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Home Pete Toms LWIB: MLB Clubs "Cutting the Cord", Plus Tidbits

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Pete Toms Article Archive
Written by Pete Toms   
Monday, 13 December 2010 15:27

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, more on the “cord-cutting” debate, plus tidbits.

MORE ON CABLE CORD CUTTING

If you are a regular reader of LWIB you know that one of my favourite subjects this year has been the importance of cable TV to the biz of baseball. The recent 20 year extension of the Texas Rangers deal with Fox Sports Southwest for a reported $1.6 billion put an exclamation point on the trend of MLB franchises reaping huge revenues for local broadcast rights from Regional Sports Networks. (RSNs) Comcast, the country’s largest cable provider, shares equity with several MLB franchises in RSNs that they operate. MLB launched their own cable channel, MLB Network, in January 09. The iN Demand cable consortium owns a minority stake in MLB Network. Some clubs have launched their own RSN. In a nutshell, MLB is deeply invested in cable and vice versa. Two weeks ago I brought attention to reports that, for the first time ever, there were consecutive quarterly declines in the universe of multichannel video subscribers. (aka “cord cutting”) A debate ensued amongst the media punditry over whether the “cord cutting” was a result of the growing popularity of Over-The-Top TV (aka, watching TV over the web) or simply belt tightening by consumers. Most pundits opted for the latter explanation.

The windfall of revenues in MLB from local broadcast deals has resulted from a belief amongst multichannel video providers and programmers that live sports is key to stemming “cord cutting”. LWIB, Glenn Enoch, the vice president for integrated media research for ESPN, was everywhere in the media media disseminating the message that the recent reports of cord-cutting are exaggerated (media pundits agree that, to date, in the overall cable universe, cord-cutting is virtually nil), particularly amongst sports fans. From Brian Stelter in The New York Times:

Seeking to understand the cutting of cable cords, ESPN has waded into the Nielsen Company’s audience sample and concluded that the cancellations are currently a “very minor” phenomenon.

AND

Sporting events are particularly hard to watch free online, so it comes as little surprise that the Nielsen sample found that among heavy and medium viewers of sports, the research showed what Mr. Enoch called “zero cord-cutting.”

ESPN’s findings in the Nielsen “cord-cutting” data is consistent with the sports industry’s hope/belief that sports programming is indispensable to cable TV providers and programmers. This, the same strategy that has been enormously lucrative for many MLB clubs in recent years. However, LWIB there were reports which included remarks from very senior cable and sat executives, that argued against the prevailing wisdom of live sports programming being the antidote to “cord-cutting”. Some cable and sat executives openly questioned if sports channels, which command the highest subscriber fees, are actually contributing to “cord-cutting”. From John Ourand at the SportsBusiness Journal (Note, Melinda Witmer is Time Warner Cable’s executive vice president and chief programming officer. Derek Chang is DirecTV’s executive vice president of content strategy and development):

Cord cutting is a real threat that could wind up hurting sports networks more than any other cable channels.

AND

“Cord cutting is potentially one of the biggest issues that the sports industry needs to think about,” said Witmer, speaking on a separate panel at the conference. “[Sports rely] on a large consumer base, a substantial percentage of which don’t consume sports, to pay for it and to provide the advertising base that will pay for it. For every consumer that wants to watch cooking shows and decides that cord cutting satisfies that itch, the loss economically to sports providers is disproportionate to the potential loss of the network providing cooking programming.”

AND

Both Chang and Witmer said the high cost of sports networks has pushed consumer bills to a point that it increases the likelihood of cord cutting.

SELECT READ MORE TO SEE DETAILS ON THE DODGERS, PADRES AND ASTROS IN THE CORD CUTTING COVERSATION, PLUS TIDBITS

No doubt the Padres, Dodgers and Astros are amongst the clubs intently monitoring the cable landscape. The Padres local rights deal with Cox Communications is entering its final year. Padres owner Jeff Moorad is reportedly hoping to triple the current, reportedly, $16 million annual fee from Cox. The Padres are counting on one, or some, of DirecTV, Dish Network and AT&T to compete with Cox since the FCC closed the “terrestrial loophole” that allowed Cox to monopolize the Padres local rights. As well, the Padres are hoping that Fox Sports Net will be interested in acquiring their rights. (see more here and here) The Dodgers current local deal with Fox expires in 2013. For obvious reasons, long term planning for the Dodgers is, at best, entirely speculative. But during the McCourt divorce proceedings, court filings revealed that the club was considering launching their own cable channel once the current Fox deal expires. The newest Comcast RSN, CSN Houston, will launch in 2012. The Astros and Houston Rockets reportedly own a combined 77.5% of the channel. While Comcast is the dominant cable provider in the Houston DMA, they service less than ½ of that pay TV subscriber universe. (see here) Impending carriage negotiations with sat providers, telcos and other cable providers will be important to the financial success of the new channel. But will the Astros, Padres and Dodgers soon discover that the demand from cable and sat for more sports channels has been maxed out? Ben Klayman recently asked that question for Reuters:

However, with rising sports programing costs sparking a chorus of complaints, count News Corp Chief Operating Officer Chase Carey among those skeptical that more sports networks can be sustained.

"People are carrying that a dimension too far," he said at the Reuters summit. "Everybody falls in love with it.

"You've had decades where it's been a quantity game and everybody's adding," he added. "You're actually now heading to a quality game and as you have more choice you really want to figure out how do you have quality channels as opposed to a strewn level of niche channels."

Perhaps the recent comments from industry heavyweights Melinda Witmer, Derek Chang and Chase Carey are only a continuation of the never ending battle between teams/leagues and multichannel providers/programmers over the rising cost of sports programming. Or maybe their cautionary words will prove prescient. Maybe sports programming has become too expensive for cable. Either way, the question of whether sports programming is stemming, or contributing to “cord-cutting” is crucially important to MLB. Lastly, again from the aforementioned Ben Klayman report:

However, it's hard for leagues to ignore the rising broadcast rights being paid for games, Time Warner CEO Jeffrey Bewkes said.

"The value interest in sports keeps going up ... if you look at the ratings, the affiliate support, the advertising support, the revenue," he said.

"There seems to be a high economic support level for both national leagues and regional or local sports, so I don't know where it ends."

TIDBITS

  • A bit more than one year ago I blogged about how collusion (or more accurately, allegations of collusion) amongst owners in the free agent market was still a point of contention between the PA and the owners. Liz Mullen reported in the SportsBusiness Journal that the PA is a little happier about the current state of affairs in the free agent market:

It’s early, but there are signs that the new rules that the MLB Players Association negotiated with MLB to speed up the pace of the free agent market are working, MLBPA Executive Director Michael Weiner said last week.

“As a preliminary matter, there seems to be an increased amount of activity at this stage of the season, and we view that as a positive,” Weiner said.

Weiner said that he wasn’t in a position to quantify the increased activity but that it included more discussions and more exchanged offers on players, as well as more deals being reported. “That is an initial impression, not a final conclusion,” he said.

  • It appears that the fate of the orphaned Triple A Portland franchise has been settled. Padres owner Jeff Moorad signed an MOU with the San Diego suburb of Escondido that will result in a new ballpark constructed for the minor league team. The new park is scheduled to be complete for the 2013 season. This season and next the franchise will play out of Tucson. See Ballpark Digest.
  • It was announced during the Winter Meetings that MLB and MiLB have extended their PBA (professional baseball agreement) through the 2020 season. The agreement was set to expire in 2014. Boring stuff, right? I think so, but in reading about this I learned something. Did you know that MiLB kicks money up to MLB from ticket revenue? From Josh Leventhal at Baseball America: “A source who requested anonymity said the only significant change will be on the tax rate minor league teams will pay major league clubs on ticket revenue. The rate was supposed to increase from 6.5 percent to 7 percent after the 2014 season, but will remain at 6.5 percent for an additional two years, the source said.”
  • LWIB, Joel Hammond of Crain’s Cleveland Business complained in a few different posts of the growing competitive imbalance in MLB. Mr. Hammond’s disgruntlement arose from the Red Sox acquisitions of Adrian Gonzalez and Carl Crawford. I understand how it irks an Indians fan to see Cliff Lee, CC Sabathia and Victor Martinez depart for greater riches but I’m not so certain that the Red Sox moves this off season are a sign of increasing competitive disparity. After all, as Ken Belson noted, the BoSox also shed $40 million plus in salary obligations.

Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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