Sports is increasingly becoming a staple of major TV programming, and its rise is sending chills through Hollywood.
The major TV companies have recently been battling over NBA broadcasting rights, a battle that has highlighted how important sports content has become to retaining viewership despite ever-rising costs.
But a multi-billion dollar sports land acquisition could have dire consequences for Hollywood’s volatile ecosystem.
“The growing relative importance of sports poses a new and urgent problem for an already beleaguered Hollywood,” wrote Doug Shapiro, a senior adviser at BCG and former chief strategy officer at Turner Broadcasting System.
Sports rights fees are higher than they’ve ever been, but media companies keep paying them. Why? They need sports to sustain their declining TV business and to grow streaming services.
At the same time, technology companies such as Apple, Google and Amazon are buying up media rights, expanding the market for sports content.
The NBA is on the verge of signing a $76 billion, 11-year broadcasting rights deal, The Wall Street Journal reported, 2.5 times the value of the previous deal. Comcast’s NBC, Disney’s ESPN, Amazon and Warner Bros.’ Discovery are competing. But the biggest deal has been won by the NFL, whose 11-year media deal for 2021 is worth $110 billion, nearly double the value of the previous deal. S&P estimates that the value of U.S. sports broadcasting rights has doubled in a decade.
And when already-shaky media companies (like Warner Bros. Discovery, which has a massive $43 billion debt load) consider how to fund sports, they can’t look beyond their entertainment budgets, which include dramas, comedies and other TV shows, which Shapiro said are four times the size of sports budgets.
The shift in budgets from sports to entertainment has already begun in some places.
After NBC parent Comcast plans to cut programming costs to cover NBA rights fees, The Wall Street Journal reported, viewers later learned that NBC’s “Late Night with Seth Meyers” would lose its house band.
Netflix also appears to be thinking of its new NFL deal as a replacement for mid-budget films. Asked about the cost of the deal at the MoffettNathanson conference in May, Netflix senior executive Spencer Wang said the company would value each game at “roughly the equivalent of one of our mid-sized original movies.” Netflix has already cut back on its programming, and its former film chief recently announced plans to make fewer original movies.
The number of television programs across the industry has been declining since the end of the Peak TV era in 2022. The rise of sports is likely to accelerate this downward trend.
How sports content has become so valuable
Given that more people are cutting cable and traditional TV viewership is declining, it may seem counterintuitive that media companies should pay more for sports media rights.
But sports programming, with its predictable schedule, still draws huge live audiences: 93 of the top 100 most-watched programs in 2023 were sports programs. And according to Nielsen, the past 13 Super Bowls have been watched by more than 100 million people, with this year’s game drawing a record 123.7 million viewers.
With sports betting now legal in most states, public interest in live sports is likely to continue to grow. Variety reports that sports bettors tend to watch sports more frequently than usual when placing bets, especially NFL fans (67%).
Because sports are broadcast live, they’re a must-see for advertisers looking to promote time-sensitive product launches like cars or movies, which is why prime-time ad rates for sports can be as much as 25% higher than entertainment, said David Levy, a former president of Turner Networks who is now co-CEO of Horizon Sports & Experiences.
“Nobody is going to record a sports show and watch it the next day. They’re going to subscribe to it,” Levy said. “Advertisers are finding that very attractive.”
“Who’s going to pay for all this?”
As sports content becomes more certain, TV shows and movies are looking increasingly risky.
Entertainment consumption has shifted to on-demand streaming, where some of the watercooler effect has been lost: Streaming has spawned relatively few new franchises that are valuable to existing audiences, while established franchises like Disney’s Marvel and Star Wars have been drying up lately.
“What these companies are trying to tap into is the existing fan base,” said Jonathan Miller, a veteran executive and chief executive of digital media investor Integrated Media Inc. “Hollywood franchises are becoming boring, but sports isn’t. Fans find you. So it’s about the fan base and the franchises you can bet on.”
The game isn’t over when the NBA ends: Media companies are aggressively pursuing other secondary sports to remain valuable to distributors and advertisers, with Warner Bros. Discovery picking up a few college football games recently.
The importance of sports was on full display during the parade of athletes at the Cannes Lions advertising conference and at the recent Upfronts, the annual TV advertising showcase where advertisers ranging from Amazon to WBD make their pitches to advertisers.
All of this has a dire impact on entertainment budgets that media companies are already cutting after overspending to build out their streaming businesses.
“Who’s paying for this? The other side of the TV network,” said Michael Kassan, a well-known media and advertising consultant. “You go to the upfronts and you get sports and news and sports and news.”
Shapiro predicts that sports will account for more than 40% of industry-wide content spending by 2030, double the 20% in 2023, while entertainment spending could decline by as much as 8% annually over the same period. He writes that generational AI tools could reduce Hollywood production costs, freeing up more money for sports.
“Sports spending is definitely coming at the expense of film and TV spending,” said a creative source at an entertainment company, speaking on the condition of anonymity to be candid about internal conflicts.
Power is shifting to the sports world
The growing importance of sports also signals a shift in power at media companies, where sports have traditionally been downplayed, with primetime slots devoted to entertainment, news and other programming. For some, the shift has come long overdue: During his time at Turner, sports made up less than 4% of TNT and TBS’s programming time but 20% of revenue, Mr. Levy said.
“The sports world has exceeded expectations,” he said.
Relationships with the highest echelons in sports will likely become a bigger factor in media company leadership going forward. Mark Lazarus, the recently installed chairman of NBCUniversal Media Group, comes from a sports background. NBC, which is in the process of acquiring the NBA rights for WBD, has done more than any other broadcaster to promote sports like the Olympics and the Premier League, sports media consultants John Costner and Ed Desser wrote recently.
But sports can’t solve all the problems for media companies. Media companies can only rent sports rights, limiting their ability to monetize. This is one of the reasons why Netflix has refrained from entering live sports (although in addition to the NFL, it has deals with sports-related entertainment such as WWE to build its advertising base). Sports are not watched repeatedly like entertainment. Viewers want a variety of content, not just sports. And media companies need to keep in mind that live sports generate media profits. Significant decline in popularity It’s more popular among Gen Z than the population as a whole.
WBD CEO David Zaslav came under fire for saying “we don’t need the NBA” ahead of contract negotiations in 2022. He later retracted the statement, but it raised a larger question facing all media companies: How many sports do we really need to attract viewers and advertisers?
“At the end of the day, these streamers and platforms need to constantly put new content on screens, and sports doesn’t solve that need to capture 75 percent of viewership,” said Alex Iosilevic, co-founder of media, entertainment and gaming investment firm Alignment Growth.
