Monday, October 6, 2014
The N.B.A.’s new deals with ESPN and Turner Sports, which are worth $24 billion over nine years, provide the two media giants with the sort of sweeteners that are common in sports television contracts: more games, more highlights and more video to enhance their studio shows, as well as new programming like a postseason awards show on TNT.
But ESPN got something else with a spin to sports viewing of the future: the right to stream games to fans in a new “over-the-top” service on the web, which would not require a pay television subscription with a cable, satellite or telephone company. It is a way to reach customers who have cut the cord — meaning they have eliminated their pay TV providers — and those who have never had a subscription.
Adam Silver, the N.B.A. commissioner, acknowledged that the arrangement was intended to cover new terrain, saying in a news conference Monday that “there is a millennial consumer out there who has a different approach to the traditional cable or satellite package.”
League and ESPN executives say that the broadband service is intended to supplement ESPN’s and TNT’s offerings with out-of-market games and other programming, perhaps from other sports leagues.
Jim Nail, an analyst at Forrester Research, said the streaming provision could augur further efforts to adapt to consumers’ evolving viewing habits. “This is the first crack in the structure of the television business that has been in place for decades,” he said. “Further, it sets the stage for more cord-cutting because, up to this point, sports fans couldn’t really get their fix without pay TV.”
The league will have an ownership stake in the service.
Digital rights, including the over-the-top service, have become an increasingly important part of the occasionally fractious negotiations between networks and pay-TV providers. During last year’s dispute over retransmission fees that left millions of Time Warner Cable subscribers without CBS stations in New York, Los Angeles and Dallas, a separate issue was CBS’s fight, which was ultimately successful, to retain its digital rights to sell its content to web-based distributors like Netflix and Amazon.
The new N.B.A. deals are filled with digital rights, like streaming games on TNT’s and ESPN’s existing platforms, and increased content for Bleacher Report, a website that Turner acquired in 2012.
ESPN, the most expensive cable network, knows that its future needs to include both traditional and innovative programming. Its networks are critical to the bundle of channels that its parent, the Walt Disney Company, sells to cable, satellite and telephone companies. That bundle has become increasingly pricey as the costs of sports rights have soared.
So if people are fleeing to other viewing platforms because of the rising cost of their cable bills, then ESPN wants to follow them onto their mobile phones and tablets.
“We have to find a balance,” John Skipper, the president of ESPN, said by telephone after the news conference. “We have to look at populations that aren’t in the pay television system and figure out how to reach those people.” Within Disney, he added, “You have to adopt new technologies and look at new models.”
The new service could be sold directly to consumers or through a mobile distributor.
The renewals with ESPN and TNT, which go into effect in 2016, represent the first television deal done by Silver since he became commissioner this year. The deals will bring an average of $2.66 billion to the league each season, up from the average $930 million it will receive for the final two years of the current deal.
The increased media revenue will fuel salaries, raise the salary cap and almost certainly push up consumer’s cable bills.
For owners, the new deals symbolize the increased value of their franchises and could lead to profits for teams that had been losing money.
Expectation of the payoff provided a rationale for the sale of the Milwaukee Bucks at $550 million and the Los Angeles Clippers at $2 billion. Ted Leonsis, the owner of the Washington Wizards and head of the league’s media committee, said, “There’s never been a better time to be an owner of an N.B.A. franchise or frankly any professional sports team.”
The league could have taken a chance on getting even more money by opening up the bidding to NBC and Fox next spring after ESPN and TNT’s exclusive negotiating periods ended. Silver instead chose to strike a deal with ESPN and TNT two years before their current deals expire, and on Monday he defended that decision, saying “we’re confident that we maximized what our opportunity was in the marketplace.”
ESPN and TNT, for their part, did not want to let their contracts enter the open market and were willing to pay what was necessary to retain their rights.
For ESPN, the league is one part of a vast portfolio of sports. Turner Sports’ collection is small: the N.B.A., Major League Baseball, the N.C.A.A. men’s basketball tournament and the P.G.A. Grand Slam of Golf.
Despite the high cost of the deal, David Levy, the president of Turner Broadcasting, said, “It will be meaningfully valuable to our company at the end of this deal and we’ll have a strong R.O.I.” — return on investment — “when the end of this deal happens.” Nine of the top-rated programs on TNT, he said, have been N.B.A. games.
For its enhanced investment, TNT will receive 12 more regular-season games, bringing its total to 64. ESPN and ABC will add 10 games, bringing their regular-season total to 100. ESPN will carry N.B.A. Development League games and has renewed its commitment to the W.N.B.A. through 2025.
With the completion of these deals, the rights to almost every major professional sports league and college conference are tied up into the next decade except for the Big Ten Conference. Its $1 billion deal with ESPN ends after the 2016-17 academic year. ESPN would like to keep it, too, without letting bidding reach the open market.
