An era of change, controversy and courage has altered the way we consume, deliver and appreciate our games. NOW AS THE CORD-CUTTING, mobile-driven generation challenges old norms and sets its own rules, the established sports media world must grapple with two options: adapt or perish
FOR SIX YEARS Tom Spock has given a guest lecture to an undergraduate Sports and Economics course at NYU's Stern Business School. As a former executive at NBC and the NFL, and now a principal with the consultancy Scalar Media, Spock has spent his entire professional career immersed in content, distribution and rights fees. Years ago, in anticipation of this lecture, he put together a PowerPoint deck, which he updated from semester to semester as news and innovation dictated. When Spock prepared to speak to the M.B.A. students this fall, he realized he had a problem. His presentation felt like the equivalent of a leather football helmet or a peach basket.
"EVERYTHING ABOUT sports media had changed so much," he says, "I had to start from scratch."
This is the sports media landscape in 2017, which is really no landscape at all, but rather a series of unceasing convulsions. Even the most bedrock principles—the NFL is inviolable; fans want to watch games on the best screen available; thanks to rights fees, franchise valuations will never go down—were jolted to the core. "Everything is transitional," says Spock. "In 2017 it was confirmed: The New World is here. And there's no going back."
What happened? First, let's board the Wayback Machine to the halcyon days of 2013, when Tony Romo was a starting quarterback and NFL games on Thursday nights seemed like a good idea. Back then the so-called "appointment viewing" of a game was a bulwark against streaming services, DVRs, YouTube and a media climate driven by consumers rather than the traditional gatekeepers. Sports delivered audiences, and elusive male audiences at that. Sunday Night Football, far and away the most-watched recurring show on network television, propped up NBC. ESPN programming routinely delivered the highest ratings on cable and had seen quarter after quarter of increased viewership. Cable's economic model was, depending on one's perspective, either a classic case of antitrust or a fantastic business, charging people for a product they didn't necessarily want. ESPN took in roughly $7 each month—$84 in a year—from the 100 million households in the U.S. that paid for a basic cable package—earning more than $8 billion before the first unit of advertising had been sold. In 2014, the Worldwide Leader made $10.8 billion in revenue.
Disney's blockbuster action films and theme parks may have missed their targets, but its stock price was reliably fattened by ESPN. The network spent lavishly on rights fees, renewing its deal with the NFL in 2011 for $15.2 billion through '21. The next year it signed a 12-year, $7.3 billion contract for the rights to the college football playoff. The arrangement worked for all parties.
Until it didn't.
Which brings us to the present. ESPN, while still profitable, has become a drag on Disney's earnings. Over the last six years the network has gone from 100 million to 87 million subscribers, at a loss of well more than $1 billion in annual revenue. Some firebrand Disney shareholders and analysts have recommended selling the entire company. Locked into its long-term rights deals, ESPN has endured multiple rounds of layoffs since 2013, including 150 employees two weeks ago. This tracks other sports outlets (including Sports ILLUSTRATED, Fox Sports and Vice Sports) that have also shed employees as they attempt to do more with less and find new revenue sources.
The decline of NFL ratings—through Week 11 of the 2017 season, they were down roughly 9% from last year, according to Ad Age, to 15 million per game—have gotten a lot of attention. But other sports have felt the hit too, most notably NASCAR, which dropped 11% in viewership.
What changed? For starters, the millennial generation. Eighteen- to 34-year-olds still like sports plenty. But they consume sports differently from other cohorts. The notion of devoting a few hours to watch an entire game? That's quaint. So is watching on a large screen; a phone will do fine. The millions ESPN spends on NBA highlights? Every clip worth seeing is captured immediately via GIFs and on Instagram, also rendering SportsCenter largely irrelevant.
Most of all, millennials don't see a good reason to pay that $150 monthly cable bill. A recent Pew Research Center poll found that six in 10 young adults watch TV primarily via online streaming services. It's not simply the lost subscriber fees. The premium prices that come with scale are eroding, too.
Adding to this volatility are factors few would have predicted. In recent years, and particularly since the latest presidential election cycle, politics have come to feature the rivalries and tribalism of sports, siphoning ratings and market share to news outlets. Fantasy-sports companies that had been a growth engine are now snarled in regulations, the planned merger between FanDuel and DraftKings called off.
Networks and cable companies have tried to change tactics, offering "skinny" cable bundles that signify an inevitable drift toward an à la carte (i.e., pay-only-for-what-you-watch) model and offering over-the-top (OTT) programming. This is a savvy strategy for keeping fans, but it is unlikely to replicate the cash flow of the cable model, which drew from both subscriber fees and the revenue from commercials. And it makes some sports especially vulnerable, not least baseball, given that most teams' media revenue comes not from national network deals but from local fees from regional sports networks, which will most likely be toast in an à la carte universe.
Increasingly it's become clear: Rights fees are undergirding the sports economy. When Steve Balmer paid $2 billion for the Clippers in 2014, he did so expecting the return to come from the NBA's nine-year, $24 billion TV deal. William Morris Endeavor's 2016 purchase of UFC for $4 billion was predicated on a bet that the money could be won back through media rights, renewing its contract with Fox at between $450 million and $500 million. (Fox's initial offer was reportedly $200 million, per Sports Business Daily; that ought to serve as a triangle choke to most every stakeholder in the sports industry.)
Still, even in these tumultuous times, there are sources of optimism. It's almost an article of faith that at least some of the broadband gatekeepers—Amazon, Facebook, Netflix, Apple, Twitter—will be bidders in the NFL's next television contract. Maybe the values will hold; it's just the delivery pipes that will change. The increased legalization of sports wagering should bolster interest in games and goose ratings; as the NFL learned long ago, when there's a point spread involved, an audience will stay tuned in even when a game's outcome is no longer in doubt. The NBA is off to a rocket ratings start in 2017--18 thanks to a drama-filled offseason. Companies such as ESPN will continue to experiment with content staples (such as SportsCenter), seeing how they work on social media (Snapchat).
And let's not forget that even with declining ratings, nothing in television comes close to delivering the consistent numbers the NFL provides week after week. The same goes for the NBA Finals and high-profile college football games. While some sports (the NBA and, to a lesser extent, baseball) benefit more than others (the NFL), there is still a global media marketplace to conquer. Exhibit A: While it's held in a country with one-fifth the population of the U.S., the English Premier League garners roughly half the revenues the NFL does. Why? Because the EPL crosses international borders in a way that American football does not. This could bode well for niche sports such as golf that travel nimbly, as well as soccer (with its super-young television demos). And the explosive growth of e-sports is in a category of its own.
What does it all mean for viewers? Fragmentation—and many different price points for your viewing pleasure. Those who want every conceivable sports option, including choosing their preferred camera angle, will be able to have it if they are willing to pay.
As we head forward into a sports year featuring the Winter Olympics and the World Cup, big events will continue to produce communal viewing on multiple platforms. But everything else remains a question mark. Keep updating that PowerPoint presentation, Professor Spock. It's going to be passé soon enough.
What changed? For starters, the millennial generation. Eighteen- to 34-year-olds still like sports plenty. But they CONSUME SPORTS DIFFERENTLY from other cohorts.