Specialist
SVP at Octagon Inc (The Interpublic Group of Companies Inc)
Agenda
- Diamond Sports Group’s (NASDAQ: SBGI) 5-year outlook for legacy and D2C business segments
- Subscriber, pricing and churn potential scenarios for a D2C product, along with impact of potentially acquiring further MLB rights
- D2C sports streaming application – eventual profitability and time to break-even
- Outlook for 2022 and beyond – update on competition from players such as ESPN+ (NYSE: DIS) and remaining potential wildcards
Questions
1.
Sinclair filed a new 8K in which it discusses three case studies through which its D2C prospects might scale and be monetised over time. I found it interesting that regardless of how the D2C asset might scale over time, the legacy business is projected to behave identically to distribution revenues, decreasing somewhere in the less than 1%-1.5% range and with advertising growing between 1.5% to 7% per year. Do you think there isn’t any knock-on impact to the company’s legacy business regardless of how the D2C business fares?
2.
The retrans fee tacked onto a subscriber level gets us to what the affiliates might be in the distribution revenue. To me, the barely 2% decline seems a bit conservative. What might be a more reasonable way to assess the distribution outlook for the RSN [regional sports network] sector?
3.
Impression loss will occur for advertising as cord-cutting exacerbates. How should we think about that? Impression base is shrinking as a pie, but I would presume there is some growth on yield through CPMs, given that it’s live-oriented content and sports. Is advertising still a growth business, albeit even a few percentage points, or is this also flat to declining over the next few years?
4.
Do you think the advertising/affiliate revenue split for RSNs will evolve closer to 50/50? For local station groups it’s more 50/50, but maybe they have a better ability to get national dollars on the market, especially because RSNs are very in-market based on a distribution basis. Given we’re discussing OTT [over-the-top], it seems as you bring in those migrated fans back into the realm, you can resonate to the national advertisers increasingly. What do you expect 10%-15% to change into? How much of that is driven by distribution decline vs actual inflections of growth for advertising?
5.
What will the sports gambling linkage be for RSNs over time? It seems there are a few ways that networks can monetise it. I actually resonate closer to sports betting related advertising, so much as active revenue contribution from attribution of transactions due to network viewership.
6.
Do you expect Sinclair to more likely pursue the passive vig vs the active sports betting revenue opportunity, considering the Bally partnership?
7.
I think about the sports betting revenue model as moving linear views to digital, then turning them into considering a bet, to then actually converting on a bet. So the goal is impression scale. As a best-case, Sinclair is targeting north of 15 million subscribers in 2027. Is that enough of an audience that’s engaged enough to drive significant sports betting revenues?
8.
In Sinclair’s D2C forward-looking guidance, an approximate ARPU estimate without MLB is USD 18 a month, with a features-only at USD 4.50, all the way down to USD 16-17 a month with features only being north of USD 5. How do you put that price point into the broader SVOD market, and do you expect it to be prohibitively expensive, or an attractive value proposition?
9.
Is the average streaming churning rate of 6% per month for monthly sign-ups even lower than what you’d expect for the sports OTT product, given the content that exists there?
10.
I’ll also mention that I did a very rough ARPU without considering churn. When you think about Sinclair putting out these numbers, would you have expected the company to include a churn impact? Maybe it’s annualising to the subscribers. Does it concern you that the price-points the company is considering are higher than USD 18 or USD 19 because there is a churn dynamic to consider as well?
11.
You mentioned shifting up the commitment package. How would you price an annual package? If USD 7 is the right pricing range for a monthly sign-up, is it even lower than that annually?
12.
Is there any way to go about a features-only product to reach the 2-7 million subscriber level range at a USD 4 or USD 5 price-point Sinclair is discussing over the next five years?
13.
For streaming, Sinclair broke up the subscriber target dependent upon if it acquires the additional 10 MLB rights. How do you resonate with the nearly 3.5 million subscriber target over the next five years while only considering the NBA, NHL and the four MLB teams it already has rights to?
14.
How does Sinclair charging prohibitively higher impact subscriber uptick? How much lower of a subscriber rate would you imagine should the company go to market prohibitively expensive?
15.
The majority of uncertainty is regarding the wide variance of subscriber targets, a lot of that having to do with adding MLB teams. Sinclair thinks it could add anywhere from 1.7 million to over six million subscribers additionally if it acquires the remaining MLB teams. Do you agree there are that many subscribers considering the product primarily with the MLB in mind that would allow the company can move the goalpost that vastly?
16.
According to recent press, Marquee is considering rolling out a do-it-alone Chicago Cubs streaming product in tandem with Sinclair. Front Office Sports is talking about 18 months for just the standalone service. What is the viability of a per-team OTT product, especially at such a price-point? What’s your quick takeaway on its ability to do anything real there?
17.
Obviously the variance of the subscribers is if MLB teams try to give D2C streaming rights over to Sinclair. How likely is it that the remaining 10 teams fall into the fold if that were to occur, whether if it’s by the April season start or just eventually?
18.
How quickly do you expect uptake once the product is launched? It seems Sinclair is thinking of 330,000 or so in the first year, and then dependent upon how many teams it has in the fold, that could grow to eclipse a million or even four million as soon as 2023. Do you think it’s a much slower ramp-up process for achieving subscribers?
19.
For TV Everywhere users, you authenticate through your cable subscription, so you’re not paying on a standalone basis for access, but there are probably still monetisation prospects. Is that largely through advertising? I didn’t include some of the sports betting-related revenues, but it seems you can get to ARPUs of USD 23-25 vs the USD 16-18 Sinclair put out there, so presumably that’s all through OTT advertising?
20.
It seems you’re contradicting how Sinclair is thinking about having 6.7 million TV Everywhere subs tapping into the product in 2022, to 9.6 million in 2027. Is it better to think of that as a lower level than six million early on, and likely declining because of the cord-cutting trends? How much does TV Everywhere contribute at all to the viewership that exist for a Sinclair OTT product?
21.
It seems Sinclair is framing sports betting on a nationwide legalisation basis as more of a retention ploy. How much do you believe in that as well? To the extent that the company is not offering active betting at least for the first few years, but the extent to which sports betting exists in the markets of their viewers will make those subscribers churn less. Perhaps that means the 6% per month average churn rate is not applicable to sports because betters will be more sticky subscribers.
22.
Is there anything else Sinclair can do to fill out the fringes of its content offerings due to sports league off-seasons? DAZN is considering many tier 2 and 3 leagues. Is there much beyond the NBA, NHL and MLB that the company can consider on a longer-term basis to improve the seasonality of the viewership it’s likely to face?
23.
Do you think Sinclair is willing to invest in the creative and production elements that would be associated with filling out its off-season content offerings?
24.
I found it interesting that Diamond is projecting positive EBITDA as quickly as 2023. What is a more reasonable break-even target a year from now considering the investments needed for D2C, as well as incremental content investments?
25.
What do you expect to happen over the next few years for local sports rights more broadly? We’ve discussed how ESPN+ shows out-of-market hockey games. What’s to say it doesn’t begin to consider in-market games more from a digital standpoint, and what does that mean for the longevity of the rights Sinclair holds currently?
26.
Who are the most likely sharks to benefit in the worst-case scenario where Sinclair is unable to launch a D2C product during this early window of opportunity?
27.
Sinclair wrote its RSN business down to USD 5.4bn now. Do you think any of the aforementioned players might acquire the RSNs at that price point? How could that scenario unfold if the worst case happens for the company’s D2C product?
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