Citi On TV: 'Sports Networks Face Most Acute Risks'

Hulu is likely to launch a sports-centric consumer offering in the first half of 2017, Citi’s Jason B Bazinet said in a report. He added that the new offering could exclude certain channels, which would pose a long-term strategic risk for the respective firms.

Although the Pay TV ecosystem was intended for media firms to maximizing profits, over the past six years, there have been “new entrants, thinner video packages and new a la carte services,” analyst Jason Bazinet noted. He commented that this means the “monolithic linear video bundle is fraying.”

Sports Nets Face Most Risk, Most Upside

With the fraying of this bundle, sports networks face the greatest risks because they mostly work with long-term, fixed price contracts with the sports leagues, Bazinet mentioned. On the other hand, these sports networks also face the most upside.

NewLu Poses LT Risk To Some Firms

Largest purchasers of sports rights, namely Disney, Fox and Comcast, are joint stakeholders in Hulu. The analyst expects Hulu to launch a sports centric consumer offering in 1H17, which he calls “NewLu” for now.

NewLu is expected to include all channels from the Hulu stakeholders, while excluding channels belonging to Scripps Networks Interactive, Inc. SNI, Discovery Communications Inc. DISCA and Viacom, Inc. VIAB, in a bid to keep retail ARPUs down.

The companies that will get left behind would face a long-term strategic risk. In view of this risk, Bazinet downgraded the ratings for Scripps and Discovery from Neutral to Sell. The price target for Scripps has been reduced from $69 to $62, while that for Discovery has been lowered from $30 to $27.

The analyst retained a Neutral rating for Viacom, saying its multiples were already depressed, while reducing the price target from $44 to $41.