Moody’s report predicts challenging times for sports channels

Add Moody’s Investors Service to the list of analysts predicting tough times ahead for sports channels.

In a recent report, Moody’s offers a particularly negative assessment of pay-TV channels, suggesting that the cable bundle will wither away at some point in the not-so-distant future. The service warns that distributors and TV channels need to reach a “grand bargain” to keep the business afloat.

“However, we do not expect that leadership or consensus to materialize easily if at all, so disruption and headline risk will continue to be the default environment for big media,” writes Moody’s Senior Vice President Neil Begley in the report.

All pay-TV channels will be affected, but it’s sports channels — which have expensive long-term contracts with leagues — that face the biggest risks, Moody’s says. The problem is that subscribers increasingly are cutting the cord, which will lead to a drop in affiliate and advertising revenue for both national and local sports channels.

Moody’s believes companies like Netflix, Amazon Prime and Hulu are poised to step in and begin competing for local media rights once teams’ deals with traditional sports channels expire.

“Regional sports networks … will likely see a significant drop-off in subs when teams are inactive and under-performing, which could result in some mergers between RSNs,” the report warned. “High-dollar commitments for long-term contracts for the RSN rights in the face of lower subscribers and ad revenues in a direct-to-consumer environment could spell disaster for many RSNs and the teams they are linked to. Overall, we expect much greater credit risk to fixed long-term sports rights contracts and pain for leagues and players unless the disruptors fill the void and open their wallets.”

Moody’s predicted that sports networks will end up launching over-the-top systems that bypass the traditional pay-TV bundle. But that solution is unlikely to be successful, as RSNs would have to charge consumers exorbitant fees to make up for the money they’d be losing in affiliate revenue.

Rich Greenfield, a media analyst with BTIG Research, said RSNs may be better positioned than national sports channels to weather the storm because of the appetite for local sports. But Moody’s Begley, in an interview, said his concern is that if RSNs pursue OTT options, consumers will subscribe only seasonally.