So I am a fan of Andrew Bogut and his podcast, Rogue Bogues. If you follow him on Twitter you can see that he is not the typical NBA player.
He takes a commonsense approach to issues dominating the headlines and is not someone afraid to speak against narratives. Andrew takes this
attitude into his podcast recordings where he and co-host, Mike Procopio, discuss the world of basketball. In last week’s episode they spoke about
the potential $75B deal the NBA is looking to secure. As I wrote here, I thought that figure was league propaganda, so I wrote Andrew an email explaining
why it’s more of an NBA fantasy. To my surprise, he read it on air and said I was on to something. Here is was I outlined:
I am enjoying the honest commentary on the NBA, I want to help you speak the truth. From last week’s episode, you mentioned the $75B figure the NBA was expecting for its next
TV deal. Well, as a former venture capital investor that focused primarily on TMT investments, I can confidently say that the $75B number is an NBA fantasy.
I could go on forever about why it won’t happen, but the simple story is that the shrinking economics of the Cable-TV business model and changes in consumer
behaviour would make the deal financially unsustainable for any network.
Just a few realities the league is facing:
Cable TV subs will under 50% of their peak during the next contract
NBA TV ratings are falling at a faster rate than cord-cutting
Netflix/streaming has changed the consumers’ tolerance for commercials
Competition from live entertainment platforms (YouTube, Twitch) is growing at 20% CAGR
A few challenges I perceive the NBA faces:
The product is getting worse:
Way too many reviews!
Most end of games are too drawn out and not entertaining.
Too much flopping/foul hunting
Player movement impact on casual fans
DNP-Rest/ general devaluing of regular-season games
The league and networks and being too political/woke and hypocritical (i.e. China)
NBA stars are losing broad cultural relevance to youth and casuals fans
Now, I could expalin each bullet in more depth, but Andrew focused on how the NBA can leverage ad revenue because its one of the
last media proprties to where they could force ads on consumers. He is right, but I beleive the leverage is slipping away given the severity of the declines.
The 9-year $24B deal the NBA signed with ESPN and Turner in 2014, a shockingly big deal that caused the cap spike to spike in 2017, was priced on the expected
demand from ad buyers. “DVR-proof” live programming was in getting premium value for its ad inventory. This was still at a time when cable subs were over 100M and flat.
I don’t think at the time network executives saw massive declines in subs and veiwership (~50% drop on network TV, as reported Ethan Strauss).
The Decline of Cable
Consider the structural changes to the business since that deal was negotiated.
In 2013, cable’s competition was weak. Netflix had 35M worldwide subs and no original programming;
now they have 210M subs and $10B of “produced content assets”. Similarly, Prime Video grew from ~5M to 170M users* with their own Studio.
This contrasts with pay-TV losing 22M subs (see chart above). And their competition is only getting stronger. New services: AppleTV+, Disney+,
Peacock, Paramount+, & HBOMax, are all offering direct-to-consumer original content.
Making things worse for the league is that the strength of their competition has caused a fundamental change in how we perceive TV ads.
Growing up, you and I saw commercials as a fact of life. Ten years ago with DVRs, they became a nuisance.
Today, with ad-free entertainment options, it’s nauseating to watch 40+ minutes of looping fast food and insurance ads for each NBA game.
It’s is a big problem for traditional TV that helps explain the horrendous Finals ratings. Historically, the NBA pulled in a large number of
casual viewers to get to the 20M range, but they haven’t been there… not even last year when that had a crossover star, LeBron James with the Lakers.
This is not limited to the NBA. Once reliable high-rated live events are bombing. The Oscars, Grammys, MTV Awards, ESPYs, etc. are only drawing a fraction
of the audiences from 5-years ago. There are certainly other factors at play, like COVID and how all these shows went woke. But I suspect that with traditional
TV losing its monopoly on in-home entertainment, people have realized that 8+ minutes of ads for 22 minutes of content was an awful and unnecessary concession.
Cable and Network TV face an existential threat from these new services that made their revenue model outdated. Now, the NBA might be able to squeeze one more
lucrative deal from them in the next contract, but I get the sense that the negotiating window is closing. Much like the report on ESPN’s contract negotiations
with Maria Taylor, as their economic outlook worsens, so does the contract offers. For a contract negotiation to go in the opposite direction of expectations will
make the counter-party to desperate. Taylor had a card to play, this $75B figure is the NBA’s move.
Pretty pathetic, IMHO. Like Andrew said on his pod, the truth will come out soon enough when the next deal is announced, whether it be $70B or $20B.