Cable Providers And Sports Networks Continue Stand-Off

In one corner stands the cable and satellite providers. Criticized for rate hikes, standing tall against adding niche sports programming to its basic package forcing further price increases by customers who have no interest in the programming. Across the ring, sports programmers, notably NFL Network and the Big Ten Network along with all other league or sport-specific channels. Seeking wide distribution to maintain sustainable, at high per subscriber rates – some of the most expensive in the cable industry. Stuck in the middle: the consumer. Looking for the best of both worlds, access to the programming and lower cable rates, feeling neglected and disenchanted by both sides. Somewhere a compromise exists.

So far the providers have the upper hand. No league network has basic cable access yet. The Major League Baseball channel will when it launches next year, but gave up an equity stake in the network to each major provider and charged lower subscriber fees to earn that right. A model the other networks should investigate and learn from.

Cable providers have a gripe with programmers, some of the rates they seek are irrational for networks that are not yet proven entities, and have a niche following. Under more pressure than ever, with telecom companies joining satellite providers as consumer programming options, cable operators must keep costs down to remain competitive, an impossibility at the rates sports networks are seeking. That same competition also brings pressure to reach an agreement with sports programmers. Customer attrition is not extreme yet, but as these new players increase their reach, consumers may opt to switch providers to get the programming they desire, rather than succumb to a sports tier.

Programmers need to get on basic digital cable tiers to have any chance to become viable. Only the die hard fans will opt to splurge for sports tiers. Carriage numbers and costs vary per cable provider, but one consistency is a significantly lower reach than basic cable. Less distribution leads to less advertising revenue and lower revenue from subscriber fees, which leads to less money for quality programming and eventually less viewers. A vicious cycle that adds up to an unsustainable business model.

League-owned networks relegated to sports tiers also risk cannibalizing themselves with their own pa-per-view packages. Fans of a particular sport may be more inclined to plop down the one-time fee for the NBA Season Pass or NHL Center Ice package to get access to all the games for one particular sport then pay for a sports tier that includes a handful of networks they have no interest in. Most season packages include broadband access, and various digital benefits that make it attractive. The more in-depth one-sport package holds more perceived value to a fan. This factor could reduce sports tier adoption.

A recent Sports Business Journal in-depth study on cable TV and sports outlined another quandary programmers face. Stuck on sports tiers, they could assist cable operators by marketing sports tiers to increase adoption, thus increasing their own revenue because they would collect that per subscriber fee from more subscribers. However, if the sports tier gains traction, cable operators have more reason not to put league networks on basic packages. A catch-22 for programmers.

A la carte programming across the board might be the best solution – or the worst, depending on how the pricing structure. The concept received further discussion earlier this year when the FCC Chairman said he sees a la carte in the near future. Just as cable programmers can argue that adding sports programming to basic cable will increase costs for many subscribers that will not watch, consumers can argue they already pay for numerous basic cable channels they don’t watch. My digital package has hundreds of channels available, I watch maybe 8-10 on any regular basis. A la carte programming levels the playing field – pay for what you want. Again, depending on the price structure that could be good or bad for consumers.

Proposed Solutions: Providers and programmers need each other. All league networks cannot be treated equal, especially when it comes to fees. The NFL is more popular than the NBA, and markedly more than the NHL (note: NHL Net is content with sports tiers for now), thus can charge higher subscriber fees. Late last year, during the NBA’s negotiations with TNT, the two sides discussed a proposal to expand NBA TV coverage to the digital basic tier on Time Warner cable systems in exchange for lower per subscriber rates. In this case, both sides win. The leagues stand to increase revenue, both in the near term and future. Though the per subscriber rate would decrease, they would collect the fee from significantly more subscribers. The unit value decreases, but the total increases. Using the wider distribution, networks can increase ad rates. By working with programmers in the short term, the league networks get their foot in the door. If ratings prove themselves out, the networks have leverage to increase fees during the renewal process. First, its important to get on that basic tier. Programmers settle for the lower fees, and make customers happy with new programming.

Another tea leaf the NFL can offer is access to it’s out-of-market package, currently licensed to DirecTV exclusively. The other major leagues already offer their packages to all providers. They could, however, provide more favorable pricing on those packages, likely much less lucrative than a mainstream network (note: without access to the books), to help sweeten the pot for programmers.

Providers are not as threatened by secondary competitors yet, however the threat lingers. Cable outlets can likely hold out longer than networks if it comes to a stare down, since they have more to offer and the network suffers more from lack of distribution. But do providers want to risk customer attrition, long, bloody, court battles, and negative public perception. Verizon and AT&T are ready to swoop right in. In the long run, providers stand to benefit from striking a deal, as long as its a sensible business deal.

Both sides need to give in a bit, no different than any other negotiations. One lesson from the MLB Network deal that bodes following is how they worked with a large group of cable providers at the same time, rather than striking individual deals. If all the major players come to the same table, a deal is more likely since the providers don’t have to worry about competitors one-upping them, and everything can remain equitable the first time around. Fees may vary based on a provider’s distribution, still having everyone at the table is beneficial.

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