A Drop in Mortgage Rates Could Substantially Impact Sports Streaming Consumption

A Drop in Mortgage Rates Could Substantially Impact Sports Streaming Consumption

It is widely believed that the Federal Reserve Board will cut its benchmark interest rate at the Federal Open Market Committee (FOMC) meeting on Wednesday September 18. 

Should that occur, the expectation is mortgage rates, which have risen substantially in recent years, will decline soon thereafter. The average homebuyers’ 30-year mortgage rate rose from 2.65% in January of 2021 to as high as 8.1% in October of 2023. 

It has hovered around 7% for much of 2024 and was 6.2% as of September 13th.

Housing market activity has moved (pun intended) in harmony with interest rates. As the latter increased, the number of houses sold decreased.

That trend should reverse if mortgage rates decline as expected. And if houses start selling again, there is reason to believe it will have a substantial impact on rights holder and rights owner revenues. 

MIT Sloan School of Management senior lecturer Ben Shields and former ESPN and F1 senior executive Sean R.H. Bratches examined ESPN’s efforts to traverse a rapidly shrinking pay TV landscape and manage the ongoing shift in B2B multichannel video programming distribution (MVPD) strategy in the case study ‘ESPN Navigates a New World Order’. 

The pair identified a noteworthy trend in the process.

Fans tend to make the switch from cable/satellite to streaming when relocating.

“Historically, American consumers reevaluated their media, entertainment, and internet choices during this time of transition,” Shields and Bratches wrote. “Based on precedent, it [is] reasonable to predict that traditional pay TV might fall even more precipitously once the housing [market] eventually [gets going again].”

Both parts of that statement warrant further consideration given the critical role media rights play in big four league economics. The first sentence speaks to the importance of industry stakeholders monitoring movement in mortgage rates and the broader housing economy. 

BroadBand Now research indicates that ‘moving’ is the second greatest motivator, behind only price, for adding or switching cable, satellite, or streaming providers. 

Traditional cable operators are the most likely to be negatively impacted by relocation. Broadband Now reported people moving into new service areas often do not replace subscribers who left. 

That finding is directly correlated to the second part of Shields and Bratches’ comment. Legacy media companies, which have historically relied on pay TV or retransmission fees, are struggling to replace the lost economics (and in most cases, streaming is not yet profitable). 

“They [are] trying to extract as much value out of their linear television businesses while also positioning themselves for the inevitable streaming environment,” Shields and Bratches said. But “striking this balance [has] not [been] easy.” 

Some attempts have been more successful than others. 

It’s conceivable that ESPN could have content available digitally via ESPN+, Venu Sports, as part of the Disney Bundle, and/or a flagship DTC offering before the end of 2025.  

But even still, viewership of sports content on streaming platforms remains relatively small.

And subscriber growth has slowed for many. In fact, ESPN+ lost 300,000 subscribers YoY (as of the end of fiscal Q3 ’24).

Yet, this data may not be fully reflective of the market opportunity–in part, because of the lack of housing movement.

It’s conceivable that streaming subscriber counts accelerate in Q4 ’24 and into 2025 as people increasingly relocate and need to make decisions on their entertainment options.

A notable increase in sub volume would come at an opportune time for streamers increasingly reliant on price increases and growing advertiser demand to close in on profitability.

It’s worth noting ESPN+ was able to command an increase in revenue per subscriber in Q3 2024 (even as its total number of subscribers dipped), and that Amazon will generate $4.7 billion in OTT ad revenues this year (11.2% of the company’s total advertising business).

Those data points are not meant to suggest a streaming service will be able to replace the lost economics of the pay TV bundle, certainly not in the short-term. However, they do reflect positive trends and provide hope that rights holders will be able to sustain growing media rights fee obligations.

It’s not certain properties further down the value chain will financially benefit from a seismic shift in streaming consumption. Most will likely need to come up with alternative ways to drive revenue to avoid a dip in valuations (and athlete salaries), especially in the short or medium-term. 

One way emerging and challenger sports may be able to help fill the gap is to establish an inversion of the traditional sports partnership model. Generally speaking, companies pay sports properties and rights holders to help them with strategic activations designed to reach the target consumer. 

If sports properties and rights holders wisely anticipate a robust housing market, they can proactively pursue partnerships with residential real estate platforms (e.g., Redfin) and/or brokerages (e.g., Compass) that would value interactions with fans before, during, and after their impending moves.

In theory, those pacts would help to facilitate new digital subs that further provide pricing power and drive advertiser interest.

Virtually every sports property is considering the implications of increasingly moving live game inventory to streaming platforms. They should be accounting for how a reduction in mortgage rates could alter digital consumption, streaming economics, and legacy providers’ ability to meet growing rights fee obligations.

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