MSGN - MSG Networks

[dwy000]

I like this idea, so I've been doing some further reading.

The 2016 VIC post (for MSGN) brought up the contract renewal of Cablevision/Altice at the end of 2019 being a potential risk (albeit minimal as MSGN potentially is adding more value to Cablevision, than the other way around).

Quote from the 2016 VIC write up below. Any thoughts on this?

Top Customer (Cablevision) is Being Acquired by Aggressive Cost Cutter – The proposed acquisition of Cablevision by Altice has also created some uncertainty, but I believe that concerns are overblown. Altice has gained a reputation as an aggressive cost cutter and there is the potential that it could end up scrutinizing its programming expenses to achieve their lofty cost reduction targets for Cablevision. With Cablevision representing ~40% of MSG’s RSN subs, the prospect that Altice drops the networks or demands a meaningful rate reduction could have a material negative impact on MSGN’s results. However, I believe that it is unlikely Altice would drop the networks and MSGN should have good leverage in 2019 when Cablevision’s current affiliate fee agreement comes up for renewal. The risk of not carrying MSGN’s RSNs would likely have a significant impact on Cablevision’s results due to the potential loss of a large number of highly profitable broadband subscribers.

The loss of MSG would definitely hurt Altice (Cablevision)...but it would kill MSG.  That's a pretty big game of chicken to be playing.  Hopefully level heads prevail but Altice is already losing subs due to high costs (led by sports).

I would give my left nut(I already have two beautiful kids and that's all I want) for Altice to drop MSGN. It would create a ridiculous short term panic that ultimately would be resolved, and I'd make an absolute fortune buying the dip. No way the tri state area ceases to have Knicks and Ranger games or sees a reduction of 40-50% in terms of households with access to it. Does anyone remember when YES was only available on satellite? People won't tolerate it.

The question is not whether there are people who want access to the Knicks and Rangers, the question is whether the people who don't want it (or don't care) are willing to pay for the people who do.  If the higher overall prices that Altice has to charge to cover MSG (and YES and ESPN) cause more customer losses than they would see by dropping the channel(s) and keeping prices down then they will drop it - or move it into a higher priced "sports" tier that many people will drop.  MSG needs a streaming option independent of the cable providers that the fans who are willing to pay can turn to.

[Sombunall]

Re: the renewal with Altice -- here is what COE Gobi said on Altice's Q2 conference call, when asked about the value of RSNs ("How is your view on the value of those networks versus the cost involved at all?")

Dexter G. Goei, Altice USA, Inc. - CEO & Director [19]

"On the video side, listen, the RSN experience, you're very right, do flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that the particularly the New York tri-state area, the RSNs continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationship with our RSN partners in New York tri-state area and other parts of the Suddenlink side that will continue to have a good contract negotiations with them as we look to a new -- those contracts going forward."

I think they renew. There is no reason not to. MSGN is not expensive ($7-8 month) and distributors get select advertising inventory.

[Spekulatius]

Re: the renewal with Altice -- here is what COE Gobi said on Altice's Q2 conference call, when asked about the value of RSNs ("How is your view on the value of those networks versus the cost involved at all?")

Dexter G. Goei, Altice USA, Inc. - CEO & Director [19]

"On the video side, listen, the RSN experience, you're very right, do flag that maybe the cost is not necessarily pertinent to the viewership numbers in terms of the ratings that you can see, but we do believe that the particularly the New York tri-state area, the RSNs continue to be important for our video consumers. And I can't really give you my personal perspective on the value of those networks, but I do think that we have good relationship with our RSN partners in New York tri-state area and other parts of the Suddenlink side that will continue to have a good contract negotiations with them as we look to a new -- those contracts going forward."

I think they renew. There is no reason not to. MSGN is not expensive ($7-8 month) and distributors get select advertising inventory.

$7-$8 is fairly expensive, imo. It was one reason for me to cut the cord and switch to streaming when I lived in the NYC area, since I paid for something I never watched. I don’t think I am the only one either.

[Sombunall]

Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).

[Cardboard]

Germans watch soccer, they don't get it.

[debtvulture]

I have Hulu Live (streaming) and I get the YES network.  If you go to Hulu's website and search for their channel listing the YES network doesn't show up but I live in SW CT and I do indeed get the YES network so MSGN may have already struck up some deal with Hulu (probably a regional deal).  Just an FYI. 

Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).

[dwy000]

I have Hulu Live (streaming) and I get the YES network.  If you go to Hulu's website and search for their channel listing the YES network doesn't show up but I live in SW CT and I do indeed get the YES network so MSGN may have already struck up some deal with Hulu (probably a regional deal).  Just an FYI. 

Haha, well, if you never watched it, you shouldn't get it... ;-)

And yes, you're not the only person to switch, obviously this is a big issue -- cord cutting! On the other hand, MSGN has 14 million subscribers in aggregate (MSG, MSG+) - so just as obviously, a lot of people think it's worth it. And MSGN could alleviate the cord-cutting in a hurry if they make a deal with Hulu or YouTube.

(No position, by the way, as of this post, but that may change).

YES Network is owned by Sinclair/Amazon/Yankees. 

If you add YES, MSGN and ESPN, traditional cable subscribers are probably paying $15-20/month for channels that only half will watch.  That's the primary rationale for cord cutting.

[Gregmal]

I think a key piece of the larger picture puzzle would be for Sinclair to acquire MSGN, and then offer a sports bundle; something mimicking or serving as a hybrid of the WWE/UFC model. Ive paid $5 a month for things like NHL Network(on their own) and plenty of sports fanatics would easily drop their $75 a month cable package in exchange for just a sports network at say $20-30 per month. Or bars/restaurants... how many currently pay for Optimum/DTV packages PLUS Sunday Ticket or Center Ice? When all they really need are the sports channels? There's an opportunity to capitalize on this disruption, or so is my belief.

Something else Ive also been considering, is perhaps politely suggesting at the next AGM that the company consider collapsing the dual class share structure. While I 100% get why its there, it makes more sense from Dolan's perspective with MSG, or the entertainment company; where he knows they trade at a discount but wants to run those his way and have creative flexibility. But here, everyone knows he's open to selling, the company does already act in the best interests of its shareholders, because of these things, I think the optics of removing this negative overhang if nothing else get this a modestly more generous public market valuation. The things the Dolans would have to worry about when removing the dual class at the other entities just simply isn't a concern here...what is someone going to do? Go activist and push for a sale? Or a large buyback?

[no_free_lunch]

The NFL is still the dominant sports league when it comes to the worth of its franchises. More than half of the top 50 are football squads. Credit the monster media-rights deals with the likes of CBS, NBC, Fox, ESPN and DirecTV that paid out more than $260 million per team last year. The TV haul is a nice cushion to easily cover teams’ biggest expense item, player costs, before any tickets, sponsorships, beer or replica jerseys are sold. The cap on player salaries was $177 million last season (each team is also on the hook for $40 million annually in player benefit costs).

https://www.forbes.com/sites/kurtbadenhausen/2019/07/22/the-worlds-50-most-valuable-sports-teams-2019/#44d0e893283d

The top 50 sports teams averaged $260m in media rights each.  MSGN did $720M revenue last year and has 6 teams.  The nicks occupy the 5th spot on the list, and the rangers are 72nd.  You need a bit more data to be accurate here but their revenue seem inline with peers.

[spartan]

So subs are going down - and have been for years - but revenue keeps going up.

What am I missing?

90% of their revenue is from affiliates. The other 10% is from advertising. Which means that roughly $650 Million (90% of 2019 Revenue - $720 Million) can be attributed to 6.5 Million subscribers. Back of the envelope calculation: the average subscriber is paying roughly $100 per year. How much more value can be extracted from subs?? If anything, the price of a subscription and number of subscribers will continue to go down due to further decentralization of media industry.

If I'm a die hard Knicks fan, why wouldn't I just pay $68 / year for all 82 games on NBA League Pass?

Chamath Palipatiya recently lambasted media companies for "not having relationships with their customers". I tend to disagree with him on a bunch of topics, but I think he's right about this.

If I'm a media company and still using an intermediary for distribution, I am not creating maximum value.

Perhaps MSGN knows that they can't charge that much on a standalone basis, which is why they're not really fighting the status quo.

MSGN has an app - MSG Go - which is a direct line to their customers. Shouldn't they be pursuing this more aggressively? They should be pulling a Frank Lucas and going straight to the source (DTC).

At the end of the day, their customers are currently cable companies whose purchasing power is dwindling. If they go DTC, subs are not willing to pay that much. Sure, there are some hardcore fanatics but the bandwagoners won't pay too much to watch the Knicks, Rangers, etc.

So it seems like they're damned if they do (go DTC and lower fees/subs), damned if they don't (stick with status quo and extract less fees from dwindling cable companies)..

Maybe none of this matters - as long as they continue to pay down their debt, and EV holds, value will filter into shareholders' pockets.

Thoughts???