The Co-Dependent Marriage Of TV and Sports

According to a report released this week by PriceWaterhouseCooper, the revenue earned from media rights by the North American sports industry will surpass the revenue earned at the gate by 2018, when they’ll reach $19.95 billion and $19.72 billion, respectively, fulfilling the old adage that the sports business is really the TV business.

Increasingly, the reverse is also true: The TV business is really the sports business.

More than a third of all TV advertising in the U.S. today goes to live sports, and that doesn’t include ESPN, which shows a mix of live sports and sports-related programming. Add in ESPN and the share of advertising going to sport programming would top 40 percent, Advancit Capital partner and former Fox Digital president Jonathan Miller estimated from the stage at the New York Media Festival earlier this month. Franklin_Gutierrez_hitting_HRAt the same time, according to SNL Kagan, sports networks account for nearly 20 percent of the carriage fees paid by cable and satellite operators, and that doesn’t count the portion of the carriage and retransmission fees paid to broadcasters and general-interest cable networks that can be attributed to the sports programming they carry. According to an analysis last year by MoffettNathanson analyst Michael Nathanson, the aggregate of sports rights account for as much as 50 percent of the cost of the average cable bill. Read More »

Bad Sports: ESPN Sues Verizon

No U.S. television network is more invested in, or has benefited more from the dynamics of the bundle than ESPN. The combination of must-have programming for a key segment of the pay-TV audience, and the must-carry leverage of its sister-broadcast network ABC, has given the Disney-owned sports network the power to command the highest per-subscriber carriage fees in the industry, ensure placement on basic tiers, and compel carriage of ancillary networks like ESPN Classics and ESPN Deportes.

espn_sportscenter_logoFor those pay-TV subscribers not in the ESPN demographic, however, that leverage has acted like a tax, imposing higher costs for networks and programming they don’t watch, yielding what amount to windfall rents for ESPN. Those windfall rents, in turn, have given ESPN the wherewithal to pay the skyrocketing rights fees for live sports. Thoseinflated rights fees, in turn, have become the primary economic engine of most professional and big-time amateur sports while acting as a formidable barrier to entry for would-be competitors to ESPN, yielding a virtuous cycle that reinforces ESPN’s dominant position within the pay-TV ecosystem. Read More »

Seeing Red over copyright

Having failed to put forth a competitive consumer proposition to counter Redbox’s dollar-a-night DVD rentals, the studios are on the verge of accomplishing what, from the point of view of their own economic interests, is the next best thing: they have brought the rental kiosk operator to heel and effectively forced it to accept a 28-day window after street date before it begins loading their DVD releases into its ever-expanding red maw.

On Tuesday, Redbox and Warner Bros. announced an agreement to settle the litigation the kiosk company had brought against the studio last year. As part of the deal, Redbox agreed to a 28-day “vending” window and to limit sales of used Warner discs. In return, Warner will allow Redbox to acquire its releases at a lower cost and promised to “cooperate” with Redbox on possible future digital delivery ventures.

While Tuesday’s settlement applies only to Warner, it’s widely expected that similar deals are in the works with Twentieth Century-Fox and NBC Universal, which are involved in similar litigation with the Redbox. Assuming that happens, new releases will essentially disappear from Redbox kiosks.

Make no mistake. Redbox rentals were hurting DVD sales and undercutting the studios’ other revenue streams. Its dollar-a-night rentals accounted for roughly one of every five dollars consumers spent on DVDs last year, and it returned a far smaller share of that dollar to the studios than Wal-Mart sends them when it sells a DVD. And from the studios’ perspective, the trend lines were getting worse. Something had to be done. Read More »

Can TV survive TV Everywhere?

One of The Media Wonk’s day jobs is as an analyst and curator at GigaOm Pro, the subscription-based offshoot of the popular GigaOm web site (to which I also occasionally contribute some blatherings). On Monday, the Pro site is issuing a new report The Media Wonk wrote (subscription required) on TV Everywhere, the effort by leading cable MSOs as well as some cable programmers to make pay-TV content available online to cable and satellite subscribers.

TV-EverywhereFor those of you in the Bay Area, The Media Wonk will also be appearing on some panels at the NewTeeVee Live conference in San Francisco, where the TV Everywhere report will be distributed free to attendees. Come one, come all.

The report is a good read (if I do say so myself) on the nuts, bolts, whys and wherefores of TV Everywhere. But there’s one question I didn’t really discuss in it because anyone professionally interested in TV Everywhere has probably already answered it to their own satisfaction, and it sort of would have obviated the need for the report in the first place.

First proposed by Time Warner CEO Jeff Bewkes and quickly taken up by Time Warner Cable (soon to be a separate company), along with Comcast and Verizon FiOS, TV Everywhere is self-consciously an effort to preserve the traditional pay-TV business model as viewership shifts irresistibly away from  traditional pay-TV platforms.

Multichannel News, earlier this month:

At a National Association for Multi-Ethnicity in Communications Conference general session Wednesday, panelists said operators and programmers need to find a solution quickly, as consumer demand to access content on multiple platforms continues to grow.

Mark Garner, senior vice president of distribution, marketing and business development for A&E Television Networks, said the industry continues to face a challenge in finding the right business model to offer content on multiple screens. The current strategy taken by some networks to offer content free on their Web sites jeopardizes the current affiliate fee-based distribution model with operators that, he says, represents 45% of A&E Networks’ overall revenue.

“There’s a lot of enthusiasm for maintaining the current business model,” Garner said.

And from September:

“TV Everywhere is an all-around win for those of us who love television,” Time Warner Cable chairman, president and CEO Glenn Britt said in a statement. “It will give our customers more control over content and allow them greater access to programs they are already paying for, while enhancing the distributors’ and networks’ robust business model that encourages the creation of great content.”

Fine. But how many cases can you point to in other media businesses wherein the incumbent providers were able to sustain their traditional business models with respect to digital distribution? Not many, I’d venture to say.

Bob-IgerMusic? Fuhgetaboutit. If “record companies” survive in something like their current form (which I would call a long-shot in itself) the single revenue-stream model of selling high margin “albums” containing 10-15 songs will not be how they do it.

Movies? Ask Bob Iger.

Broadcast television? As I wrote last month for GigaOm Pro:

In addition to his Hulu comments, [News Corp. COO Chase] Carey also suggested last week that News Corp. is laying the groundwork for a battle with cable operators over retransmission consent for Fox Broadcasting content. “We need to move that business [broadcasting] to a place where we are getting fair value,” he said, according to a report on the SportsBusiness Daily web site. “You have to have conviction and do what’s necessary to do.”

What’s necessary to do, in Carey’s view, is to get cable MSOs to pay for the right to retransmit free broadcast programming. “It’s about trying to get our business to a place where it can be a healthy, long-term business,” he said. “It starts with making dual revenue.”

Newspapers? Please.

Books? Too early to tell but the pricing structure emerging for e-books suggests publishers are going to need to start thinking in terms of multiple revenue streams.

If the pay-TV companies manage to pull it off it will be notable not just for their own sake but because it would mean they had bucked the tide of both history and technology.

Paying for Hulu is not about Hulu

The Twitter- and blogosphere got a case of the vapors yesterday over a report that News Corp. plans to throw up a pay wall around Hulu. Speaking at an industry event, newly installed News. Corp. president Chase Carey said, “I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value.” In case that wasn’t clear enough, he added, “Hulu concurseliza_dushku_hulu with that, it needs to evolve to have a meaningful subscription model as part of its business.”

OMGZ! came the response from Hulu tweeters. “Sell out,” cried the bloggers. Guardian blogger Roy Greenslade saw it as part of a Rupert Murdoch paid-content propaganda campaign.

Maybe. But I suspect it has more to do with cable retransmission consent for Fox than it does with pros and cons of free content. While much of the blogosphere focused on Carey’s Hulu comments, John Ourand of SportsBusiness Daily caught the real news in his report from the same industry event: 

Carey warned that retransmission consent battles may be brewing as his company tries to convince cable operators to start paying to carry the Fox broadcast channel. “It’s not about trying to pick a fight,” Carey said… “It’s about trying to get our business to a place where it can be a healthy, long-term business.” In the past, Fox has used retransmission consent rules to help launch its cable channels, like FX and Fuel. Now, broadcasters want to get paid for their broadcast networks so they can better compete with cable networks. Carey specifically singled out sports rights as “a real challenge,” adding that “it’s not rocket science” to figure out how broadcasters can compete with cable networks. “It starts with making dual revenue.

If you’re looking to start charging cable operators retransmission fees for your free broadcast content, you really can’t be giving the content away for free online.

As Deutsche Bank analyst Doug Mitchelson pointed out in a research note last week:

chase-careyFox is beginning to negotiate its retrans deals including, we believe, one with a top-5 cable operator right now. We expect Fox is asking for $1+/sub/mo given Chase Carey, Newscorp COO and former DirecTV CEO, knows how crucial broadcast carriage is to pay TV operators, especially sports programming (like the World Series), and also given Fox’s success getting about $0.65 for carriage of Fox News. Newscorp certainly has the balance sheet to tolerate ad losses if it has to pull its channel for some time.

[snip]

In exchange for significant affiliate fees, we would expect broadcasters would dramatically expand VOD availability and place greater limitations on free internet availability of their shows. Ultimately, we expect the networks and TV stations to convert to hybrid local/national cable networks (think RSNs paired with programming from a national feed), and then sell or give back the local broadcast spectrum. With 100m pay TV households, $1/sub/mo would be $1.2b of revenue and EBITDA per network per year that could be shared among the networks and station groups (80/20?), making broadcast a viable business model.

 That would be a much bigger pay-off to News Corp. than anything it’s likely to see from Hulu, with or without a pay wall.