Astros, Rockets Decision to Launch Rebranded RSN Runs Counter to Recent Pay TV Exits

Astros, Rockets Decision to Launch Rebranded RSN Runs Counter to Recent Pay TV Exits

Teams across the pro sports landscape are pivoting from a regional sports network model that has dominated local distribution for the last three decades to various ‘stream and beam’ focused strategies.

The Houston Astros and Houston Rockets are not amongst them. The two Texas-based clubs acquired their local home, AT&T SportsNet Southwest, from Warner Bros. Discovery in late September and relaunched the channel as Space City Home Network in early October. The teams plan to continue broadcasting their ’ non-nationally televised games inside of the Pay TV bundle.

The Astros and Rockets acknowledge that they aren’t certain remaining on a regional sports network is the most lucrative path forward. But they are content to be patient, maintain broad cable distribution in the Houston market (i.e., the RSN is not on a sports tier), and let the rapidly evolving media landscape play out before settling on a long-term distribution strategy.

“We had an opportunity to maintain a well-run operated network, that had big reach in our market, and to focus on [improving the] core business…and not the what ifs [of alternative channels],” Gretchen Sheirr (president, business operations, Houston Rockets) said. “We can monitor those along the way and now, in partnership with the Astros, pivot and make adjustments through this RSN model as other opportunities become available that might make sense; whether that is through revenue or incremental reach.”

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Some of the teams who have exited the RSN business were forced to find a new local distribution strategy. Others were worried about the prospect of shrinking economics and reach inside the Pay TV bundle and sought a new path.

But in all cases, the future remains uncertain. The Rockets and Astros felt it was best to stick with a known –if declining– entity, in cable television, rather than to gamble on an unknown one, like bunny ears or streaming adoption.

“We have pretty good coverage here and have for a while,” Sheirr said. “That’s not guaranteed through other options.”

Remember, ~90% of OTA network viewing comes from inside the Pay TV bundle.

“You think you’re going to get the [increased] transmission, but you have the same cord cutting, the same challenge,” Sheirr said. “We feel pretty good that [the RSN] is going to give us the broadest distribution and put us in the best position [economically] moving forward.”

Teams making the move to broadcast do not know how much retransmission revenue they will be able to command from distributors, if any. It is, however, widely understood the income stream will be necessary to keep media revenues flat/rising.

The Rockets and Astros chose to buy the RSN from WBD because they valued the certainty that comes along with it. While the business’ economics are not the same as they were when it launched as a JV with Comcast in 2013, its network affiliate agreements are said to remain in a ‘strong position’ and the fees anticipated in the years ahead were seen as worth preserving.

The clubs would not disclose how much time remains on those affiliate deals; however, both said it would be fair to assume the bulk of their team’s games would still be airing on the regional sports network come 2030.

The Texas based teams also wanted to be sure they would control their own destiny once Warner Bros. Discovery announced plans to unload the cable channel back in the Spring (it was sold from AT&T to WBD in ‘21).

“We’ve always felt that our media rights have long-term value and [that] owning those media rights rather than having a media group, private equity, or [an unknown], is ideal,” Giles Kibbe (SVP, general counsel, Houston Astros) said.

So, when presented with opportunity for a clean transition (think: staff, operational infrastructure) they took it. Recognition there would likely be additional changes coming to the media ecosystem in the years ahead made the decision easier.

“We have the opportunity to do full due diligence on what these new [distribution] technologies are [and what is working],” Sheirr said. “We [didn’t] have to rush into a knee jerk option because we have [these existing distribution agreements] in place.”

The Astros and Rockets will look to improve the regional sports network’s business while figuring out their long-term plans for local distribution. Initially, any incremental dollars generated are likely come from sponsorship or advertising pacts. The clubs have access to different resources than WBD did (think: venues, golf events) and synergies between the leagues could spur new opportunities.

“We’re also going to be looking at other avenues [of expanding reach, monetizing local rights,] and becoming more efficient in operating,” Kibbe said.

One of those avenues could be a DTC service.

While Space City Home Network resides on a basic/basic+ cable tier –and the teams intend to keep it there– the channel only reaches ~60% of all TV households in the Houston DMA (the team’s full regional market is broader, though Space City is not guaranteed to be in the bundle in states like Louisiana or Arkansas). An over-the-top solution would enable BBO homes in the market to watch games.

The teams, however, said not to expect an OTT solution in the next 12 months. They want to gain some more clarity on the business before making the decision to enter it.

Of course, the Astros and Rockets will have to work cooperatively with their affiliates when the time comes to expand coverage. Those distribution agreements keep the business’ lights on.

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