Sinclair’s Diamond RCNs Hit By Subscriber Churn

Sinclair Broadcast Group has been reporting its Diamond Sports operation separately this year as the unit works to improve its finances. Diamond operates the 19 regional sports networks (RSNs) branded as Bally Sports.

Prior to a conference call with Wall Street analysts on Monday, Diamond reported third quarter media revenues down 10% to $684 million. Distribution revenues were down 11% to $565 million and advertising revenues declined 5% to $112 million.

“Media revenues for our third quarter came in a little below our guidance on lower than expected distribution revenue, primarily due to higher than expected subscriber churn, as well as slightly lower than expected advertising revenues due to fewer games in the quarter than forecasted,” Sinclair COO Robert Weisbord told the analysts. But he reported some encouraging news for advertising.

“On a per-game basis, ad revenues were up by a mid-teens percent, driven by healthy demand in many categories — with the largest gains in service, retail, food and entertainment,” he reported.

“Looking forward, we see some positive signs for advertising demand. The Upfront was successful. We’re seeing substantial commitments from the auto category, which is expected to benefit from a lessening of supply constraints and building inventories. We continue to face the prospect of a difficult macro-environment that could accelerate churn as well as potential for higher interest rates which could impact consumer behavior,” said Weisbord.

Sinclair President-CEO Chris Ripley pointed proudly to the full launch of the Bally Sports+ app on Sept. 26. “We have seen encouraging demand for the service, despite relatively low product awareness in the marketplace,” he said. And he noted strong conversion rates to paid subscription once the free trial period has expired.

During Q&A analyst Lance Vitanza of Cowen wanted to know whether pricing for the app was designed to maximize subscriber counts or revenues.

Ripley said: “This is something that we thought a lot about going into this strategy and did significant amounts of market research, with Bain actually being our key consultant there helping us out. We wanted to maximize revenues, not maximize subscribers. This was about adding extra, incremental cash flow to Diamond to maximize. Maximum revenue was the objective and a $15 to $20 price point per month—which is around $15 for our annual and about 20 bucks for our monthly—that was the range for revenue maximization.”

Ripley noted that another consideration was creating enough of a gap between the wholesale price the RSNs charge to MVPDs and the retail price for the new direct-to-consumer app.

It has been widely reported that Sinclair has hired investment bankers Moelis & Co. and LionTree as consultants on reworking Diamond’s financial structure. Ripley confirmed that the two are assisting the company on its effort to deleverage and said Sinclair/Diamond is “very open to any and all strategies” to achieve that.

“There’s no sale process, but they’re talking to parties about deleveraging, establishing partnerships, things of that nature,” Ripley later explained.

Looking at the current fourth quarter, Diamond Sports CFO Scott Shapiro told analysts and investors to expect media revenues of $634 million to $640 million. That includes distribution revenues of $553 million to $555 million and advertising revenues of $76 million to $80 million.