The higher costs of acquiring rights to professional sports games is driving up affiliate fees, especially at national sports networks owned by the leagues themselves, which are expected to boost charges to distributors by nearly 24% this year, according to a report by research firm SNL Kagan.
According to Kagan, average monthly affiliate fees for networks owned by pro leagues — like the NFL Network and MLB Network — rose to 47 cents per subscriber per month in 2013 from 38 cents in 2012, a 23.7% increase. The average fee for the league-owned nets is up about 35% from 2011, when the average monthly charge was about 35 cents per subscriber per month.
Driving that increase are the skyrocketing costs for rights to games. According to Kagan, the addition of five additional Thursday night games and pre- and postgame programming lifted NFL Network’s programming expenses 114% in 2013 compared to 2011. As a result, the channel, which struggled to gain carriage with cable operators in its early years in part because of its high affiliate fees, reported a negative cash-flow margin of 38% in 2012. That deficit is expected to be reversed in 2013 when a more than 40% hike in affiliate fees to $1.34 per subscriber per month should push its cash-flow margins into positive territory (6.1%), Kagan said.
In a 91-page report in February on sports programming fees, RBC Capital Markets media analyst David Bank pointed out the high cost of National Football League programming — he wrote that rights fees paid to the NFL accounted for 36% ($4.35 billion) of all sports rights expenses in 2012. And Bank estimated that annual rights fees for the NFL will grow 50% on average from the current deal to newly signed agreements at CBS, Fox, NBC and ESPN, which suggests that costs could only go higher.
That doesn’t necessarily mean that the NFL Network will follow suit, though.
Bank noted in his report that NFL Network could dial back affiliate fees — and make itself more attractive to distributors — by selling some of its Thursday-night games to a third-party network.
“Looking forward, we think it would be conceivable for the NFL to sell a portion of the 13-game package it aired in 2012, allowing it to monetize the games through expensive rights fees, while also maintaining some high-value, must-have live sports content to allow it to drive affiliate fees at the NFL Network,” Bank wrote.
Compared with their pro counterparts, college sports networks are operating at bargain-basement prices. According to Kagan, top college sports cable channels on average charge about 29 cents per subscriber per month, up just a penny from the prior year. Topping the affiliate fee list is Fox College Sports, which charges about 41 cents per subscriber per month, according to Kagan estimates. That is up 5% from the 39 cents it charged in 2012, but the network also resides near the cellar in total carriage, carried in only 48.5 million homes, according to Kagan. The mostcarried college sports network — Big Ten Network, which is available in about 52.5 million homes — is next on the fee list, charging distributors about 37 cents per subscriber per month (a composite of the fees charged to providers within and outside of the league’s territory), the same rate it charged in 2012.
While the college networks may be raking in less money from distribution charges, they are more profitable. According to Kagan, the top college channels — BTN, CBS Sports Network, ESPNU and Fox College Sports — enjoyed cash-flow margins ranging from 33% to nearly 40% in 2012. Those numbers are expected to get even better in 2013 to between 34% and 44%, with ESPNU topping that list for the second straight year.
According to Kagan, additional carriage and higher fees are expected to help those numbers along. The research firm estimates that CBS Sports will add about 4.4 million subscribers in 2013 and raise affiliate fees about 4% to 24 cents per subscriber per month, which should result in a 12.4% hike in affiliate revenue for the year.
League-owned national sports networks are expected to boost their license fees by almost 24% this year, per research firm SNL Kagan.