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On the future of broadcast rights distribution

What can other teams learn from the success of the YES App?

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Comcast and YES Network duke it out Photo by Richard Levine/Corbis via Getty Images

Earlier this week, United States Bankruptcy Judge Christopher M. Lopez ruled that Diamond Sports Group (DSG) — a subsidiary of Sinclair Broadcast Group and operator of the Bally Sports network of regional sports networks (RSNs) — is required to pay the full value of their TV contracts with the Rangers, Twins, Guardians, and Diamondbacks. All four teams sold their broadcasting rights to Bally Sports, yet were at risk of missing out on those payments due to DSG’s bankruptcy filing.

If you’ve been following the bankruptcy developments, you’ll know that these have been particularly heated hearings that will have a fundamental impact on the future of sports broadcast distribution. In February, DSG skipped out on a $140 million interest-only debt payment, setting the ball in motion for Chapter 11 restructuring. But given that broadcasting games represents the core of DSG’s business model, they have fought tooth and nail to retain the distribution rights that Bally purchased from the 14 teams that the group broadcasts. While missing a rights payment to the Padres results in media rights returning to the team (who will receive up to 80 percent of current and future missed rights payments from MLB’s central fund), it remains to be seen whether DSG will honor their remaining contracts or walk away from additional commitments to broadcast games.

As the current demographic of baseball fans ages out, newer, younger sets of eyes must be attracted to replace them. It’s no secret that more recent generations are already moving away from the cable subscription model, cutting the cord in favor of a buffet of exclusive direct-to-consumer (DTC) streaming platforms. Knowing this, perhaps the best way to capture the interest of this group of consumers is to mirror the framework of existing successful streaming platforms — HBO Max, Disney+, and Paramount+ chief among them.

So where do the Yankees and the YES Network play into all of this? I would argue that the successful roll-out of the YES App serves as prototype for what a DTC product could look like from MLB and its teams. As far as I’m aware, the YES App is one of if not the only service that allows you to digitally stream games while in-market — many RSNs bake in exclusive language to their deals with cable stations that prohibit in-market streaming of games (cable providers want to force subscription to a package for access to games).

YES’ current streaming agreement is still an imperfect model — the YES App is only available to those located within YES’ regional coverage territory and therefore does not avoid the blackout issues plaguing the vast majority of the country that does not reside in that region. For what it’s worth, Rob Manfred has identified blackouts as the next big hurdle for MLB to clear, and offered a glimpse at a multiplatform model involving cable, satellite, DTC and more that would allow fans to purchase digital access to in-market, out-of-market, single team, and league wide coverage from a centrally-based, MLB-operated marketplace

It must be said that the Yankees are in a bit of an advantaged position relative to the majority of the league — they are one of five franchises that owns or controls its own RSN alongside the Red Sox, Mets, Cubs, and Dodgers. However, perhaps these five teams, and the Yankees in particular, could serve as models to the rest of the league for how to transition from an RSN model to a DTC streaming model.

A major hitch in all this is that, with the exception of Netflix, essentially every streaming service has been a losing proposition for the companies that operate them. Disney, Paramount, and others are losing millions of dollars as subscriber counts lag behind the costs associated with distributing the content available on their respective platforms. However, this should not pose an issue to a prospective DTC model in MLB, as either the league or the teams themselves would be responsible for producing and distributing their games, completely circumventing the need of an RSN to purchase the right to content from a club (the equivalent of a streaming service purchasing content for their platform).

However, this creates another significant hurdle for MLB — without a middleman company like DSG to sell media rights to, teams would miss out on a significant source of revenue, on the magnitude of tens of millions per year. In essence, by cutting the RSNs out and selling directly to the station/cable provider or broadcasting DTC via a streaming service, teams may see upwards of a 20 percent decline in revenue relative to the current setup. Looking around the current streaming landscape, teams likely would not make up that lost money in subscriptions to a DTC streaming service.

All of this is to say, with cord-cutting and the resultant erosion of the RSN model, MLB is facing an existential crisis not only from an economic standpoint, but from an audience reach standpoint as well. Like it or not, a DTC streaming platform model represents the future of the media distribution landscape, and that future is coming sooner rather than later. If MLB truly is as concerned about growing its audience as they project, they would do well to take a page out of the Yankees’ and YES’ book.