Cable TV cord cutters threaten sports business
Networks, carriers, leagues scrambling to keep up with changing landscape
For a long time, Canadians have complained about their skyrocketing cable television bills, only to continue paying up every month. But no more.
What began a few years ago as a quiet exodus has turned into a stampede, with more and more Canadians cutting the cable cord.
The numbers tell the story. According to the Convergence Research Group, a Canadian consulting firm, the number of "cord cutter" and "cord never" households started to take off in 2012 and continues to climb. In 2015, 190,000 households cancelled their cable TV service. In 2016, that number grew to 220,000. This year, the group predicts the number will reach 250,000.
The loss has been especially acute for Canadian sports channels, says longtime industry analyst Mario Mota.
"Look at the subscriber levels of Sportsnet and TSN, Canada's two main [cable sports networks]," Mota says. "Sportsnet from 2011 to 2015, according to the CRTC, lost almost a million subscribers. TSN saw a smaller number, but still lost about 200,000 subscribers during that same five-year period."
The losses in the United States are even worse. Cable giant and sports media leader ESPN has cut hundreds of employees in recent years, including many popular on-air personalities in the latest round of layoffs last month, after losing an estimated 12 million subscribers in the last six years. ESPN charges cable carriers $7.21 US per subscriber, so the impact of cord cutting on the company's bottom line is obvious.
The exodus also cuts into revenues elsewhere, with outlets like ESPN and Sportsnet unable to deliver as many eyeballs to advertisers.
"If this is a trend that accelerates and continues, you either have to make up that revenue elsewhere, on digital platforms or wherever that may be, or you need to cut further," Mota says.
Millennials driving disruption
The seismic shift in how people consume sports threatens to undermine the comfortable relationship between leagues, broadcasters and cable companies that's seen billions of dollars flow into league coffers, lifting the fortunes of both small- and large-market teams.
The main disrupters here, of course, are millennials. Yes, they still enjoy and watch sports. They just aren't willing to pay a traditional cable bill and they don't typically carve out three hours to watch an entire game.
"How [millennials] consume [sports] is evolving and it`s not one single thing that`s changing," says Alex Evans, a managing director at LEK, a California-based consulting firm.
A recent study by the firm showed millennials' sports viewing habits are drastically different from traditional viewers'.
"A lot of online highlights and clips, basically compressing the time they are spending but still getting the story line," Evans says.
"Social media is also big — you're constantly getting feedback on the game from friends so you're sort of caught up. This generation is time compressed, looking to optimize their time. So instead of dedicating three hours, they say 'I'll give it 15 minutes, get what I need, and then do other stuff."
For those who still want to watch live games, there are ways around paying the cable company for the channels that carry them. For example, many games can be streamed on websites that post them illegally — at least until they're taken down.
"The problem with the internet is it's kind of a wild west," Mota says. "You shut somebody down on one site, the next day there is something somewhere else. It's an unwieldy and challenging battle."
This all has created very uncertain times for all players in the television sports arena.
"Really long-term deals are incredibly challenging and risky," Mota says. "For example, the Rogers NHL deal [that cost the company $5.2 billion to buy the league's Canadian broadcast and multimedia rights for 12 years.] Talk about risky. How can anyone predict what the media environment is going to look like in two or three years, never mind 12 years.
"Let's say cord cutting continues and Sportsnet's subscriber base continues to drop. They can find other way to deliver the content, like through digital platforms, but there is no guarantee those digital platforms will deliver the same revenue the traditional TV space has in the past."
Industry reaction has been focused in two areas. In Canada, cable companies like Rogers and Bell are trying to make up revenue elsewhere. Recently, both removed their sports channels [Rogers owns Sportsnet, Bell controls TSN] from the cable packages traditionally offered to bar owners. Now those channels are sold on a standalone basis for about $120 a month. The price depends on how many seats are in the bar.
More importantly, leagues and sports networks are working feverishly to find revenue in their customers' rapidly evolving viewing habits.
Here in Canada, Sportsnet was among the first networks in North America to appeal directly to cord cutters and millennials. About a year ago, it launched Sportsnet NOW, a $24.99-per-month package that offers subscribers access to Sportsnet's six channels through an internet connection.
Sports leagues are also getting more creative.
"Leagues are testing and getting smarter about what works," Evans says. "Look at the NFL and what they have done with their Thursday digital rights. Last year Twitter paid them $10 million US [to stream 10 games]. This year Amazon is paying $50 million.
"At the same time the NFL has a new deal with Twitter where they will create some live programming like a daily show but no actual game content. It's a great example of how a traditional sports organization is learning to use digital to maybe reach fans who may not be sitting down for a three-hour game."
Evans says the changing landscape has also meant making more free content available.
"[The idea is] to maybe foster some longer-term viewing. 'Hey, I was never really a hockey fan before but I saw some great goals and it was exciting, maybe I will watch a full game.'
"But you have to balance that. If you have too much [free stuff] out there, why would you watch the full game?"