The Journal. - The NBA's Media Rights Are Up for Grabs. Billions Are at Stake.

Episode Date: May 2, 2024

The National Basketball Association is in advanced stages of a new round of media-rights deals. WSJ’s Amol Sharma unpacks why several major media players are jostling for the lucrative rights. Further Reading: -NBC Prepares $2.5-Billion-a-Year Bid to Pluck NBA Rights From TNT  -Amazon, YouTube Vie for NBA Streaming Rights as League’s Media Talks Heat Up  Further Listening: -Why Three Media Giants Are Betting on Sports Streaming  Learn more about your ad choices. Visit megaphone.fm/adchoices

Do you remember when we used to play basketball together? Oh yeah, how could I forget? It was legendary. We had the greatest team name, I think, of all time. You're going to have to remind me. The Ball Street Journal. Oh yes, yes. That's our colleague Amol Sharma. Yes, which could do everything except ball.

We were very good on the street journal part, but... No. Hey, look, I mean, speak for other people. I'm not going to name names here, but you and I were not bad. I think we were carrying

some people, yeah. Aside from being a great basketball teammate, Amol is also the media and entertainment editor. And like me, he's been watching a lot of playoff basketball lately. But he is also the media and entertainment editor. And like me, he's been watching a lot of playoff basketball lately. But he's also been paying attention to another drama at the National

Basketball Association. So the NBA is negotiating its first round of media deals in a decade. Television and streaming companies are fighting for the rights to broadcast NBA games. streaming companies are fighting for the rights to broadcast NBA games. The league itself is hoping that it can rake in tens of billions of dollars over a decade from the TV and streaming deals. And that funds everything. I mean, players have a huge stake in this. The money that pays their salaries comes out of these media deals. And for the media companies themselves, like Disney and Warner Brothers Discovery, the stakes are also really high. They all need live sports badly to help their own bottom line because the only thing that's really keeping a lot of households from cutting

the cable cord is the ability to watch live sports. So if you take that away, more people are going to cancel cable. watch live sports. So if you take that away, more people are going to cancel the cable. Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Thursday, May 2nd. Coming up on the show, negotiations over the NBA's new media rights deal. Enter the fourth quarter. Attention all soccer fans. From Orlando to Los Angeles, take to the fields of the USA for your next vacation.

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In the 1980s, it was CBS. CBS Sports welcomes you to its continuing coverage of the 1987 NBA Finals. And in the 1990s, games mostly aired on NBC. This is the NBA on NBC. Who has the media rights to show NBA games now? And when was that last deal done? So the main two TV partners now, the main two media partners are Disney,

which owns ESPN and ABC, and then the cable channel TNT, which is owned by Warner Brothers Discovery. These deals were done in 2014, and they're expiring soon. Under them, Warner paid an average of about $1.2 billion a year to broadcast NBA games, and Disney paid an average of $1.6 billion a year. You know, those deals were done when cable cord cutting was still kind of mythical.

It was like, wow, some people are going to cut the cord, but really how many? And so the league at that time was like, yeah, we're thinking about streaming, but really, it's still about cable TV. And really, it happened so quickly. By 2016, it was clear cord cutting was real and accelerating. By 2018, it was like, oh my God, what are we going to do? This is transforming everything. The cable industry is going to collapse. Midway through that deal, the league understood we're going to need to do something different when these rights come up again in 2024. So this 2014 deal was sort of like the last of the legacy style cable media deals that the NBA had done. Yeah, it's the last of the traditional legacy media to TV partners deals. But now, as the NBA is negotiating its media deals for the next decade or so,

the league wants to go beyond cable TV. It also wants to make its games available on streaming platforms like YouTube or Amazon. The league knows there's going to be a big streaming component and they want to cater to that need that consumers have to stream games. Cord cutters who want to watch the NBA should have the option, etc. And so there's going to be a big emphasis on that. But why would streaming companies want NBA games? Like what's in it for them? Yeah, they have a different version of this problem,

which is they're in the signup subscribers business, all these streamers, right? And so whether you're Amazon or you're Apple or any of these companies, you're trying to figure out what's something I could anchor my service with that's a must-watch. And they have found that sports does that.

So there's been a lot of interest from streaming companies in the NBA rights over the past year, and you've heard about Apple, and you've heard about YouTube being interested, but it became pretty clear that Amazon was going to be super aggressive about acquiring sports rights in general and the NBA in particular. Amazon has made a big play in sports over the past few years. Besides helping to pull in subscribers, sports can supercharge the advertising business that Amazon has been building because it can show commercials during games just like a TV network does. The company recently won the rights

to broadcast Thursday night NFL games, and Amol says they want to go big on the NBA. Not just a little package. They didn't just want, you know, a tiny nibble. Like, give us a couple games to test it out. It was very clear Amazon wanted playoffs, regular season games. You know, they even, I think, bid to, could we get some finals games?

That's not going to happen, but they are going to, I'm told, get some conference finals games, which is a pretty big deal. And does it look like Amazon's actually going to succeed and get these rights? Right now, they're the front runners. There have been reports that they already have a framework worked out with the league, kind of an informal handshake on a deal. Our reporting is that they're definitely the front runner and people are planning in this process, including other companies, as though Amazon is going to be a new NBA partner. So they're in a good position. So they're in a good position. Okay, so let's go back now and talk about the two legacy TV companies that have been broadcasting NBA games. Disney, which owns ESPN and ABC, and Warner Brothers, which owns TNT.

How have those two companies been approaching this round of negotiations? So Disney has been very clear that they want to renew with the NBA all along. CEO Bob Iger and then the ESPN chairman, Jimmy Pataro, have been clear about that. And there's not much suspense that ESPN is going to wind up with a package here. Everyone we talked to says that that's going to happen. It's central to the ESPN business plan. ESPN is about sports. They need to have the big sports packages. They have football. They need the NBA. What are you hearing from your sources about how much Disney is going to pay? So Disney is going to pay $2.6 billion per year,

about $2.6 billion per year on average, maybe a little more. And these numbers are being finalized. Nothing's completely done yet. But it's clear that it's about double for both packages. People are going to be paying twice as much as the last time around. Wow. And what's crucial is they're going to pay twice as much, but for fewer games. is they're going to pay twice as much, but for fewer games.

Because how else are you going to create a package for Amazon or for a streamer unless you take some games away from the incumbent TV partners? So Disney is going to be paying almost double what they used to pay, but they're going to be getting fewer games? Twice the payment for less product. It's like shrinkflation. Yeah. This sounds like a huge boon for the NBA. Yeah.

I mean, look, the NBA said all along, we think that we're in a great position and you'd read stuff where league officials were, you know, pretty confident about getting triple, like three times as much money as the last time. And frankly, a lot of people like me who've covered media a long time, sort of eye rolled like on that one. I was like, okay, but you know, the media companies can't pay as much now. And really, like, do you have that much leverage? And I just didn't believe it. But you get to the process and people want basketball like that much. Why is Disney willing to pay so much?

Some of it is the popularity of the league. Some of it is the desperation of traditional media companies to get their hands on these rights. So if you are a media company and you are trying to find your way in this new streaming world and you're trying to survive the collapse of cable, you cannot lose sports rights. A typical household right now, a lot of people are thinking about why do I still subscribe to cable? Millions of households have canceled cable, and a lot of people are constantly asking themselves, maybe we should cut the cord. And a huge reason not to is when you can exclusively watch live sporting events like NBA games on cable TV, on ESPN, or on TNT.

While Amazon and Disney are willing to cough up the money needed to secure NBA rights, Warner Brothers Discovery, which owns TNT, isn't so sure. That's after the break. 1800 Tequila believes that taste is more than just a detail. It's everything. Taste changes the game. It attracts all the attention. Taste elevates everyday moments into extraordinary experiences.

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Warner's TNT has been broadcasting NBA games for decades. And its halftime and postgame show called Inside the NBA has become famous for its banter. It features former NBA stars Shaquille O'Neal and Charles Barkley. I don't know why anybody would even listen to you about it. I was a better defender than you. No, you wasn't. But Amol says TNT could lose out on broadcasting rights this time.

Well, first of all, you have to understand what this company is. Warner Brothers Discovery is a conglomerate. It owns HBO, CNN, the Warner Brothers Studio, and then all sorts of other cable networks, HGTV. And there's a long list of them. And TNT is one of them. And the company's stock has been underwater. Its balance sheet is under pressure. This is a company that is in cost cutting and cost management mode. They're trying to show Wall Street,

we're not going to overpay, we're being careful. So they enter this negotiation with that posture. Here's the CEO of Warner talking about the NBA deal at an analyst conference a couple years ago. But we're going to be very disciplined. We don't have to have the NBA. And if we do a deal on the NBA, it's going to look a lot different. So what's at stake for Warner and TNT? How badly does the company need the NBA? They really need these rights. I mean, TNT relies on carrying basketball to justify the fees that it charges the cable companies that

carry the channel, Comcast, Spectrum, companies like that. So if they don't have basketball on there and they don't have these high profile live sports that consumers want, it's going to be harder to make as much money and to get all these cable dollars that they get now. So there's a lot on the line. The reason TNT might not get the NBA again is because there's a new bidder that's willing to pay a lot more, NBC. Well, NBC is bidding about $2.5 billion per year for NBA rights. That's what we reported the other day. And they would likely wind up with a few games on the NBC channel every week, on the broadcast channel, and then a lot of games on the Peacock streaming service. So part of the rationale for doing this is beefing up Peacock.

That would be a big part of this. Peacock has 34 million paid subscribers now. It is much smaller than the other major streaming services. So the NBA would be a huge selling point for Peacock, especially if it's the only way to get a lot of games. There's also a bit of competitive revenge going on. Warner, Disney, and Fox all are teaming up to launch a new sports streaming service soon. And NBC was left out of that. They weren't invited to the party. It's this service that's being planned now that would basically pool the sports rights of Warner, which has TNT, and then ESPN and Fox Sports. So if NBC does win the NBA rights,

it would be dealing a pretty big blow both to TNT and the Warner company, and also to this new service, because now it wouldn't have as much NBA content. So there's another additional advantage. I don't know if it's the reason or the motivation, but it's another added benefit, I'm told, from NBC's perspective of why to go aggressively after it. Given the stakes, do you think it's possible that TNT and Warner Brothers Discovery might decide that they have to cough up the money, even though they're sort of pretty strapped right now? Well, I do think it's possible. When we reported that NBC was making a really fierce push for the NBA rights and was willing to pay $2.5 billion a year, Warner Brothers shares fell about 10%. So it's a really tough situation.

This seems like a really kind of pivotal moment for these companies that are all in like undergoing big transitions. Yeah, I think it's crystallizing all of the different pressures that are on these companies. It's showing you that the cable companies can't live without live sports, but it's super expensive to acquire them. And there's a tension in that. It's showing you that the streaming

companies also want to be at the table in live sports and showing you that the leagues are going to play their hand to the fullest and the nba is going to get paid here big time i mean one thing i was thinking about is that on nbc is like their timing is kind of perfect. I must say, if you're watching the playoffs right now, it feels like the 90s, like the Knicks are good again. People are playing actual defense. I mean,

like why not bring back NBC? And if they bring back NBC, they can bring back the NBA on NBC theme song. Are you going to make me do it? I was going to ask you to do it. I mean, obviously I know how it goes, but yes, I'm going to make me do it? I was going to ask you to do it. I mean, obviously, I know how it goes. But yes, I'm going to make you do it. Okay. It's like... You're better at it than me.

And then you've got to get that bass part that comes in later. It's a great It's the greatest sports song probably of all time Hands down This is though why One of the reasons I was so excited when I heard That NBC Is now bidding For the rights to NBA games

And might actually get to air NBA games again, is that maybe the song will come back. I am not sure and have not been able to ask a source so far on the story if NBC could get it back. But I will be asking. I mean, but they got to bring back the song. If they can't bring back the song, just forget it. Yeah, I mean, I think there'll be a lot of disappointed people. You and I will be at the top of the list.

That's all for today. Thursday, May 2nd. Thank you.