This week, Major League Soccer introduced updated apps that let fans stream 230 live pro soccer games next season on iOS and Android mobile devices. But the $60 price tag comes with a caveat: in most cases, subscribers won’t be able to see their local teams’ home games. As it is with most pro sports, local blackout rules mean that these home games remain in the domain of regional sports cable channels.
For many consumers, these regional sports channels are a key, and perhaps under-recognized determiner as to why they don’t ditch their cable, satellite or telco TV service. Plain and simply, cut out cable and they’d have to go to a sports bar or buy a ticket to see their favorite club’s home games.
As perhaps its most popular and perishable video product, sports is rightly considered TV’s most resilient asset when it comes to the forces of digital video recorders and cord-cutting. Fans generally prefer not to time-shift sports, and they don’t “catch up” with their favorite teams via Netflix (NSDQ: NFLX) viewing binges in the same way they would with, say, a cable original series like The Walking Dead.
Comcast (NSDQ: CMCSA) officials stated that this was a key consideration when they recently ponied up $4.4 billion to retain Olympics broadcast rights. “Sports,” said Steve Burke, CEO of Comcast’s NBCUniversal unit, to Forbes this week, “is how we’re going to move forward with the rest of the company.”
With Major League Baseball offering over-the-top subscription services that don’t require the authentication of a cable subscription, and broadcast platforms like NBCU offering big-ticket sports events like the Super Bowl and the upcoming London Olympic Games on digital devices for free, live sports would seem to be moving nicely into TV’s emerging world of unbundled, a la carte programming options. You can see a lot of the action without paying a cable bill.
But if you really love sports, and you have a favorite local team, you’re still stuck. In that case, you’re advised to keep paying your cable bill, because your team’s home games probably are licensed exclusively by a regional sports channel and won’t be available on an over-the-top subscription service anytime soon. Locked into multi-year broadcast licensing deals with professional teams and collegiate athletic conferences that extend into the billions of dollars, regional sports networks currently receive some of highest carriage fees in the cable business. And they don’t appear eager to disrupt the current model.
Last month, for example, as the hoopla surrounding New York Knicks point guard Jeremy Lin put a spotlight on a carriage dispute between the team’s regional channel operator, the MSG Network, and multi-system operator Time Warner Cable (NYSE: TWC), a number of Knicks fans who found themselves shut off from the team’s televised home games suggested that they’d happily pay a subscription fee for a digital on-demand viewing option.
But shortly before reaching an agreement with Time Warner (NYSE: TWX) Cable that put Knicks games back on the service in the New York area, we asked an MSG representative if the company was even considering such an over-the-top alternative. “That’s not in our plans right now,” the rep told us.
Given the carriage fees MSG receives from cable operators like Time Warner, it’s easy to understand why. Even prior to the renegotiation of its carriage agreement on one of its most important platforms, the MSG Network received, on average, $2.63 per subscriber per month from cable operators, research company SNL Kagan estimates. So that’s 2.8 million Time Warner subscribers alone paying over $30 a year for access to Knicks games, as well as New York-area pro-hockey teams, and most of them aren’t even fans who would consider paying for a premium subscription service.
That figure is less than the $2.99 per-subscriber average collected by the country’s top-earning regional sports channel, the YES Network, which last year took in revenue of $474.8 million.
As shown during the Time Warner/MSG standoff, MSOs have tried to draw a line in the sand in terms of escalating carriage fee demands — MSG was asking for fee bumps of more than 50 percent, for example — but these carriage disputes often turn into very public controversies. And MSOs, which have already faced with huge subscriber defections, are usually put in a no-win postion, cast as the villain who’s keeping the local team away from its fans.
Meanwhile, these regional channels’ financial commitment to local teams is huge and longstanding. For example, starting next NBA season, Time Warner Cable will pay the Los Angeles Lakers $3 billion over the next 20 years to show not just Lakers home games, but all pre-season and regular-season games that are not shown by national NBA broadcast rights holders Turner sports and ABC Disney (NYSE: DIS). In the process, Time Warner will launch a new regional sports channel — one that it’ll charge its subscribers — and those of competing MSOs — to carry in a bundle.
With regional sports channels also using their popularity among subscribers to leverage carriage deals for smaller siblings — in its negotiation with Time Warner, for example, MSG was able to also secure carriage for the lightly watched music channel FUSE — they may be helping to create an unsustainable model for the cable business.
“They can’t just keep raising their fees and adding channels and expect subscribers to keep paying,” said Keith Nissen, principal analyst for research company In-Stat. He believes the proliferation and clout of regional sports channels are a key reasons why the average price of a cable subscription is increasing at a rate of around 6 percent a year. At this rate, he said, the price could hit $200 a month by the end of the decade.
“As a result of this, I do think there will be a restructuring down the road of the cable package into a more a la carte offering,” he said.
One possible outcome, Nissen added: regional sports networks will evolve into premium subscription channels. “If cable becomes too expensive, and subscribers start moving to other services, they’re going to follow the money to Apple (NSDQ: AAPL) TV or wherever and make themselves available there,” he said.