Basketball Local Streaming Launches, Still Missing Key Target

Earlier this year the NBA became the first league to officially hand over local digital rights to its teams and local media providers, contrary to the tight control that MLBAM has kept over local rights. After no movement last season, and a trial run by the Yankees and Padres during baseball, the Sixers and Blazers both went to market with local streaming offers at the start of this season.

The Blazers plan to charge a la carte or flat rate for the full package of 15 games, but thats where the problem starts – 15 games. Portland plans to stream the 15 games scheduled for over-the-air broadcasts, none of the remaining games to which Comcast Northwest hold the rights. Portland is one of the markets with carriage problems preventing fans from watching the team. CSN Northwest does not have carriage deals with Charter, Dish, or DirecTV.

This is where live streaming is most valuable, the fans who can’t receive the broadcast on television. Those fans likely have a higher willingness to pay for live streaming, a higher likelihood of using advanced online features and becoming the type of engaged user that advertisers covet. Yet, Comcast excludes them, just as the Yankees and Padres did during the season.

We understand offering it to subscribers that also receive the cable network to prevent cannibalization and prevent free riding from undermining the cable business. But its still hard to convince those customers to pay incremental fees to watch on a laptop the same game they can watch in HD on the big screen, though the number of people interested continues to grow.

However, fans that are not cable subscribers – or not subscribers to a provider with carriage of the local rights holder – arguably have more overall value. If CSN has a functional authentication process in place, it could still offer the package for non-subscribers, possibly using price discrimination and charging a higher fee since they don’t technically pay affiliate fees for your cable channel. The team benefits by extending its digital marketing platform and adding value to the advertising inventory, the right holder benefits by luring in valuable new customers. Customers from Comcast competitors, and customers from the same MSO’s that CSN is negotiating carriage deals with. And everyone earns additional revenue.

Why would CSN not want to make money off customers from the same companies that won’t carry its channel. It could help provide leverage in the carriage negotiations. If not, at the very least, it increases revenue and may help add a premium price component to the product if they can charge non-subscribers a higher rate.

The team and rights owner both maintain control and it’s paid content, so I’m not sure why none of the local streaming deals has gone this route yet. It’s possible the authentication schemes are not as advanced as providers would lead us to believe, its possible they want to take baby steps for now, but for streaming to move the needle it needs to be accessible to the entire local market using a well-thought, profitable pricing scheme.

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Why Even Fight, Customers Not Demanding Two Olympic Cable Channels

For a moment, put aside the fact that the USOC completely dropped the ball by announcing the launch of its Olympic TV Network without having the IOC on board, without previously working with other NGB’s to secure rights, and without some handshake agreement with NBC – the TV czar of all things Olympics. Even without these factors, launching this network is still a bad decision.

NBC partnered with InterMedia Partners for Universal Sports, a network essentially premised on the same strategy as Olympic TV Network. It fit well into NBC’s Olympic coverage, where NBC disperses events across a group of cable networks. However, the two years between Olympics remain somewhat of an abyss.

If ever there was a time to push the Olympic theme, I agree now is that time. Michael Phelps is still prominent in the public eye, Chicago is in the mix for the 2016 games, Bejing is still fresh in everyone’s mind, and a cable network can provide the marketing platform that Olympic sports desperately need to return to the mainstream. However, further segmenting an already small, niche audience is not typically a successful strategy. Neither is creating negative PR with in fighting among various governing bodies. The USOC-Comcast backed network launch may do more harm than good.

Clearly, with Comcast involved as an equity partner the network will get some distribution – replicating the recent strategy used by multiple sports networks to achieve wide distribution. But it goes against the current of the overall cable industry movement. Providers face a dilemma. Continuing to add programming increases MSO expenses, while competition from telcos and Internet viewers puts downward pressure on prices, squeezing profits at a time when ad dollars have disappeared. The proliferation of niche cable networks through the 1990’s and early 2000’s is not a sustainable business model for cable because none of these networks can directly increase customer revenue. Adding a second network based on programming with minimal interest outside of two bi-annual windows is not a good economic decision for MSO’s.

The USOC and Comcast would have added more value by trying to partner with the Universal Sports network and maximize the value delivered by Olympic programming. Develop a solid, singular marketing platform that promotes it as the place to go for Olympic coverage. The competition is the entire sports universe, not each other. MLB Network competes against ESPN, TBS, ESPN 2, Versus, multiple regional RSNs, TNT, and the other league networks. Another entity walking in to start a baseball-only network to compete with MLB makes no sense because you weaken each other in a fight against other behemoths that already hold an advantage.

Throw into the fire the haste the USOC showed in announcing this, and it has all the makings of a disaster. I have a hard time seeing either of these networks succeed unless they dump money into marketing and find a way to generate interest in more than Michael Phelps during the time between Olympics. And if the US lost the Chicago for reasons related to this situation, cable viewers would never forgive them.

TV Everywhere, Anywhere, Somewhere…

Programmers and cable operators, other than CBS of course, tout it as the savior, putting the proverbial “genie back in the bottle”. But the $64,000 question is if the TV industry is already too late to the game and if this plan is what can save them?

One key concept from Chris Anderson’s “The Long Tail” is how technology has democratized the tools of production, reducing the barriers of entry to previously capital-intensive businesses such as television. This raises a few fundamental questions about the TV Everywhere plan. What prevents someone from recording a show on DVD (or a networked DVR for that matter) and putting it on the Internet through a pirated video site? Legal authorities can do only so much to prevent illegal sites, but like it or not they exist. One only needs to look at the frustration over NBC’s tape-delayed Wimbledon coverage. Disappointed users had no problem finding a live feed on the Internet.

Technology evolves faster than corporations can react. Even if the TV Everywhere concept comes up with a successful authentication plan and finds a way to address pirating, how long before someone figures out a way to beat the system. Shedding light on Cablevision’s recent court victory allowing it to deploy remote DVR, it may actually help the industry in the end. A DVR is yet another Internet-capable device in the possession of users that consumers can use to put unlicensed content online. Removing these boxes from cable homes can help prevent this. It may sound farfetched, but its not outside the capabilities of the increasing tech-savvy world.

Putting the genie back in the bottle is tougher than it sounds. It’s like telling kids not to smoke. They know about it, they have seen it, telling them smoking is bad only makes them want to do it more. Giving the customers free content, then taking it away from them, will only inspire them to want to find ways to get it free.

Bringing up another Chris Anderson concept, one I don’t agree with, free does not work. It killed music, its killing broadcast television, its ruining newspapers, and it will destroy everything in its path. iTunes did not save music. 99 cents is not sustainable revenue. Kindle is about to ruin the book industry with its low-cost business model. Offering services free drives user numbers, not businesses. The key is to find ways for the product to drive usage and squeeze as much revenue out of the situation as possible – something Apple has done well for the most part, in selling premium products.

TV Everywhere is necessary. Content providers will not remain sustainable in the long run if they can’t charge for content. TV Everywhere is the effort to save big programmers. If it fails, and users begin an attrition from cable to online, revenues will start to shrink, programmers will be unable to afford content development, and users will be left with a smattering of UGC and You Tube videos to watch.

Obviously, its an exaggeration, but it’s the path the industry is heading towards. Leno at 10PM is the first step, a major network unable to afford traditional programming due to shrinking revenue. It may take years to manifest itself, but successfully charging for online content and maintaining current revenue levels with reasonable growth is necessary for the industry to avoid disaster.

Comcast Sportsnet Digital Strategy Remains Elusive

A few weeks back I read a Washington Times article (http://tinyurl.com/m2qaew) about CSN Mid-Atlantic ramping up its digital presence with web exclusive content, more video, and adding digital correspondents, but mentions the lack of central office support from Comcast. It prompted me to do an unscientific look around the Comcast RSN digital properties to see if they were making a coherent push online across the board, or if the Times reports was true and it’s a decentralized effort.

It appears somewhat decentralized, though many are learning lessons from other markets to keep up with the competition. The disparity from region to region is amazing. First, Mid-Atlantic deserves credit because they have put together a solid digital plan and are executing well. The site has a clean design that is easy to navigate and enjoyable to view – something most of the Comcast RSN websites do share. However, Mid-Atlantic has tremendous content depth and takes advantage of new media features. The site offers an extensive lineup of bloggers, podcasts covering all the major teams in the area, extensive video on the home page and each of the team pages (though I had trouble with the video player), social network tie-ins, message boards, and lots of editorial about all the teams in the area. Mid-Atlantic also offers Fantasy Games and a fan membership club. On the surface, they are taking advantage of what digital can do to complement a linear cable network.

My expectations now high, I checked out Chicago, New England, Northwest, and Bay Area. New England and Bay Area offer many of the same features as Mid-Atlantic. Execution and design varies region to region, but from a high-level they are similar offerings. Chicago surprisingly lacked any fan integration or social networking options. It’s video centric and has a solid lineup of bloggers, but I didn’t get the same perception of content depth that Mid-Atlantic has. It also lacks current athletes, something New England and Mid-Atlantic use successfully – nothing drives traffic like a high-profile name.

At the bottom of the barrel, Northwest is barely a web presence. It offers no content that I can’t find on another site. The URL is basically a basic information site with ads plastered around – no blogs, no video, no editorial, no sign of a digital staff.

I am particularly curious how Chicago plays out, since the 800-pound gorilla entered the room recently when ESPN launched ESPNChicago.com. The implicit marketing push and the big names it can pluck from the mothership can move the needle in the market, something Comcast needs to be concerned with – and every RSN in a major market must prepare for because I doubt ESPN stops with Chicago. The ESPN site lacks depth right now. It’s front is unique, and it leverages the local ESPN radio affiliate for local talent to write editorial content and create multimedia features, then it pulls in Chicago relevant content from ESPN.com to fill the site out. However, the link to team pages directs you to the ESPN.com page. It makes sense, but lacks that local authenticity.

Overall, its surprising that each Comcast market is not more closely modeled both functionally and aesthetically, especially use the audience is not the same. However, most of the big markets are doing a solid job, likely thanks to competitive forces since each market has multiple RSN’s. One thing all the sites need to work on is the video player in preparation for local streaming agreements with NBA and MLB teams. The players seem geared for short-form video, not a full screen dedicated player that works for streaming. Another key is compelling content. I think prominent newspaper writers have a place on RSN websites, as do current and former athletes with a strong perspective. Both can bring an audience.

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.