Light Reading
Money makes the sports world go around, leading to glut of choices and lower value for all but most avid fans.

The Greening of the US Sports Ecosystem

John Mansell
8/30/2013
50%
50%

As a college student in the summer of 1974, during cable TV's truck-chasing era, I sold cable TV. When students returned to Ann Arbor in September, going door-to-door selling 12 channels of cable TV for $5 per month was a breeze. Even the blind and deaf were buyers.

I would meet objections by pointing out that cable costs less than taking your family to a movie or a baseball game, especially when factoring in food, drinks, and babysitter fees.

It was true then. It's true now. At that time, however, we were hungry for more entertainment options. Now, we are quite sated.

Casual sports fans complain about high fees and unwanted channels, while Netflix, Hulu, Apple, Amazon, Google, and Roku provide only limited choices.

We have arrived at an inflection point that is complicated by retransmission consent and lack of pricing discipline in the sports ecosystem supply chain.

Competing cable, satellite, and telco distributors (MVPDs) have little leverage in the face of sports programmers. Balking at the affiliate fees sought by a popular sports network and dropping the channel translate into subscriber defections.

Sports networks, armed with pricing power, have little incentive to bid judiciously for programming. Soaring rights fees can be passed through to MVPDs via higher affiliate fees.

Teams and leagues use windows, geographic limitations, and an auction atmosphere to effectively force "winning" bidders to rationalize their investments via higher affiliate fees.

And programmers are becoming middlemen. Their suppliers -- teams, leagues, college conferences, and sanctioning bodies -- have their own networks or demand equity.

We could put a caption here but we think you get the drift.
We could put a caption here but we think you get the drift.

Sports interests have challenges, too. In 2012, the average NBA player made $5.2 million, according to Forbes. The average MLB player salary was $3.2 million, followed by $2.4 million for NHL players and $1.9 million for NFL players.

Chicago White Sox owner Eddie Einhorn put it best: "The money goes in one pocket and out the other."

It's not so much that individual sports networks have hiked prices dramatically, it's the rising number of sports networks.

Instead of the handful of services a decade ago, there are now more than two dozen national and three dozen regional sports networks in the US, not counting Fox Sports 1 and the planned SEC Network.

Cross-ownership, vertical integration, and over-the-top competition exacerbate the challenge of developing some sort of pricing discipline.

RSNs once carried a limited number of MLB, NBA, and NHL home games. Now they distribute more than 80 percent of all games. National networks carry most of the rest.

The wholesale cost of sports programming to MVPDs is about $15 to $17 a month, which works out at 40 percent to 50 percent of total MVPD programming costs. Yet sports accounts for only about 20 percent of viewership.

It is heaven for avid sports aficionados. For a shrinking middle class of casual- and non-fans, however, the cost-benefit calculus is tenuous. The perceived value has declined.

Breaking the cycle of exorbitant player salaries, soaring rights fees, surging sports programming costs, and rising consumer prices is no small feat. But it's high time for a comprehensive examination of the sports universe.

Unfortunately, many industry solutions and potential public policy initiatives are fraught with unintended consequences. MVPD consolidation, for example, would cut into the leverage of sports interests, but might adversely affect innovation and competition for subscribers.

Suppose programmers were prohibited from imposing minimum-tier subscriber percentages and MVPDs were free to market high-cost programming la carte or on a sports tier. Sounds good, right?

Tinkering with tiering, most-favored nation clauses, and retransmission consent bundling, however, might lead to stringent regulatory oversight and regulation of wholesale prices.

What if sports leagues and college conferences were barred from sharing revenue and each team/university was responsible for distributing its own games without geographical limitation?

This might lead to higher rights fees for the most popular large market teams and lower fees for poor-performing small-market teams. How would this affect the competitive balance that leagues have achieved via salary caps and revenue sharing?

How about a closer look at the billions of dollars in public subsidies that have facilitated the massive new stadium/arena construction binge over the past 20 years?

These are complicated issues rife with First Amendment, antitrust, copyright, and contractual implications.

Shed no tears. Most MVPDs, sports networks, and sports team owners have had superior returns on their investments.

As for the consumer, MVPD service remains an incredible bargain, provided, of course, that you're an avid sports fan.

— John Mansell, President, John Mansell Associates Inc.

(11)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Page 1 / 2   >   >>
albreznick
50%
50%
albreznick,
User Rank: Blogger
9/6/2013 | 5:45:13 PM
Re: Global reach
Perhaps, John. Such an evolution could make a lot of sense. But who would do the subsidizing? Broadcasters? Pay TV providers? Other viewers? The feds? It's hard to imagine paying folks to take pay TV.  
jman3136
50%
50%
jman3136,
User Rank: Light Beer
9/3/2013 | 3:41:52 PM
Re: Global reach
I think a variety of options will be available at different price points for different levels of service enhancements.  There have been no riots as more and more top-flight post-season sports events have migrated to cable.

The day may come when there is little or no broadcasting, since the spectrum is more valuable for wireless.  Anyway, only about 10-15% of the public still relies exclusively on over-the-air.  As economist Tom Hazlett has noted, it would be cheaper and more efficient to subsidize those households to take some sort of multi-channel service.  The system doesn't collapse.  It evolves.
albreznick
50%
50%
albreznick,
User Rank: Blogger
9/3/2013 | 2:36:29 PM
Re: Global reach
Thanks, John. Do you ever see the really big sports events, like the Super Bowl or World Series, going totally OTT or exclusively on pay TV tiers? Or would that cause too big a riot? What sporting events will be left on (free) broadcast TV? At what point does the entire system finally collapse under its own weight?   
jman3136
50%
50%
jman3136,
User Rank: Light Beer
8/30/2013 | 2:41:04 PM
Re: Global reach
Alan, wouldn't be surprised to see some collaboration between OTT and MVPDs, but remember MVPDs are also doing their own form of OTT with TV Everywhere.  Smaller schools, leagues and even high schools have their own websites.  More and more games are widely available.  I think it was Universal Sports that migrated from the Internet to RSN syndication to NBC Sports.
albreznick
50%
50%
albreznick,
User Rank: Blogger
8/30/2013 | 1:51:46 PM
Re: Global reach
John, do you think the MVPDs and OTT players will eventually team up to do a la carte offerings or at least smaller bundles of sports or other programming? Coulfd the smaller schools, conferences and lagues put together their own OTT offerings to go around the big TV networks?  
jman3136
50%
50%
jman3136,
User Rank: Light Beer
8/30/2013 | 1:39:01 PM
Re: Global reach
I agree. OTT will be the driver for a la carte and MVPDs will likely offer customers more individualized options--perhaps tiers where customers can choose from a basket of channels.  As video margins erode, there's always broadband, small-medium business and no doubt other offerings down the road.  As my boss Paul Kagan once said, "Cable is a forever business."
mendyk
50%
50%
mendyk,
User Rank: Light Sabre
8/30/2013 | 1:27:38 PM
Re: Global reach
Despite John McCain, a la carte is far more likely to emerge in OTT rather than in conventional video services. There's still a lot of mileage left in the standard model -- although value will continue to erode slowly over time. Do you think that's something video service providers can live with?
jman3136
50%
50%
jman3136,
User Rank: Light Beer
8/30/2013 | 1:12:53 PM
Re: Global reach
I agree, Fox, Viacom, CBS, Comcast/NBC Universal and ABC/Disney would be losers in an a la carte world, but smaller programmers without retransmission consent options would be bigger losers.  A MVPD CEO once told me that a la carte is inevitable, but "it won't happen until we're ready for it to happen." 
mendyk
50%
50%
mendyk,
User Rank: Light Sabre
8/30/2013 | 12:25:09 PM
Re: Global reach
The biggest push for maintaining status quo may in fact come from content distributors like Disney/ESPN. The noise they are making with their various OTT experiments is just that -- noise. Dis/E and others like it have the most to lose if a la carte (or OTT, or some Babel-like combination) becomes the norm.
jman3136
50%
50%
jman3136,
User Rank: Light Beer
8/30/2013 | 12:15:32 PM
Re: Global reach
There are no easy solutions.  Multichannel video program distributors (MVPDs) should have the ability to tier as they wish and offer expensive programming a la carte without programmers dictating the tier.  Of course, sports programmers can adjust by raising their wholesale fees, but their ad revenue would be be negatively impacted and with less revenue sports nets might be less willing to pay higher rights fees to teams and leagues.  In addition, fewer sports teams, leagues and colleges would find it attractive to establish their own networks.

Consolidation of MVPDs would translate into less leverage for the sports nets, since it would be more difficult for subscribers to switch MVPDs in the event of a pricing dispute.  That, too, is an imperfect solution, because there might be less consumer choice.  Also, vertical integration comes into play.  Comcast, Time Warner Cable and other MVPDs have significant interests in RSNs and some national sports programmers.

An FCC report, Congressional oversight, and the threat of rate regulation--a raised eyebrow--might lead to a bit of downward pressure, too, but any type of rate regulation would be ill-advised and lead to other unintended consequences.
Page 1 / 2   >   >>
More Blogs from Column
Defining SDN realistically will help carriers cut through the hype, says Sunil Khandekar, CEO of Alcatel-Lucent's Nuage Networks.
They can go from also-rans to leaders -- if they don't mess up.
The benefits of SDN are hard to grasp because they're so big. But NFV provides a nice, finite-value proposition.
Intensive end-to-end test and measurement is essential to ensure the smooth rollout of new services like VoLTE.
European Union roaming regulations are opening the doorway to an enhanced consumer experience and higher market growth.
Flash Poll
LRTV Documentaries
Sprint's Network Evolution

7|24|14   |   14:59   |   (0) comments


Sprint's Jay Bluhm gives a keynote speech at the Big Telecom Event (BTE) about Sprint's network and services evolution strategy, including Spark.
LRTV Documentaries
BTE Keynote: The Software-Defined Operator

7|24|14   |   18:43   |   (1) comment


Deutsche Telekom's Axel Clauberg explains the concept of the software-defined operator to the Big Telecom Event (BTE) crowd.
Light Reedy
Numbers Are In: LR's 2014 Salary Survey

7|24|14   |   1:25   |   (6) comments


Our fourth annual Salary Survey paints a picture of who's hiring, firing, earning, and yearning for a change in the telecom industry.
LRTV Custom TV
Driving the Network Transformation

7|23|14   |   4:29   |   (0) comments


Intel's Sandra Rivera discusses network transformation and how Intel technologies, programs, and standards body efforts have helped the industry migration to SDN and NFV.
LRTV Custom TV
Distributed NFV-Based Business Services by RAD

7|18|14   |   5:38   |   (0) comments


With the ETSI-approved Distributed NFV PoC running in the background, RAD's CEO, Dror Bin, talks about why D-NFV makes compelling sense for service providers, and about the dollars and cents RAD is putting behind D-NFV.
LRTV Custom TV
MRV Accelerating Packet Optical Convergence

7|15|14   |   6:06   |   (0) comments


Giving you network insight to make your network smarter.
LRTV Custom TV
NFV-Enabled Ethernet for Generating New Revenues

7|15|14   |   5:49   |   (0) comments


Cyan's Planet Orchestrate allows service providers and their end-customers to activate software-based capabilities such as firewalls and encryption on top of existing Ethernet services in just minutes.
LRTV Custom TV
Symkloud NVF-Ready Video Transcoding, Big Data

7|9|14   |   3:41   |   (0) comments


Kontron and ISV partner Vantrix demonstrate high-performance video transcoding and data analytic solutions on same 2U standard platform that is ready for SDN and NFV deployments made by mobile, cable and cloud operators.
LRTV Huawei Video Resource Center
The Evolving Role of Hybrid Video for Competitive Success

7|4|14   |   4:09   |   (0) comments


At Huawei's Global Analysts Summit in Shenzhen, China, Steven C. Hawley from TV Strategies speaks to us about the evolving role of hybrid video for competitive success.
LRTV Huawei Video Resource Center
How CSPs Leverage Big Data in the Digital Economy

7|4|14   |   4:48   |   (2) comments


Justin van der Lande from Analysys Mason shares with us his views on how telecom operators can leverage customer asset monetization with big data. His discusses the current status of big data applications and the challenges and opportunities for telecom operators in the digital economy era.
LRTV Huawei Video Resource Center
Accelerator for Digital Business Future Oriented BSS

7|4|14   |   3:08   |   (0) comments


Mobile and internet are becoming intertwined; IT and CT are integrating; and leading CSPs have begun to transform to information service and entertainment providers. How should the BSS system evolve to enable this transformation? Karl Whitelock, an analyst at Frost & Sullivan, shares his views.
LRTV Huawei Video Resource Center
Orange Tunisia Discusses Multi-Band Antenna With EasyRET Solution

7|4|14   |   2:45   |   (0) comments


As new site acquisition becomes more difficult, Orange Tunisia has requested multi-band antenna to support UMTS and LTE innovation. Some things considered include reducing the cost of antenna maintenance and having high reliability antenna and EasyRET solution.
Upcoming Live Events!!
September 16, 2014, Santa Clara, CA
September 16, 2014, Santa Clara, CA
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
Packet Design asks network professionals how they handle the cloud, SDN, and network management.
Hot Topics
The Municipal Menace?
Jason Meyers, Senior Editor, Utility Communications/IoT, 7/22/2014
Cisco Puts a Fog Over IoT
Sarah Reedy, Senior Editor, 7/23/2014
Apple Earnings: Strong iPhone Sales, iPad Sales Slump, $7.8B Profit
Mitch Wagner, West Coast Bureau Chief, Light Reading, 7/22/2014
Salary Survey Report 2014
Sarah Reedy, Senior Editor, 7/23/2014
Facebook: 30% of Users Are Mobile-Only
Mitch Wagner, West Coast Bureau Chief, Light Reading, 7/24/2014
Like Us on Facebook
Twitter Feed