Why YouTube TV's Deal With Sinclair Falls Short

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Why YouTube TV’s Deal With Sinclair Falls Short

“YouTube TV aims for a compromise in what it can afford without having to increase its subscription cost,” analyst Brandon Riney says

At first glance, YouTube TV striking an agreement with Sinclair to continue carrying most of the cable company’s  regional sports networks appears to be a deal it had to make.

After all, YouTube TV is still relatively new, and it should be focused on adding as many customers as possible who are fleeing from traditional pay TV. Offering a robust slate of channels that includes local sports seems like a good way to go about doing that.

But it turns out, this deal is more of a nice-to-have for YouTube TV than a necessity. Losing regional sports networks (RSNs) wouldn’t be a deal breaker for most of YouTube TV’s customers, according to Colin Dixon, CEO of NScreenMedia, a firm dedicated to analyzing the over the top market.

“YouTube TV doesn’t need to have all the RSNs,” Dixon told TheWrap. “Most people leaving a cable company and switching to YouTube TV will lose one or two channels they watch. The majority — 70-80% — of homes never or occasionally watch their local RSNs. For them, living without it is worth the amount they will save switching to YouTube TV.”

The financial terms of Thursday’s deal were not disclosed. But the biggest indicator YouTube TV doesn’t view RSNs as an essential component of attracting and keeping subscribers is that the new agreement leaves out the country’s two biggest markets. YES Network, the home to the New York Yankees and Brooklyn Nets, won’t be available on YouTube TV going forward; Fox Sports West and Prime Ticket are also leaving YouTube TV, and with them, coverage of the L.A. Clippers, Kings, Angels and Anaheim Ducks for Southern California subscribers.

Overall, 19 RSNs will remain on YouTube TV through the end of the 2020 MLB season, including local sports channels in Ohio, Florida and Arizona, among several other markets.

But by dropping YES and the SoCal channels, YouTube TV is betting the number of aggravated fans it will lose in those markets will be negligible.

In reality, the number of fans who say they’re interested in paying for a standalone channel dedicated to their favorite teams isn’t huge. According to NScreen Media, the probability a home in New York State has at least one person who is willing to pay for YES Network on its own is 12% — or about 0.8 million households. And since fans can frequently catch the Yankees on national TV or through a number of other options — watching at a bar or friend’s house, or illegally streaming — YouTube TV is making a calculated guess the number of households that would never subscribe because it lacks the YES Network is substantially lower than 0.8 million people.

There’s also a financial aspect to it.

“It’s all about price,” Dixon added. “And YES is one of the most expensive RSNs. Not having it will limit YouTube TV’s appeal in the New York area but have little impact elsewhere.”

YouTube TV, which has about 2 million subscribers, is operating on “wafer-thin margins,” as Dixon put it. The service was losing $9 per subscriber last spring when it still cost $40 per month, according to The Information. Even after raising its price to $50 per month last year, absorbing the approximately $2-per-subscriber fee that comes with YES Network still would’ve been a monkey wrench for YouTube TV.

“Virtual [multichannel video programming distributors], such as YouTube TV, are challenged in regards to any carriage agreements,” Brandon Riney, an analyst with Parks Associates, said. “Their very nature is featured on offering curated channels for a lower monthly cost than traditional pay TV with no hidden fees. Specifically, RSNs are some of the hidden fees tacked on to traditional pay-TV services due to their higher carriage costs being shared with subscribers.”

Riney said for  vMVPDs, the cost to carry these networks is absorbed entirely by the provider, which can lead to price hikes.

“By keeping 19 of the 21 networks, YouTube TV aims for a compromise in what it can afford without having to increase its subscription cost,” he added.

Instead, keeping the RSNs available to as many viewers as possible was likely more important for Sinclair, which spent $10 billion on Disney’s local sports arsenal last year. As traditional TV providers continue to hemorrhage customers, it could be looking at “double whammy,” according to Dixon, losing ad dollars, as well as diminished retransmission fees.

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