Why the Clock Is Running Out on Big Media Companies

The Wall Street Journal

Live sports remain the sole reason legacy media companies haven’t lost many more customers than they already have, but that could change as tech companies enter the bidding war for sports broadcasting rights

Disney’s ESPN+ sports streaming service features a mix of professional and college sports, including some National Basketball Association games, for $4.99 a month. Here, Joel Embiid of the Philadelphia 76ers fights for a tipoff in a recent game. PHOTO: COREY PERRINE/GETTY IMAGESByElizabeth Winkler

April 26, 2019 11:00 a.m. ET

Why is anyone still paying for cable?

As consumers cut the cord in favor of Netflix and Hulu, and legacy media companies launch streaming platforms of their own, the main reason to stick with cable is sports. Live sports are maintaining viewer numbers, for the most part, and supporting the $70 billion TV ad industry in the process. When 21st Century Fox sold off its film and TV studios, it bet that a smaller Fox, stripped down to news and sports, would be more competitive in the new media world.

Yet while sports-viewing has managed to remain largely insulated from this disruption, that may not last much longer. New platforms are already eyeing this trophy. Hulu now offers “Hulu with Live TV,” a premium subscription for $40 a month that couples TV offerings with Hulu’s library of films and TV shows. It includes feeds of the five major broadcast networks, along with a host of cable channels, allowing viewers to stream sports live. Fundamentally, though, this is just a digital version of the broadcast bundle.

Meanwhile, Disney DIS -0.44% has launched ESPN+, a streaming service that features a mix of professional and college sports for $4.99 a month. The offerings are somewhat haphazard—niche sports like rugby and cricket, a smattering of random National Basketball Association games and the Ultimate Fighting Championship. If you are, say, a diehard New York Yankees or Golden State Warriors fan, it doesn’t quite have you covered. For the core ESPN cable channel, not to mention local affiliates that carry games not being televised nationally, many viewers still need to watch the old-fashioned way.

A traditional bundle of channels can cost somewhere around $40 to $50 monthly on the low end, and as much as $90 to $100 on the higher end. For nonsports fans, meanwhile, the launch of sports-free streaming platforms has devalued the old bundle. At Hulu, the nonsports option costs only $5.99 a month. Netflix is now $13 a month, and Disney’s new streaming platform, Disney+, will launch at $6.99 a month. The reason for the disparity is that sports represent some of the most expensive, though not always the most-watched, content for a cable operator. ESPN might cost five times as much as a home-improvement channel, but cable operators face angry subscribers if a contract dispute threatens to leave them listening to the big game on the radio.

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“Sports is holding up the entire ecosystem,” says Rich Greenfield, a media analyst at BTIG Research. “I call it the Jenga game: Pull out the sports block and the entire system collapses.”

The question is: Who is going to pull the block?

The first real indicator will come in 2020 when rights to the National Football League’s Sunday night games come up for bidding. They could stay with legacy media like Comcast’s NBCUniversal unit, or they could go—fully or partially—to digital. That contest will give consumers a sense both of the tech industry’s appetite to invest in sports and sports leagues’ appetite to sell to big tech. Other rights, for instance to Major League Baseball and National Hockey League games, will become available in 2021 and 2022, respectively.

Tech companies, including Facebook , FB 1.72% Amazon, Twitter TWTR 2.87% and Alphabet’s YouTube, already have been scooping up nonexclusive rights to some games, rebroadcasting what consumers can also watch on TV.

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Owning exclusive rights makes a certain industrial sense for tech companies with large subscription businesses. With its deep pockets and base of Prime members, Amazon is an obvious contender. So is Apple , AAPL 0.15%which is eager for any business that helps it sell more iPhones. It already has signaled its interest in entertainment by signing on A-list celebrities to star in original content. A leap to sports could be the next step. Netflix, meanwhile, has insisted the company isn’t interested in sports. As domestic growth opportunities narrow, that may change—“there’s never a never with Netflix,” chief content officer Ted Sarandos has said.

Sports rights in North America are projected to be worth $20.9 billion in total in 2019, according to a study by PwC. New bidders for sports rights will drive their value up even further. (PwC projects $23.8 billion in 2022.) That could pose a challenge for legacy media companies that already are struggling.

The Jenga tower is already wobbling when it comes to sports. It is only a matter of time before it falls and legacy media companies see an even larger viewer exodus.

Write to Elizabeth Winkler at elizabeth.winkler@wsj.com