The new owners of the Los Angeles Dodgers are expected to get $6 billion-plus for the TV rights to their team’s games.
That may be a big win for the home team, but consumers won’t be doing high-fives once they see their pay-TV bills.
The average household already spends about $90 a month for cable or satellite TV, and nearly half of that amount pays for the sports channels packaged into most services. Massive deals for marquee sports franchises are driving those costs even higher. In the next three years, monthly cable and satellite bills are expected to rise an average of nearly 40 percent, to $125, according to market research company NPD Group.
So far, people seem willing to pay. But the escalating costs are triggering worries that, at some point, consumers will begin ditching their cable and satellite subscriptions.
“We’ve got runaway sports rights, runaway sports salaries and what is essentially a high tax on a lot of households that don’t have a lot of interest in sports,” said John Malone, the cable industry pioneer and chairman of Liberty Media. “The consumer is really getting squeezed, as is the cable operator.”
A key concern is that the higher bills driven by sports are being shouldered by subscribers whether they watch sports or not. National and local sports networks typically require cable and satellite companies to make their channels available to all customers.
“I pay $98 a month for cable and half of that is for sports?” said Vincent Castellanos, 51, a fashion stylist who lives in Los Angeles. “I’ve never once gone to a single sports channel. I wasn’t even aware I was paying for it. I want my money back. Who do I call?”
Cable TV and satellite providers have long paid a premium for national sports channels such as ESPN. Now they are increasingly paying higher fees to the regional sports networks that carry local football, basketball, baseball, hockey and soccer games.
The competition has spawned turf wars for sports rights among big media companies both nationally and locally. NBC and CBS have launched their own national sports networks to compete with ESPN. Fox is expected to follow suit next year.
“There are not new pro and college games being created,” said Dan York, an executive vice president of satellite broadcaster DirecTV. “You are getting the same product being reshuffled into smaller slices at higher prices. That’s not a model consumers can continue to support.”
Cox Cable executive Bob Wilson estimated that sports account for more than 50 percent of the bill for the provider’s Southern California subscribers, even though just 15 percent to 20 percent are regular watchers. “That relationship is getting way out of whack,” he said.
For the sports leagues and teams, this is found money. When an investors group led by Chicago-based Guggenheim Partners paid $2.15 billion to buy the Dodgers from Frank McCourt last spring, many sports business analysts thought the buyers had wildly overpaid.
Guggenheim was betting that either Fox Sports or Time Warner Cable would spend big for the team. That gambit will probably pay off as Fox Sports is trying to wrap up a deal this week to keep the team on its Prime Ticket channel, according to people close to the situation.
Under the current contract expiring at the end of next season, Fox’s Prime Ticket will pay $39 million for the 2013 TV rights to the Dodgers. In 2014, that price tag would more than double — and continue to escalate for the next two decades. A Fox Sports spokesman declined to comment.
Sports costs are also rising because this programming is considered “DVR proof” — consumed live by viewers, and thus more valuable to advertisers and networks. Increasingly, consumers are opting to record other types of shows to watch later, and then fast-forwarding through the commercials.
“Sports are foolproof when it comes to ratings,” said Charles Bergmann, associate director of Mindshare, a prominent advertising buying firm. “Sports fans can’t wait to watch a game; they want to know the outcome. And that’s not traditionally the case with most prime-time shows.”
As a result, cable and broadcast channels that specialize in sports are able to command higher subscriber fees from pay-TV distributors. Walt Disney Co.’s ESPN gets more than $5 a month for each subscriber, from the systems that carry it, according to SNL Kagan. Time Warner Cable is getting more than $3 a month per subscriber for SportsNet.
Those prices are higher than those for non-sports channels. The Disney Channel, for example, gets only about $1, while Viacom’s popular MTV gets only 40 cents.
Some consumers, frustrated at the bigger bills, want more say in what they are buying.
“Why can’t I just pick and choose which channels I want?” asked Ben Hoyt, a 34-year-old video game producer from the Los Angeles area who gets Time Warner Cable service. “We’re forced into pricing models that don’t allow us to speak with our wallets.”
The idea of offering channels on an “a la carte” basis used to be sacrilege to the industry. Executives argued it would not lower prices because networks would just charge more to make up for the loss of subscribers.
But now some cable and satellite operators think it’s time to go down that road with sports.
“I wish Time Warner Cable would give me the option to offer SportsNet as a choice for my customers,” said David Shull, senior vice president of Dish Network. “I would do that deal in a heartbeat.”
The odds of a change to a la carte are long. The majority of the national and local sports channels are owned by a handful of media giants who like the current system and have the leverage to make distributors accept it.
“Our efforts are totally frustrated by this cabal of a half-dozen media giants,” said Bob Gessner, president of Massillion Cable, an Ohio-based operator.
Analyst Craig Moffett said that the Dodgers deal could put the pay-TV business in a precarious position.
“For some consumers, this Dodger channel will be the straw that breaks the camel’s back,” the Sanford C. Bernstein & Co. media analyst said. “Everyone in the television industry will be watching to see what happens in L.A.”
Source: MCT Information Services