Amazon and YouTube could bid on the Fox RSNs

Amazon’s Jeff Bezos and
Google’s Larry Page might be in the bidding for regional
sports.
AP

• More than 50% of the regional-sports TV market will be
  up for sale soon.
• The pending sale has reportedly drawn interest from a
  broad group of buyers, including Amazon and YouTube.
• This would be a major change in strategy for Amazon and
  YouTube, but the RSNs are highly attractive assets.
• Analysts say not to bet against the tech
  giants.

Twenty-two regional sports networks are expected to come up for
sale soon, and the very companies leading the cord-cutting
revolution could end up bidding for these linear-television
networks.

It’s all part of Disney’s deal to buy assets from
21st Century Fox. The US Department of Justice approved
Disney’s proposed purchase with one big condition: that
Disney sell the regional sports networks that Fox owns to
avoid anticompetitive conflicts, given its majority ownership of
ESPN.

The size of the RSNs coming to market has attracted broad
interest from buyers. Fox has 22 networks and analysts have
predicted they could draw as much as $20 billion in value. While
traditional broadcasters like Sinclair are among the parties
interested in purchasing the RSNs, Amazon and Youtube have also
expressed interest, according to Bloomberg.

These two tech companies are seemingly unlikely players in the
regional media buyer space.

“This new territory for everyone,” Lee Berke, CEO of LHB Sports,
Entertainment & Media, Inc., told Business Insider. “These
are distribution platforms and businesses that weren’t in
existence two or three years ago.”

Why would tech companies want these assets?

Amazon and YouTube have streaming (“OTT”) platforms with national
distribution strategies. A move to buy these RSNs would signal a
change in business strategy and and first foray into regional
sports rights on a large scale, according to sports-media
analysts who spoke with Business Insider.

So why would tech companies want these assets?

The answer, in part, may lie in the sheer size of the assets
coming to market. These are 22 networks that have the broadcasting rights for 44
professional sports teams in the National Basketball
Association, Major League Baseball, and National Hockey League.
The networks offer local-sports broadcasting for teams like the
Cleveland Cavaliers and the New York Yankees.

Fox owns over 50% of the market. The next biggest owner of RSNs
is Comcast, which has seven RSNs representing 16 teams, followed
by AT&T with four RSNs and eight teams. Even though these
assets broadcast regional programming, owning the entire block is
akin to having a national presence in regional sports.

The volume of games played in these leagues also make the
regional networks attractive. MLB teams, for example, play 162
games per year, meaning near-daily games during the season.

Linear broadcasting wouldn’t change much to begin with

A tech company buying these assets wouldn’t change much from a
viewing perspective. The RSNs are self-sustaining businesses and
could effectively run on their own. The RSNs already have
contract rights in place for both linear and digital distribution
of their programming.

For example, the Yes
Network — home to New York Yankees and Brooklyn Nets coverage —
has existing contracts in place to stream on platforms like
Hulu, Sling TV, and DirecTV.

Each RSN has its own set
of distribution deals and distribution contracts typically have
an average span of three to five years, according to Berke. If a
technology company with an OTT service bought an RSN network
tomorrow, it would be able to offer the network on the service
right away. But it wouldn’t have exclusive rights to air the
programming until contracts expired. 

So while tech companies like Amazon and YouTube likely see an
opportunity to distribute exclusive sports rights on their own
OTT platform in the
future, the programming would still have linear-TV distribution
in the near term.

In fact, Amazon or Google buying these RSNs may signal
acknowledgement that linear TV isn’t dead. There are still
significant numbers of pay-TV subscribers. At the end of 2017,
94 million subscribers paid
for traditional TV.

“It’s almost like going backwards in time a little bit,” Daniel
Cohen, senior vice president at Octagon, told Business Insider.
“We see more and more viewers cutting the cord, buying these a la
carte digital products and services … now they are almost going
backward and saying linear broadcasting, if they bid, is going to
be important to us.”

One short-term challenge for the two tech players would be the
regional advertisements that go with regional linear
programming. 

“They are not in the business of really selling regional ads
against live sporting rights yet, and I think that is going to be
one of the major hurdles for them,” Cohen said. “If they make a
play for this I think ramping up on a regional sales side would
be critical.”

And there’s an OTT opportunity in the future

While going regional would be a shift in strategy for Amazon or
YouTube, the companies already have the technology to regionalize
digital streaming content.

“I’ve been in negotiations with various vMVPDs (Virtual
Multichannel Video Programming Distributors, or TV delivered over
the internet) … they can geofence content on a zip code to zip
code basis,” Berke said. “In certain respects that is more fine
tuned than with pay television.”

YouTube has already begun to strike a few regional-sports deals.
It has exclusive rights to Major League
Soccer’s Seattle Sounders FC and Los Angeles FC regional
games.

While Amazon to date has not offered up regional content within
the US, it regionalizes on a continental basis. Amazon has
exclusive rights to air US Open Tennis in the UK and exclusive
rights to air some Premier League soccer games in the UK. If
Amazon acquired an RSN, it would be “extremely feasible” for the
company to regionalize content in the US, according to Berke.

And owning sports rights could help with the problem
that one in five Amazon
subscribers doesn’t know they have access to
streaming videos through Prime Video.

It’s unclear if Amazon
and YouTube will bid on regional networks where their OTT
services don’t immediately own exclusive rights to programming.
Still, you can never count out the ability for these tech giants
to outbid the competition.

“From a bidding-power perspective, they are in the best position
to make any transaction they wish,” Cohen said.