NFL Rights Deals with Major Networks Affect the Entire TV Industry
While CBS (NYSE:CBS), NBC (NASDAQ:CMCSA) and Fox (NASDAQ:NWSA) extended their NFL rights deals through 2022 last week, its action has affected the TV industry in a major way, according to Morgan Stanley (NYSE:MS) analyst Benjamin Swinburne.
In his research report from Tuesday, Swinburne said these deals will have “powerful implications that extend well beyond the networks directly involved.” He believes they will be a good decision for the affected broadcasters even with the higher rates they’ll pay.
Swinburne wrote, “We see the broadcasters’ decision to renew their NFL rights as an acknowledgement of the economic benefit the NFL is having on their business. The earnings impact is modest and long-term cost certainty a positive.”
He added that the NFL rights extension is a sign of “the benefits these rights have already accrued to the economics of these networks – namely, rapidly rising re-transmission fees.”
Advertising sales will be the key to the deals as they will cover costs to break even, such as NBC, or become profitable for other networks. But Swinburne noted that either a major ad recession or a shift in ad shares away from TV may challenge expectations.
“Even if these two events do not happen, the pressure to garner increased carriage fees by ESPN (NYSE:DIS) [which extended its rights deal earlier this year], CBS (NYSE:CBS), NBC (NASDAQ:CMCSA) and Fox (NASDAQ:NWSA) and limit cost escalation elsewhere will be significant,” he said.
On a positive note, Swinburne said that renewals “raise the cost of doing business for the broader industry” and he expects that in the future, investment levels will increase “across the dial, pressuring cable network margins.”
He also believes the networks will hit the cable and satellite TV distributors with the rising costs and pay TV firms will subsequently “face difficult choices over which networks to carry and pay up for versus others.”
From this, there will be an emergence of more online video offerings, pressuring the networks without “exclusive, compelling programming,” said Swinburne.