Moody’s: NBA Deal Locks Up Rights, But At High Cost - Multichannel

Moody’s: NBA Deal Locks Up Rights, But At High Cost

Says Deal Could Lead to Sub Losses, Higher Fees
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Credit rating agency Moody’s Investors Service believes the recent $24 billion, nine-year National Basketball Association rights deal reached by ESPN and Turner Broadcasting System will secure sports programming for the content companies for the long term, but includes digital rights that could lead to subscriber losses for some multichannel video programming distributors.

The Turner-ESPN deal came at a high price – more than double the cost of its current agreement, according to Moody’s estimates. But it removes any uncertainty regarding the ability to carry the lucrative sports programming well into the next decade and other aspects of the deal – including digital rights for NBA programming on the Internet – gives ESPN and Turner more leverage in negotiations with distributors. The deal will likely cause affiliate fees to rise over the next few years as distribution deals come up for renewal, given the must-have nature of the content, Moody's wrote. Turner, which is currently in the middle of its renewal cycle – as evidenced by its current spat with Dish Network – could be the first to reap the affiliate fee benefit of the deal.

Traditional television remains the preferred way to watch video programming of all kinds, Moody’s says.

One aspect of the deal – ESPN’s decision to partner with the league to develop the framework for an OTT channel -- has “more to do with maintaining a grip on premium content and keeping potential disruptors at bay than altering the business structure,” adding that an OTT channel could help protect the ESPN brand against potential competition like Google and Apple. But it also could have a negative effect on MVPDs, as less than full OTT offerings or OTT a-la-carte bundles will likely lead subscribers to tailor their services to their viewing preferences. As a result, networks and traditional multi-channel video programming distributors will see subscriber migration to the Internet, with satellite providers being particularly vulnerable.

“ESPN’s decision to partner with the NBA to develop a framework for negotiating the launch of a standalone Internet channel for NBA games has more to do with maintaining its grip on premium content and fending off potential disruptors than altering its business structure,” said Moody’s senior vice president Neil Begley in a statement. “It will also give the company flexibility to cover new territory and broaden its audience reach, though ultimately we think the games that attract the largest audiences will be reserved for subscribers to its cable and satellite TV bundles.”

ABC/ESPN, owned by The Walt Disney Company, and Turner Broadcasting System, Inc., owned by Time Warner Inc., have extended their contracts with the NBA for nine years through the 2024-25 basketball season. The current eight-year agreements expire at the end of the 2015-16 season.

“We estimate that under the new agreements, Disney and Time Warner will pay more than double the fees for the US rights to one of the most popular sports leagues in the world,”  Begley s aid in a statement. “The high price tag reflects the rising value of live sports content, the ultimate must-have reality programming that is seldom time-shifted, isn’t able to be replicated and continues to attract huge audiences and lucrative advertising.”