SPORTS How Rockets, Astros navigating new order of regional sports...

How Rockets, Astros navigating new order of regional sports networks


- Advertisment -
The Astros and Rockets said Friday they have acquired AT&T SportsNet Southwest and relaunched the channel as Space City Home Network. 

The Astros and Rockets said Friday they have acquired AT&T SportsNet Southwest and relaunched the channel as Space City Home Network. 

Houston Astros

With the debut of Space City Home Network, the Astros and Rockets will once again reap the bright promises but also the thorny challenges that come with ownership in the rapidly changing world of regional sports network television.

The teams last month launched Space City, acquired from Warner Bros. Discovery and previously known as AT&T SportsNet Southwest, with accelerated emphasis on all things Astros and Rockets. Initial programs included Astros postgame playoff shows, which ATTSN did not offer, and Rockets preseason and regular season games plus magazine shows on the team.

“We hope to bring the live experience to our fans at home in a different way than what happens when you’re owned by a big media company,” said Gretchen Sheirr, the Rockets president for business operations. “Fan engagement will have much more of a voice than what you’ve seen before.”


Article continues below this ad

With the ownership change, however, comes a significant change in economics. The teams have lost their guaranteed rights fees of about $120 million per year ($73 million for the Astros, $47 million for the Rockets), and will take a significant revenue cut — initially, as much as $30 million — as they inherit what was a money-losing channel.

That’s a daunting prospect, but the Astros and Rockets are on more solid ground than their counterparts whose games appear on Diamond Sports Group’s Bally Sports channels.

Diamond Sports earlier this year filed for Chapter 11 bankruptcy protection and dropped its contracts with the Diamondbacks and Padres during the 2023 season, returning their rights to Major League Baseball. Analysts and attorneys say it is very much up in the air as to whether the Bally Sports channels can survive after the 2024 seasons.

Diamond Sports, according to published reports, is also considering whether to drop its expensive $111 million average annual rights fee deal with the Texas Rangers, whose games are also available in Houston on Bally Sports Southwest, and with the Cleveland Guardians.

Attorneys for both teams attended a hearing this week before U.S. Bankruptcy Judge Christopher Lopez in Houston, giving credence to that report. The Rangers sought in March to end their contract with Diamond Sports but have been unable to do so as the Chapter 11 case continues.


Article continues below this ad

Elsewhere, Diamond Sports this month reached an agreement to continue airing games of 15 NBA teams for the 2023-24 season. The teams, according to Sports Business Daily, agreed to a 16% rights fee reduction but have the right to air 10 games on over-the-air TV, and rights for all the teams will revert to the NBA for the 2024-25 season.

With so much in question for many of their NBA and MLB competitors, the Rockets and Astros, meanwhile, are happy to oversee their own television destiny.

“We’ve been looking at this, internally, for a few years,” said Giles Kibbe, the Astros’ senior vice president and general counsel. “Clearly, there is a lot of volatility in the industry, but we firmly believe that our media rights have significant value.

“In the long term, we will benefit by owning and controlling those media rights rather than having a media conglomerate or private equity firm come in and take them. We kept looking for an opportunity to make this happen,” Kibbe added,


Article continues below this ad

That chance came when WBD said in February it would divest itself of RSNs in Houston, Pittsburgh and Denver. The Rockets and Astros closed on the deal in late September.

Kibbe and Sheirr said the teams are moving quickly to familiarize themselves with the RSN business. David Peart remains as general manager, and team broadcasters will remain the same.

“We’re not looking at it as if there’s going to be a flip of the switch in ownership and things are going to change,” Kibbe said. “We think they (Warner Bros. Discovery) were operating the network efficiently and were doing a good job on the revenue side as well. But we do think we can get in there and improve things on the margins.”

Marginal improvements will be essential to reduce the deficit that will come with the loss of guaranteed rights fees and the continued drop in cable and satellite subscribers.

“The pay TV bundles were a natural monopoly that gave you access to all economic classes. It was the greatest business in the history of this country,” said media consultant Patrick Crakes, a former Fox Sports executive.


Article continues below this ad

“The bundle now has dropped (to an estimated 60 million households as of June), and the industry now must adjust to flat revenues, maybe declining revenues in some cases. RSNs are the hothouse flowers of the pay TV bundle, and they are the first segment to see the effect of these changes.”

When AT&T SportsNet Southwest launched in 2014 after the bankruptcy of Comcast SportsNet Houston, Comcast, AT&T and DirecTV had about 1.5 million subscribers in the 20-county Houston designated market area. That number has plummeted to about 720,000 as of the third quarter of 2023, according to S&P Global Market Intelligence.

Under contracts with Comcast, AT&T and DirecTV that run through 2032, in addition to a handful of smaller cable systems, Space City Sports will receive more than $6 per subscriber per month in the five-county Houston area, from $3 to $4 per subscriber per month across the rest of its five-state region (Texas, Oklahoma, Louisiana and parts of New Mexico and Arkansas) and about $1 for carriers elsewhere, according to industry estimates.

Based on those numbers, the new RSN will receive about $55 million in annual subscriber revenue from the immediate area and about $80 million total when 1.3 million subscribers elsewhere around the country are included, according to an analyst with knowledge of the sports TV industry. That number, however, will drop as cord-cutting continues.


Article continues below this ad

The way regional sports networks work is undergoing a period of change.

The way regional sports networks work is undergoing a period of change.

Wilfredo Lee/Associated Press

Advertising is the second major revenue stream for RSNs, and the analyst said RSNs generally get about 30 percent of income from advertising. That, he said, would place Space City Home Network’s projected revenue at about $110 million.

That’s already short of the $120 million that Warner Bros. Discovery was paying the Rockets and Astros, and it doesn’t take network operating costs into account. Analysts say the average production cost for an MLB or NBA game is about $40,000, which would result in about $9 million in production costs for the local telecasts of 150 MLB games and 72 games.

Other operating expenses, analysts say, could total about $10 million, which would put net revenues at around $90 million, about $30 million short of the $120 million the teams were getting from WBD.

Streaming, which is not in the immediate plans for Space City Sports Network, has been trumpeted by some as the savior for sports networks. Crakes, however, is dubious of those projections.

He said a standalone, direct to consumer subscription to an RSN such as Space City Sports likely would cost at least $20 per month, which is Bally Sports’ monthly charge. Others, such as NESN in the Boston area, charge up to $28 per month.

At those rates, it would take tens of thousands of streaming subscribers to make a substantial dent in the lost rights fee revenue, and those numbers are hard to come by. Diamond Sports in June said its 19 RSNs had totaled only 203,000 streaming subscribers nationwide.

Streaming subscriptions are more expensive than the $6 cable/satellite subscriber fee in part because the cable bundle is wholesale pricing while a standalone service is a retail product, Crakes said. Also, existing contracts prohibit teams from introducing services that undercut their cable and satellite partners’ pricing.

Crakes said franchises hope the cable/satellite bundle endures, allowing them to continue raking in revenue from cable and satellite customers who have little to no interest in sports. Streaming revenue will supplement that total, but not enough to offset the drop in cable and satellite subscribers.

“The teams just want to survive. They want to keep these economics in place as much as possible,” he said. “Some will be better at doing it than others. I imagine the Astros and Rockets have a good shot of not going backwards very much.

“That’s the story that’s going to happen. You’re basically playing for par instead of growth.”

Another potential trend, Crakes said, is whether cable operators follow the recent lead of Charter Spectrum. That company’s new deal with Disney has been described as the first step toward moving RSNs and other league-wide sports networks to a higher-priced tier, easing the financial burden on basic cable subscribers who do not watch sports.

Charter Spectrum has never carried the Astros-Rockets RSN and has limited subscribers in the Houston area. However, it is a significant presence in Texas with systems in Dallas-Fort Worth, Waco, Austin, San Antonio, Beaumont-Port Arthur and Corpus Christi.

The Astros and Rockets hope to sign up new providers to join Comcast, AT&T and DirecTV plus streaming service fuboTV. However, they may have to accept sports tier placement to negotiate deals with Charter Spectrum or Altice Optimum, which has cable systems in several smaller Texas markets.

Comcast SportsNet was the Rockets and Astros first venture into the regional sports network business.

Comcast SportsNet was the Rockets and Astros first venture into the regional sports network business.

Karen Warren/Houston Chronicle

After their tough times during the Comcast SportsNet Houston era, the Astros have become a bright spot among MLB TV markets. While their 2022 rights fee was in the middle of the pack, ranked 12th among the 29 U.S.-based teams, they were one of just five teams to average more than 100,000 households per game. The Rangers, by contrast, averaged just 21,000 households for their 2022 rights fee of $111 million.

The Astros’ 3.79 Nielsen rating in 2023, while down from 2022, ranked ninth in MLB and more than doubled the Rangers’ 1.41 rating.

“We are really fortunate to be able to partner together to maintain an existing structure that protects revenues that have existed but also makes sure that fans can continue to watch our games,” Kibbe said.

Kibbe’s comment that the Astros had been preparing for a chance to acquire the network adds context to its decision last year to drop Comcast as a defendant in its lawsuit against former owner Drayton McLane stemming from the CSN Houston collapse. The Astros and Rockets also settled an adversary proceeding in bankruptcy court involving Comcast.

Now that the teams will be receiving subscriber fees directly from Comcast, it would have been awkward, to say the least, to be battling the cable giant in court.

The Astros are still at odds with McLane in the state court suit, which claims that owner Jim Crane and his partners were defrauded in their acquisition of McLane’s portion of CSN Houston, valued at about $332 million. No trial date has been set for that lawsuit. 

While the court battles continue, so do the games. Baseball’s regular season is done, so the Astros have time to rethink TV strategies for 2024 for the new network. The Rockets, however, have hit the ground running on their new network.

“You’re going to see a lot more in terms of listening to fans, how they want to hear the game broadcast, what information they want,” Sheirr said. “We’re going to be able to deliver our team and our players to our fans in a much more direct and connected way.”

Sheirr said events like open practices and scrimmages could be preseason fodder next season for the network, which is not something that would have happened with third-party ownership.

“We feel confident about knowing what our future looks like over the next couple of years,” she said. “Ensuring that we could control our own destiny versus being at the whim of what was happening with third parties in the industry was something the Rockets and Astros were aligned on.”


Please enter your comment!
Please enter your name here

Latest news

Liberal government unveils framework to cap oil and gas emissions at 35% to 38% below 2019 levels | CBC News

The Liberal government announced its regulatory framework for capping emissions in the oil and gas sector Thursday, unveiling a...

“I Wouldn’t Be an Actress Today.”

Summary Angelina Jolie, a highly accomplished actress and filmmaker, expressed her doubts about starting out as an...

UK Sports Network Launches “Big Blue Brew” Presented by Commonwealth Credit Union – UK Athletics

LEXINGTON, KY (Dec. 7, 2023) – UK Sports Network is announcing a new way to...

Bigg Boss 17: K-pop singer Aoora enters Salman Khan’s house, says he is ‘dil se desi’ | Television News

Bigg Boss 17 is buzzing with excitement, and Salman Khan is visibly thrilled. Following unexpected twists, turns, and shocking...
- Advertisement -

North Korea Decries US’s ‘Double Standards’ As South Launches Spy Satellite

North Korea accused the United States of hypocrisy this week for helping the South launch its very first military...

Heavy snowfall expected to continue in Calgary

After enjoying a month of above seasonal temperatures, residents...

Must read

- Advertisement -

You might also likeRELATED
Recommended to you