindr, an LGBTQ+ dating app, agreed to go public at an implied $2.1b enterprise value via Tiga Acquisition Corp (NYSE: TINV). http://axios.link/xq0P

Future, owner of Marie Claire, TechRadar and other titles, acquired WhoWhatWear from Clique Brands. http://axios.link/jMgs

4. Deal flow

NBCUniversal hired former Turner Broadcasting ad sales executive Frank Sgrizzi as senior VP, client partnerships. http://axios.link/iszU

Republic Records promoted Chris Blackwell to EVP of A&R and content strategy. http://axios.link/Q84u

SiriusXM hired Disney's Jessica Casano-Antonellis as SVP and head of communications. http://axios.link/Yfa1

Sony Pictures Entertainment hired Jonathan Gist as executive director of global intersectional marketing. http://axios.link/h9Up

WME Independent hired Julia Harris as SVP of business affairs, Melissa Martinez as VP of marketing and Victoria Romley as an agent focused on international distribution. http://axios.link/rFKF

Tom Brady will join Fox Sports as its lead NFL analyst whenever his playing career ends, Fox CEO Lachlan Murdoch said on the company's earnings call this morning. http://axios.link/hEPr

5. Movin' on up (or out)

G/O Media, with Quartz in tow, eyes an expansion years in the making (Adweek)

G/O Media "turned a profit in 2021 for the first time since its creation three years ago. That's in large part due to digital ad revenue that rose 53% from 2020," Mark Stenberg reports. 

Apple is planning to shake up its massive Services business to push further into streaming and advertising (Insider)

"The unique situation with Apple is that it has a relatively small base for Apple TV+. The addition of Sunday Ticket would allow them to increase their base subscription level," said Ed Desser, president of sports TV consultancy Desser Sports Media. 

Meta rethinks news partnerships as priorities shift (The Information)

"Meta is considering cutting its spending on news partnerships — which executives originally thought could help improve relationships with media orgs — as the company's priorities shift," Sylvia Varnham O'Regan tweeted. 

IAC sees bargains in tech valuations. It's ready to go shopping (Barron's)

"The opportunities are in the public market. Private markets are a joke. The genius of the private markets is that they don't ever have to market things to market. They don't have to crystalize reality for a really long time," IAC CEO Joey Levin said.

6. Channel surfing

Illustration of a surfer with a television in the place of his head.

📚 Situational awareness: Dr. Seuss Enterprises, the private company that manages the work of the late Theodor Seuss Geisel, is talking with bankers about a possible sale, Axios' Sara Fischer scoops.

@tim_bays: "Top Gun" on Netflix. Required history lesson before I see the sequel.

@kerrymflynn: "Tiffany Dover Is Dead*" on Apple Podcasts. Binged this entire series yesterday. It's a fascinating dive into conspiracies and misinformation. 

Thank you for reading Axios Pro Media Deals! Please ask your friends, colleagues and sports viewers to sign up.

May 10, 2022

1 big thing: High cost of TV sports