One of the more notable parts of networks’ carriage negotiations with multichannel video providers (cable, satellite, or virtual) is about the tier those MVPDs can place the networks in. The sides agreeing on a per-subscriber carriage fee is one thing, but that fee produces drastically different revenue if the network is in most subscribers’ packages or if it’s only a higher-tier add-on. Unsurprisingly, most networks have often pushed to be in as broad a tier as possible, and in sports, many of them have had great success.
But that strategy poses some challenges of its own for all sides. For the MVPDs, having a lot of sports channels (especially regional sports networks) in more basic tiers means they have to charge consumers more for those tiers to recoup their per-subscriber fee costs, and that can exacerbate cord-cutting from people opting to ditch MVPDs entirely. For the sports networks that aren’t able to get into those basic tiers and wind up in higher tiers or sports add-on packages, they wind up with fewer subscribers (and thus, lower per-subscriber fee revenue) than if the tiers they’re in had other compelling sports content. And for the networks that do make the basic tiers, they sometimes wind up in carriage disputes centered around the tier, which can lead to them not being carried at all.
With that in mind, it’s interesting to see a wildly-different tier strategy being tested out. John Ourand of Sports Business Journal published a fascinating piece Monday on how U.S. No. 2 cable provider Charter (which operates Spectrum) has now come to an agreement with many RSNs and league networks to offer them in a higher tier. This will have Spectrum (beginning in the third quarter of 2023) divide its expanded basic Spectrum TV Select into two packages: Spectrum Select Plus will include RSNs and league networks, while Spectrum Select Signature will not, and will likely be around $10 a month cheaper (at least to start). Here’s more on that from Ourand’s piece:
Sports tiers have never been popular, especially since they didn’t include any of the most popular sports channels. RSNs, for example, regularly boast the biggest viewership numbers in any market for their live games. But the RSNs all had deals that required they stay on the most popular tiers.
It’s taken several years and many torturous negotiations, but Charter executives have been changing those contracts to get more flexibility on how to sell RSNs to their customers.
As little as a decade ago, RSN contracts required that they reach 85%-90% of a distributor’s customer base. As Charter has renewed its RSN deals, it began lowering those guarantees, which has given Charter the flexibility to create a lower-cost tier without them.
Charter has renewed almost all of its RSN deals, affecting 85% of its footprint. The remaining ones have deals that come up over the next 14 months or so.
As Ourand notes, the only RSN Charter hasn’t been able to get on board so far is MASN. Charter dropped MASN overall at the start of this season. If they are able to bring that network (which is 77 percent owned by the Baltimore Orioles, 23 percent owned by the Washington Nationals, and the subject of an extremely long-running legal fight between those sides) back at some point, it will be interesting to see if it’s placed in Spectrum Select Plus or not.
Another significant part of this piece is that Charter is also applying some of this flexibility to the RSNs they own, including when it comes to other distributors’ carriage of those networks. They own Spectrum SportsNet (Lakers) and SportsNet LA (Dodgers), with the latter channel notable for plenty of carriage disputes in the past. But Charter recently signed an extension for both networks with DirecTV (also including U-verse and DirecTV Stream), and that comes with a much lower distribution threshold than what they had (estimated at 80 to 90 percent of overall subscribers). The new threshold isn’t specified, but this will mean that there are more DirecTV packages without those channels. (As part of that, too, Charter is reportedly looking to launch an over-the-top streaming option for consumers to be able to get those networks directly, following in the footsteps of Bally Sports+, NESN 360, MSG+, YES’ DTC service, and more.) Here are a couple quotes on that from a DirecTV/Charter release:
“While viewing habits continue to shift, it’s clear that regular season professional sports programming remains extremely popular with a core base of traditional cable, satellite, and OTT customers,” said Dan Finnerty, Senior Vice President and General Manager, Spectrum Networks. “That said, given these customers represent a relatively small percentage of the overall video subscriber base, and recognizing the marked increase in direct-to-consumer choices, the model for RSNs needs to evolve to reflect the realities of the current marketplace. With this agreement, we are taking a step to shift the business model so that customers have more control.”
…“DIRECTV continues to believe in the power of local sports, while also recognizing the demands of the many homes we serve with other diverse programming interests,” said Rob Thun, chief content officer of DIRECTV. “This agreement with Spectrum Networks achieves three key objectives – putting consumers first, recognizing local value, and enabling both parties to extend their relationship with long-term, mutual benefits.”
A common overlap with all these moves is trying to provide more options to slow the impact of cord-cutting. The expensive per-subscriber fees for RSNs in particular have often been cited as a reason for cord-cutting by people who don’t watch those channels, and the Spectrum Select Signature tier without those may make it easier for some of those people to cord shave instead and retain a MVPD package. On the RSN and league network side, they’ll get fewer subscribers (and thus, less in per-subscriber fees) from Charter as a result of this, but agreeing to these new tiers likely helped keep their networks on Spectrum without a carriage dispute (unlike MASN). And with Charter taking a similar approach to their own networks, at least with DirecTV, we might see this higher-tier approach used more widely. (And it also may make these “sports tiers” more appealing for consumers if they have networks that draw a lot of interest; at the moment, many of the sports tiers are pretty weak.)
It’s worth noting as well that these are all limited moves. In particular, Charter only plans to market the cheaper no-RSN package to new customers or those actively looking to change their plan, at least at first. And their plan to launch their own OTT option for their RSNs is likely to be similar to the RSN DTC strategies we’ve seen so far, with it an option for those who have already cut the cord (or have MVPD packages without the RSN), but priced high enough that it’s not going to particularly intensify the exodus from MVPD packages.
As with ESPN’s plans for a full OTT offering of their linear channel, networks are trying to walk a fine line of preserving as many MVPD subscribers as they can for now while also offering DTC options for those not getting their networks through MVPDs. These Charter moves are the latest we’ve seen on that front. And it’s certainly interesting to see some distributors and networks agree on less-stringent tier requirements for RSNs. We’ll see if this becomes a larger trend.