Light Reading

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 ŕ 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   >   >>
Educational Resources
sponsor supplied content
Educational Resources Archive
More Blogs from Column
Wi-Fi Alliance members have created Wi-Fi Aware technology to bring local experiences to life -- without requiring access to the Internet or GPS.
Bamboozled by the flood of abbreviations and acronyms that SDN and NFV have inspired? Here's a guide to some of the key standards bodies whose initials you will need to know.
Networks of the future will rely on "white box" switches and servers rather than proprietary hardware and that's going to alter the shape of the communications industry. Who says so? John Chambers.
There are a number of key questions to consider before any SDN migration plans are put into action.
Bigger. And Better. But definitely bigger.
Flash Poll
From The Founder
Networks of the future will rely on "white box" switches and servers rather than proprietary hardware and that's going to alter the shape of the communications industry. Who says so? John Chambers.
LRTV Custom TV
The Benefits of HyperScale Clouds for NFV

3|27|15   |   01:50   |   (0) comments


Hyperscale cloud has been developed by the Internet giants to support the creation and delivery of software-based services at blistering speeds, and at the lowest possible cost. The original ETSI NFV vision was to adopt hyperscale cloud architecture and practices. This vision has become somewhat obscured along the way, due to misunderstandings about the hyperscale ...
LRTV Huawei Video Resource Center
eLTE Rapid Meets the Need for Speed

3|26|15   |   4:45   |   (0) comments


Designed especially for emergency and dedicated ad hoc local mobile communications coverage, Huawei's eLTE Rapid solution can deliver trunked voice, video and data coverage for multiple users over a 6km range and be set up in just 15 minutes, explains Huawei's Norman Frisch.
LRTV Huawei Video Resource Center
On Videos: Challenges & Opportunities

3|26|15   |   5:56   |   (0) comments


Most everything is now connected. And along with 4K and 4G technologies, everyone could be creating and broadcasting video contents. Users are expecting better video experience with any screen, anywhere and anytime. Operators will meet new challenges, but also see some big opportunities.
LRTV Custom TV
JDSU: Delivering Dynamic Networks for a Personalized Experience

3|26|15   |   5:59   |   (0) comments


Light Reading speaks to JDSU at Mobile World Congress 2015 about new solutions in the areas of HetNets, VoLTE, backhaul, virtualization, big data analytics, and real-time intelligence.
LRTV Custom TV
Smarter Service Chaining & New Ways to Benefit From Qosmos Technology

3|25|15   |   03:11   |   (0) comments


David Le Goff, director of strategic and product marketing at Qosmos, explains how the company has added application awareness to subscriber information to make service chaining more efficient and reduce costs for networking and infrastructure. In addition, Qosmos technology, which has been delivered as C libraries, is now also available as a virtual machine, ...
Between the CEOs
Qosmos CEO: The Changing Face of DPI

3|24|15   |   13:53   |   (0) comments


LR CEO and Founder Steve Saunders sits down with the head of Qosmos to talk about the changing state of the art in deep packet inspection technology, including its role in SDN and NFV architectures. Also, how the comms market is becoming more like the automotive industry.
LRTV Huawei Video Resource Center
FC Schalke Scores With Its Agile Stadium

3|24|15   |   6:23   |   (0) comments


Top German soccer club FC Schalke 04 has deployed a new, agile WiFi network from Huawei in its Veltins-Arena stadium and is reaping the benefits in terms of customer satisfaction and business opportunities, explains marketing chief Alexander Jobst.
LRTV Huawei Video Resource Center
Huawei’s Insights on Mobile Video

3|24|15   |   7:51   |   (0) comments


More people than ever are now watching videos on smartphones. Seventy percent of mobile traffic will be video traffic until 2018. In this video, Huawei's exports give their insights on mobile video in terms of business model, network planning and 4G network construction.
LRTV Documentaries
The Rise of Industry 4.0

3|24|15   |   02:26   |   (9) comments


Are you ready for the fourth industrial revolution? It's a big deal for influential operators such as Deutsche Telekom.
LRTV Huawei Video Resource Center
Getting Connected With eLTE

3|23|15   |   06:04   |   (0) comments


Trunked radio communications have entered the 4G LTE world, and with Huawei's eLTE solution, can now deliver a full range of data and video services as well as push-to-talk voice, explains Huawei's Norman Frisch.
LRTV Huawei Video Resource Center
Funkwerk’s on Track With Huawei

3|19|15   |   3:23   |   (0) comments


GSM-R technology specialist Funkwerk and Huawei have forged a partnership that is benefiting both parties, notes Funkwerk's Gottfried Winter.
LRTV Documentaries
How EANTC Tested Cisco's Virtualization Solutions

3|18|15   |   5:49   |   (0) comments


Carsten Rossenhövel, managing director of independent test lab EANTC, tells Light Reading founder and CEO Steve Saunders about the innovative approach his team had to take when validating Cisco's service provider virtualization and cloud solutions.
Upcoming Live Events
April 14, 2015, The Westin Times Square, New York City, NY
May 5, 2015, Hyatt McCormick Place, Chicago, IL
May 6, 2015, Georgia World Congress, Atlanta, GA
May 12, 2015, Grand Hyatt, Denver, CO
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 8, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 9, 2015, Chicago, IL
June 10, 2015, Chicago, IL
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
All Upcoming Live Events
Hot Topics
AT&T Woos SMBs With Small-Scale WiFi
Sarah Thomas, Editorial Operations Director, 3/26/2015
Just Don't Say IBM Is 'Relaunching' Networking Business
Mitch Wagner, West Coast Bureau Chief, Light Reading, 3/26/2015
Average US Broadband Speeds No Great Shakes
Mari Silbey, Independent Technology Editor, 3/25/2015
The Rise of Industry 4.0
Ray Le Maistre, Editor-in-chief, 3/24/2015
Google Hires Wall Street's Most Influential Woman as CFO
Dan Jones, Mobile Editor, 3/24/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
LR CEO and Founder Steve Saunders sits down with the head of Qosmos to talk about the changing state of the art in deep packet inspection technology, including its role in SDN and NFV architectures.
Chattanooga’s EPB publicly owned utility comms company has become a poster child for how to enable a local economy using next-gen networking technology. Steve Saunders, Founder of Light Reading, sits down with Harold DePriest, president and CEO of EPB, to learn how EPB is bringing big time tech to small town America.
Cats with Phones
Interspecies Phone Love Click Here
"No, you hang up."
"No, YOU hang up."
Latest Comment