In 2022, it was announced that Apple signed a 10-year deal with Major League Soccer (MLS) to be the global streaming provider for MLS games. The deal, worth at least $250 million and with the potential for MLS to earn more depending on how popular the service is, might sound rather insignificant in the larger business and investing world. After all, MLS trails far behind some other American sports leagues in popularity, and even among soccer fans in the United States, many prefer other leagues around the globe, such as the English Premier League. However, the significance of the deal lies not so much in the specific impact that the deal has on Apple or MLS. Rather, the deal highlights a much larger trend, the shift to streaming, which is incredibly significant.

The Old Model of Sports and Television

The traditional linear television model has seen consumers paying a monthly fee to a cable or satellite provider for a package of channels. Consumers had relatively few choices. Many people only had one cable provider in their area, and otherwise, the only other choices were satellite providers or relying solely on over-the-air broadcasts.

Choices were also limited with regards to packages. Cable and satellite television providers offered a selection of a few different packages, each containing different groupings of channels. Most people ended up with packages containing tons of channels they never watched and didn’t want.

Underpinning much of the linear television model was sports. Sports, being as incredibly popular as they are, were a draw for users to sign up for relatively expensive television packages. Even if they were interested in only watching sports, consumers would sign up for expensive and comprehensive television packages just to be able to watch live sports. In other words, sports helped to power the entire linear television ecosystem.

Times were good for cable and satellite providers along with the media companies that owned the television channels. The cable and satellite providers had little competition, and media companies, which would buy the rights to show sports, were able to negotiate lucrative deals with linear television providers. For example, Disney, the owner of ESPN, generates around $10 for every subscriber that receives ESPN and ESPN2. That is $10 regardless of whether someone ever watches ESPN and ESPN 2. ESPN has generated a lot of revenue over its history from people who have no interest in sports.

The Streaming Era

The old model of television is being disrupted. The rise of streaming is changing the way content is delivered. With streaming, users are given more choices. Users who want to watch television now have the option to forgo the linear television package and either choose a television package delivered via streaming, such as YouTube TV or Hulu, or alternatively, some users are choosing to forgo television packages altogether and just subscribing to streaming services such as Netflix, Disney+, and HBO Max.

The trend of ditching linear television, called cutting the cord, is rising. A Pew Research Center survey from 2021 claimed that 21% of adults in the United States have cut the cord. Even this number underestimates the impact that streaming is having, since many younger people never sign up for linear television in the first place.

The trend of avoiding linear television is most pronounced among younger people. Pew Research Center’s survey shows that, between 2015 and 2021, the percentage of adults who receive television via cable and satellite as a whole in the Unites States declined from 76% to 56%. For people aged 18-29, the percentage decreased from 65% down to 34%. This shows that younger generations are much more likely to go without a cable or satellite television subscription.

In the future, this trend should continue. As time goes on, fewer and fewer people will subscribe to linear television services. As this occurs, the incentive to put sports on linear television will decrease. For sports leagues, linear television will no longer be the only way to reach a large audience. More and more sports leagues will start to see streaming, rather than linear television, as the means to reach a larger audience and attract new fans.

Furthermore, the current model of sports on linear television will become more unsustainable. As fewer and fewer people subscribe to cable and satellite television, media companies will earn less money in affiliate fees. The declining revenue base will make it unaffordable for some linear media companies to buy the rights to sports.

The parent company of the largest number of regional sports networks in the United States, Diamond Sports Group, has recently filed for Chapter 11 bankruptcy. The trend of regional sports networks coming under financial pressure will likely only accelerate as fewer people subscribe to linear television.

This brings us back to the deal Apple reached with MLS. The deal is proof that sports leagues are starting to view streaming in a more favorable light. To be clear, some MLS games will continue to be shown on linear television, but MLS’s presence on linear television will be minimal. MLS will be primarily relying on streaming to reach its audience.

Other leagues have also embraced streaming to a degree. The NFL has signed an 11-year deal with Amazon to stream NFL games on Thursday nights and also reached a seven-year deal with Google’s YouTube TV for the NFL’s Sunday Ticket package. Amazon also has an agreement with the English Premier League to stream 20 matches a season in Britain. These are just some of the most noteworthy sports streaming deals.

If more sports leagues turn to streaming, especially if they turn to streaming in a very all-encompassing way like MLS has, linear television will come under more pressure. Without sports to entice subscribers, many more people will likely decide to cut the cord.

Furthermore, there are many potential benefits which can derive from sports leagues signing streaming agreements like the one MLS signed with Apple rather than relying on linear television. To begin with, it gives the league greater control over the way their league is shown. Leagues can maintain complete control over the entire presentation, including pre and post match commentary. It also gives leagues more flexibility in terms of starting times. Leagues can start games whenever they want since there isn’t a limited number of television time slots available like there is with linear television channels. The viewing experience can also be enhanced by offering features such as multi-viewing windows, allowing fans to watch multiple games at once, as well as allowing fans the option to access stats live on screen as the game is progressing. In other words, sports leagues have the potential to improve the viewing experience by going to streaming, which is an added incentive for leagues to choose streaming.

Linear television will continue to lose subscribers and sports leagues will increasingly look to streaming as an alternative. This will create a cycle in which the lose of subscribers to linear television will cause sports leagues to move more and more to streaming which will in turn lead more people to cut the cord.

The Winners and Losers

The switch to streaming will bring with it winners and losers. To begin with, companies being able to offer programmatic advertising will be major beneficiaries as more and more people switch from linear television to streaming. The Trade Desk is one particular company which I believe will continue to greatly benefit from this trend. As more viewers and sports leagues switch to streaming from linear television, The Trade Desk will have more and more opportunities to place targeted adds on connected televisions.

Another winner, in my opinion, will be Netflix. Netflix, as the most established and well-known streaming company, will continue to benefit as more people cut the cord. The resources, both time and money, that consumers dedicate to television are limited. As more people cut the cord, time and money that was previously dedicated to linear television will switch to being dedicated to watching and paying for streaming services. This benefits Netflix. The trend of cutting the cord can help Netflix not only gain subscribers but also should help make subscribers more willing to pay higher fees for Netflix.

Streaming has both positives and negatives for many legacy media companies, such as Disney, Warner Bros Discovery, and Paramount Global. On the plus side, streaming opens up a new revenue stream for these companies, and unlike with linear television, it allows companies to have a more direct connection with their consumers. However, unlike with Netflix, legacy media companies have to worry about streaming cannibalizing their linear television businesses. Linear television has been very lucrative for many legacy media companies, and that line of business will shrink as consumers cut the cord. Furthermore, unlike with linear television, consumers have the ability to subscribe and unsubscribe monthly to streaming services, meaning that consumers have more ability to be selective in what they spend their money on with streaming than with linear television. This requires media companies to constantly be competing for consumers by offering must-watch new programming every month, which can be very expensive to produce. Therefore, legacy medica companies stand to both gain and lose from the switch to streaming.

Streaming stands to be a major negative for cable and satellite linear television providers. Many cable companies have lucrative broadband internet service businesses, but I do not believe that broadband internet services will completely make up for the decline of linear television. Comcast, for example, generated over $21 billion in 2022 from its video services. In a post-linear television future, cable and satellite linear television providers stand to lose much more than they gain.

Furthermore, with the option of cutting the cord freeing consumers from needing linear television, more consumers may also look for alternative internet providers rather than sticking with cable companies for internet. Wireless telecommunications companies such as T-Mobile and Verizon have started to offer wireless home internet, and new satellite internet companies, most prominently Starlink, are also a potential option for some consumers. In particular, I believe that T-Mobile and Starlink, leaders in their respective fields of 5G and satellite internet, stand to benefit as consumers become less reliant on cable companies.

Conclusion

The end of the linear television era is coming. The deal between Apple and MLS is another indication that sports will continue to increasingly move away from linear television toward streaming, and this switch will only accelerate the pace of cord cutting. While the end of linear television might not happen overnight, I think it will happen faster than some expect, and the implications, in my view, will be very significant for some companies.

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