Sports will have a big influence on the future of TV

As more video streaming services come to market and some of the most profitable cable networks dip their toes into the unbundling waters, I have seen a few narratives about the future of TV. The first is the utopia of everything available a la carte live and on-demand, which would more closely resemble monopolistic competition. The second is replicating the old oligarchy of cable providers and media conglomerates over the internet. Sports may play the biggest role in determining how this all shakes out.

Live sports is often cited as the glue holding the pay TV bundle together, and for good reason. Live sports broadcasts consistently draw big audiences and are resistant to time-shifting. The NFL's ratings are astonishing. Here are a few facts from the 2014 regular season:

  • 202.3 million unique people watched a game
  • 17.6 million average viewers per game
  • Each of the top 20 TV programs last fall was an NFL game, and 45 of the top 50
  • An NFL game was the top TV program in each of the 17 weeks of the season, and the top 2 programs in all but one week

Source: Nielsen via zap2it

Live sports aren't leaving TV for the internet any time soon. Each of the four major North American sports leagues plus the BCS college football playoffs and March Madness have existing TV deals in place until at least 2021. These deals provide exclusivity to nationally televised games and have other restrictions that make streaming packages a non-starter until the next round of contract negotiations.

It will take a near miracle to pry these contracts away from ESPN and the other sports networks when they are being renegotiated. ESPN's entire business model is built around broadcasting as many live sports as possible, making them an indispensable part of the pay TV bundle, thus assuring they capture a large portion of every cable subscriber's monthly bill and an attractive network for advertisers. Their contracts with the cable companies guarantee their channels are included in base cable packages. They recently sued Verizon for trying to remove ESPN from a new base package.

For these reasons, live sports are more valuable to sports networks than they would be to someone like Google, Apple, or Amazon and they can afford to overpay to keep their business model intact. ESPN may not renew every single deal, but they wouldn't fail to renew the NFL, NBA, and BCS Playoffs, for example and lose a significant number of viewers. Much like HBO Now, the ESPN deal with Sling TV isn't about disrupting the pay TV bundle, it's about trying to grow by reaching new subscribers who wouldn't otherwise subscribe to a pay TV bundle. 

The sports leagues could conceivably create their own streaming services. I believe the NFL is the only league that is popular enough for the economics to work outside of a cable bundle. It is outside the sports leagues' core competency and would require large upfront costs to develop the infrastructure and market it to consumers. This would be a very risky move when the current model is still working very well. The NFL currently makes $6.9B per year in TV rights. That is a lot of money to put at risk. Even if they did want to do this it would have to be sometime in the 2020s. They would also have to consider that a subscription streaming service would likely reach less fans, even if it makes the same amount of money, thus reducing other revenue streams and making it easier for other sports to gain in popularity.

The NFL is popular enough that if they did try this it could enable a new distribution platform or device. For example, the NFL may want to have a subscription streaming service but still offer free games every week to reach as many fans as possible. A free ad-supported streaming service could be enabled by the popularity of the NFL. Perhaps Apple's or Amazon's rumored services or an exclusive deal with Xbox? Or perhaps a big boost to an existing platform such as YouTube?

If the NFL or any of the other leagues were to do this they would have to begin working on it soon to get it ready for the early 2020s before another 10-year television contract would be signed. Perhaps someone already is and we'll see some rumors shortly.