With a new Chicago Cubs TV deal expected to come down any day now (count me in for the Cubs Convention later this month), the Sports Business Journal is taking a stab at prognosticating one of the most important particulars about the ultimate form the deal will take. We know that it’s highly likely at this point that the Cubs will form a new Regional Sports Network with Sinclair Broadcasting as a distribution partner, and SBJ has a guess at what the new channel will cost the cable and satellite providers that wish to carry it.
In a list of media predictions for the new year, John Ourand offers his belief that the launch of the new RSN will be a success for the Cubs, and indicates that the price tag will be “at least $6 per subscriber per month.”
It’s not entirely clear from his phrasing whether that aspect is part of his prediction game, or if he’s reporting that part. Being that Ourand is a connected sports media journalist, it’s a notable figure even if it’s entirely his guess, in any case.
And it’s a whopper. There’s a whole lot to discuss from that one little bit of information.
First, some necessary background on how these RSN deals typically work, as it relates to the baseball team.
A team and/or its ownership group partner with a TV-adjacent entity (a content company, a cable company, or a distributor (like Sinclair)) to create a new cable channel, known as a Regional Sports Network. That new RSN is the entity that buys the rights to the team’s games, and that’s where you see those massive TV contract numbers going to the team. The RSN, in turn, seeks to make money through two primary vehicles: advertising on the network and the fees it collects (per month, per subscriber) from cable and satellite providers to carry the channel.
But because the team and/or its owners have an equity stake in the RSN, itself, they also kinda need the RSN to do well in order to justify the TV rights payment that’s going to the team. But that can be a problem in one of two ways: (1) The fee the RSNs decided to charge cable and satellite providers to carry the channel could simply be too high (SportsNet LA). Some providers could balk at the price, and people who are subscribing to that service simply didn’t get the channel. (2) The region that the RSN wants its channel carried could simply be too large (CSN Houston). Again, some providers may balk at a required monthly fee to carry a channel that they feel like their users in a particular region aren’t going to care about.
Sometimes, these issues are the fault of the RSN entity, but sometimes it’s more of a reverse-engineered problem, because the TV rights contract between the RSN and the team simply paid the team far too much money, which could only be covered if the fees to carry the channel were super high and/or the subscriber base was huge.
So there’s a balance here. Obviously the team wants a massive rights deal, and it also wants the RSN to do well financially. And to do that, the RSN wants to charge as much as the market will bear for its channel. But there’s a tipping point at which providers won’t pay that price because they know that when they try to pass it on to their subscribers’ monthly bill, those subscribers will inch ever closer to doing what more and more people are doing: cutting the cord.
That’s when you have a team getting nominally paid a huge TV rights fees, but tons of the team’s fans are unable realistically to actually watch the team, and/or are having to stay on a cable plan just to watch their team, and/or are having to pay a lot more for their existing cable package.
Balance it right, and you could have the next YES Network (Yankees), which generates huge revenue *AND* is valued at upwards of $4 billion. Balance it wrong, and you could create an anchor on your finances *AND* piss off a huge chunk of your fanbase.
OK, so what if the $6 per subscriber per month price tag is accurate for the new Cubs RSN? Is that a reasonable level? Is it going to cause problems?
Well, I don’t think anyone could say for certain right now in this environment, and only the involved parties know what the financial picture on the other side of the deal (i.e., the TV rights half) will look like. But I do think it’s worth noting that the Dodgers’ original price for SportsNet LA was $4.90 for its launch five years ago, and that led to the dispute that kept the channel off the airwaves for years (they have since lowered the price to $3.50 per subscriber per month).
By contrast, as of a couple years ago (and before some carriage disputes of their own), the YES Network charged a little more than $5 per subscriber per month. So, with the Cubs’ RSN due to open shop for the 2020 season, they’d definitely be near or at the top of the market at $6. That doesn’t necessarily seem inappropriate for a popular team like the Cubs, and keep in mind that the coverage area of the YES Network is likely much larger than the Cubs RSN would be, but it still seems like a risk to try to top the market in carriage fees at a time when fewer and fewer people are subscribing to cable and satellite packages. And that’s *especially* true at a time when MLB controls local streaming rights, and is negotiating with RSNs about whether they can deploy those rights.
The Cubs do have an ace in the hole, though. Because Sinclair is the largest operator of local networks in the country, they could wield significant leverage against any provider that doesn’t want to pay the Cubs’ RSN price: either you carry the Cubs channel at $6 per month in the greater Chicago area, or we cut off your access to your local ABC/FOX/NBC/CBS stations owned by Sinclair. It’s a cudgel Sinclair used before in getting the carriage it wanted for the Tennis Channel after it purchased that network in 2016. (Notably, Sinclair does not currently own any local providers in Chicago – they tried to buy WGN-9 recently, but were blocked – but they do own stations in downstate Illinois, Iowa, Michigan, and Indiana. Plus, there’s nothing to say they couldn’t leverage stations in other markets if they wanted to be really aggressive.)
So, if it plays out like that, the good news for Cubs fans is that the Cubs RSN will probably get carriage on your cable/satellite provider (if you have one). And the good news for the Cubs is that this approach could generate far more in revenues for the organization than a traditional cable rights deal – revenues that could further improve the spending power of the organization.
The bad news for end-users is that the cost of the channel will probably mostly be passed on to you, with an increase to your monthly bill.
In the near-term, this could mean an enormous windfall for the Cubs, the likes of which they always hoped to secure when their rights hit the market. In the medium and longer-term? Without control of streaming rights? It strikes me as still a huge risk to pair the financial health of your organization to the fees paid by cable and satellite providers for cable channels. They’re not going to go away immediately, but the cord-cutting phenomenon is inarguable and maybe inexorable.
I suppose it’s possible cable TV costs in general finally swing back in the other direction to stem the tide of cord-cutting and win back subscribers. We’re kinda seeing it with more skinny packages. But success will require making cable/satellite far more attractive to viewers than just picking two of Netflix/Hulu/Amazon/HBO and paying a whole lot less monthly. And even in that case, would a regional sports network be on the first tier of cable anyway?
Like I say every time we dig into this stuff: it’s complicated. It matters a great deal to the future of the Cubs organization and the sport as a whole. Baseball is largely a regional game, and having a regional base of fans that is easily able to access and enjoy your sport is critical to the long, long-term health of MLB. I just hope everyone is on the same page in this deal, and is perhaps willing to be a little penny foolish in service of being pound wise.