MLB Wisely Advising Clubs to Remain in Pay TV Bundle, Add DTC Option

MLB Wisely Advising Clubs to Remain in Pay TV Bundle, Add DTC Option

Diamond Sports Group’s bankruptcy case appears to be nearing a conclusion after more than 18 months. The regional sports broadcaster recently disclosed plans to shed 11 of the 12 MLB team contracts held this past season as part of its reorg (including four that expired).

Those clubs must now renegotiate terms with DSG or find an alternative local distribution solution for 2025 and beyond (note: Diamond remains contractually obligated to five, more on that below). 

The latter does not necessarily mean a hard pivot from the established pay TV ecosystem. In fact, baseball, appears to be advising its clubs to remain in the cable bundle.

While counter to the media narrative, it has become directionally obvious that guaranteed affiliate fee economics are the surest way to preserve local media revenues–even if the team’s new channel gets tiered and/or commands a lower sub fee than budget for (and after accounting for the macro decline in distribution).

MLB would like to see its clubs supplement local cable television distribution with a direct-to-consumer streaming option (and perhaps a small number of OTA games). The league views that combination as the best approach to maximize reach and revenue.

Most organizations look to be taking the direction.

It was recently announced that MLB will handle production and distribution for the Cleveland Guardians, Milwaukee Brewers, and Minnesota Twins moving forward. The league has managed both for the Arizona Diamondbacks, San Diego Padres, and Colorado Rockies the last two years.

In addition to those six clubs, the Chicago White Sox (Chicago Sports Network) and Texas Rangers have partnered on or are considering starting their own RSN projects. 

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DSG will retain the Atlanta Braves’ existing contract. It reportedly hopes to come to revised terms with the Detroit Tigers and Tampa Bay Rays too. 

And the company has contracts in place, as part of joint venture arrangements, with five others; none of which are included in the bankruptcy process (Cincinnati Reds, Kansas City Royals, Los Angeles Angels, Miami Marlins, and St. Louis Cardinals). So, unless there is a renegotiation, Diamond will remain obligated to pay those teams and handle production and distribution for their games.

“Everybody keeps talking about how DSG isn’t going to have any baseball teams. But my guess is that they do,” media consultant Patrick Crakes said. 

Contracts aside, Diamond needs the load MLB delivers. Baseball has been the lifeblood of the regional sports network model for decades with a 162-game season that runs from April to October. 

And baseball game viewership on RSNs tends to be significantly higher than the other sports (think: basketball, hockey).

MLB games rated first locally, amongst all cable networks, in 20 of 25 Nielsen rated markets this season.  

Of course, clubs willing to remain with DSG must be convinced the RSN operator is going to emerge from bankruptcy and have some semblance of longevity once it does. 

To date, that hasn’t been a foregone conclusion. In fact, all four MLB club with contracts expiring at the end of the ’24 season chose not to renew.

Those leaving DSG, and every club in the future, will have to decide how to distribute games locally. They’ll have several different options (think: broadcast only, broadcast+streaming, cable+streaming, cable+streaming+OTA, streaming only). 

It’s possible that, in time, examples of each ‘working’ will emerge. But for now, baseball teams seem to be wisely sticking with the established cable model.

“If a club is looking at its P&L, and it has budgeted X for rights, and wants to get the biggest revenue stream it can while enabling some options for the future, figuring out a way to work with its pay TV distributor is the first option it should consider,” Crakes said.

The six clubs that have retaken control of local production and distribution have (or will) introduce streaming products for fans in-market without a pay TV subscription. While priced cooperatively to protect the cable bundle, the offerings can still add meaningful viewership to a team’s linear reach.

For context, commissioner Rob Manfred said in July that the Padres’ online streaming service was approaching 40,000 subscribers.  

The alternative to remaining on a cable channel (and offering a supplemental DTC option) is to make the move to broadcast with a station group partner, or wait for streaming to take off and go all-in. 

As it stands, neither is a great option. 

If any team’s streaming partner sold enough subs to offset an RSN’s rights fee (in any sport), it would be shouting that news from the rooftops.

And while pivoting from cable to broadcast will likely increase eyeballs on the product, the narrative that a property will ‘reach everybody’ by making the move is simply wrong.

“The strong majority of the viewing across all broadcast stations comes from within the pay TV bundle, even though there is a free signal going out,” Crakes said.

It’s hard to imagine a nominal lift converting into enough additional ticketing or advertising revenue to offset the affiliate fee economics that come with the established system.

Non-network-based broadcast stations are considered to be inside of the pay TV bundle. But their economics are different from cable channels making it tough for station groups to match the guaranteed rights fees paid by the RSNs.

Proponents of the OTA strategy believe that the station groups will eventually be able to command broadcast retransmission dollars from distributors. The promise of those fees, combined with increased advertising and DTC streaming revenues, is supposed to get teams comfortable with local media revenues again.

However, retransmission fees are not guaranteed.

“It's complicated because negotiations are done at the local station level in every market," Crakes said, and network affiliated broadcast channels are worth a lot more than the ones that aren't; even if they're owned by Gray or Sinclair.”

And even if those per sub fees do eventually come to fruition, it’s bound to take a while. 

So, generally speaking, teams prioritizing local revenues should remain inside the bundle for the short-term. There may be select markets where broadcast is advantageous (think: club who was not earning a lot in local rights fees to begin with).

Longer term the league, its teams, and distributors will need to find a way to evolve streaming distribution so not to abandon the profits still available in pay TV. Collective cooperation with distributors is one way to lower DTC pricing for local game broadcasts while maintaining access to the established bundle. That approach could eventually help rights owners recapture lost revenues via the creation of a new kind of fan bundle.

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