The failure of Sinclair to reach an agreement with YouTube TV on carriage fees illustrates that time is running out for RSNs under the current model. Unless, of course, consumers are willing to shell out $26+ a month for an RSN direct-to-consumer service.
Operators are dropping Sinclair RSNs
YouTube TV’s decision to drop Sinclair’s RSNs is just the latest in a string of fights between sports rights owners and service providers. Last August, Altitude Sports was dropped by DirecTV, Comcast, and Dish, and only DirecTV restored the channels. fuboTV dropped Sinclair’s RSNs at the beginning of the year, and Comcast says it likely won’t renew them when the license expires in September.
Sinclair’s Fox Regional Sports Networks and the YES Network all vanished from YouTube TV on February 29th. The loss of fuboTV and possibly Comcast customers deals a severe blow to Sinclair. The company paid Disney $9.6 billion for the Fox RSN’s last August, and with operators dropping the channels left and right, the investment is looking ever riskier.
Rich Greenfield, a Lightshed analyst, thinks the way forward for the RSNs is in an a la carte model, where customers pay individually for only the RSNs they want. So, if the future of RSNs is a direct subscription – either through pay TV operators or direct-to-consumer online – how much will Sinclair and other RSN owners need to charge to keep the same amount of revenue?
YES network in NYC
Let’s look at the YES Network in New York State. The channel carries news, stats, scores, and highlights for the New York Yankees, Brooklyn Nets, New York City FC, and New York Liberty. The number of households in New York State is 7 million. Pay TV penetration nationally is 76%, so 5.3 million New York households have a pay TV service like Charter, DirecTV, or YouTube TV. Assuming YES receives roughly $2 per subscriber per month, YES Network earns $11 million a month, or $130 million a year in license fees in the state.
How much would YES need to charge for a direct-to-consumer Internet service to earn the same in New York as they currently do from pay TV?
Doing the math on a YES D2C service
According to Gallup, 6-in-10 US adults say they are sports fans in the US As well, Verizon Media survey data suggests that 8% of sports fans would definitely consider subscribing to a premium live sports streaming service if it offered more coverage of a sports team or league of interest to them. Of course, RSNs frequently don’t carry all the live games, and some don’t provide any, relying on interviews, stats, commentary, and replays. However, they certainly offer detailed extended coverage. So, the data suggests that about 5% of adults in New York are interested enough in their team to consider subscribing to a service like YES.
Since there are 2.5 people per household in the US, the probability that a home has at least one adult interested in YES access is 12%. In other words, 0.8 million homes in New York State have at least one adult interested in subscribing to the YES Network.
Assuming one subscription per household, YES must charge $13 a month if it captures every home that is potentially interested in subscribing to YES.
The truth is that YES will be lucky if it can attract 50% of the target group. After all, who would pay $13 a month when they can watch many live games for free on broadcast TV or at a local bar, and get interviews, stats, and the like from YouTube and various mobile sports apps for nothing! And if only half of the target group subscribe, YES must charge $26 a month to earn the same revenue. What’s more the value of the advertising YES sells on the channel will plummet as the number of people watching falls dramatically.
RSNs exist because it was difficult, or impossible, for super fans to get the content they provide any other way. The 12% of New York homes interested enough to pay for YES got a great deal because the other 88% were forced to subsidize their interest. The simple truth is, that model doesn’t fly anymore. The Internet provides much of the content for free, and millions of pay TV subscribers are leaving to avoid the high costs RSNs are partly responsible for causing.
Why it matters
RSNs look to be a major victim of the unraveling of the pay TV model.
Much of the content they provide is available online for free.
Delivering the content in an RSN direct-to-consumer service will cost consumers too much if the RSN owners seek to maintain current subscription revenues.
 Dish Network has a surcharge of up to $3 a month for Regional Sports Networks
 Thanks to Dr. Thane Plambeck for helping me figure out the probabilities calculated in this piece.