How Local Sports Could Change All of Television

Forecasting today’s biggest business and tech trends.
March 13 2014 11:46 AM

How Local Sports Could Change All of Television

Sports franchises have driven the entire cable business model. That’s about to change.

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So far, no one’s budging. In an interview with the Los Angeles Times, Dish Network Executive Vice President David Shull stated his refusal to license SportsNet LA, saying he couldn’t justify passing the price onto his subscriber base. Time Warner believes Shull and his colleagues will cave, especially with the Dodgers season only weeks away and hotly anticipated. The Dodgers’ prospects for the 2014 season are better than they have been in years, and the team boasts popular superstars like Clayton Kershaw and Yasiel Puig. This year’s team may be a can’t-miss phenomenon for L.A. fans, and SportsNet LA is counting on it.

Back in 2012, Time Warner found itself on the opposite side of a similar battle: It was the only major cable operator in the state of New York to refuse to pay the Madison Square Garden Co., owner of the Knicks, a hefty fee for the basketball team’s TV rights. After Time Warner dropped MSG from its lineup, the season turned into catnip for Knicks fans thanks to Jeremy Lin. Pressure from fans missing out on “Linsanity,” coupled with the direct involvement of Gov. Andrew Cuomo, brought both sides to the bargaining table after a 48-day standoff, and subscribers got their games back.

An even messier dispute has been playing out in Houston for close to a decade, as cable providers grapple with the Rockets and the Astros over broadcasting fees. A network called Comcast SportsNet Houston, launched in 2012 after a $1 billion deal with the two teams, filed recently for Chapter 11 bankruptcy protection. The Rockets, the Astros, and a byzantine web of third parties have filed more than $60 million in claims against the network for unpaid fees over the past three months. Meanwhile, the Astros oppose the Chapter 11 filing and have appealed the case to U.S. District Judge Lynn Hughes. This confusing and ongoing saga has left millions of sports fans in Houston and adjacent regions without TV coverage of their teams.

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There will be more battles to come. Stalemates over licensing fees will lock out millions of fans. Rising costs will be passed onto everyone. The economics of national cable will be harder to maintain without further price hikes, a fundamental rethinking of premium tiers, or concessions to à la carte pricing and service models. Something’s got to give.

I predict we’ll see a great unbundling in the coming years. Perhaps a distant second- or third-place provider in a competitive region will experiment by offering nonsports packages at deep discounts. If it works, other providers will follow suit with their own low-priced packages. At the same time, sports will remain a big draw, and sports-focused tiers will sell at a premium.

But if sports and nonsports programming separate, it will be a messy divorce. Don’t expect many of your preferred nonsports networks to stick around. Many of the hundreds of cable networks today owe their existence to sports, since the owners of the sports networks force cable providers to carry them. Disney, for example, can bundle the sought-after ESPN alongside a handful of its narrow-interest, specialty networks. (While I can’t definitely prove that such channels as H2, the Lifetime Movie Network, the Crime & Investigation Network, and the Military History Channel are bundled with ESPN in carrier deals, it’s the most logical economic rationale for their existence. And I’d bet good money they’d struggle to survive on their own.)

In the long run, your cable bill will likely depend more directly on your viewing habits. If you're a sports junkie, you’ll pay more to get your fix. If you’re not, you’re a prime candidate for dropping cable altogether. Whether cable companies care to retain you will depend on their ability to serve you profitably; if they can't—or won’t—someone else will. (Google, with its Fiber broadband service, seems poised to compete here.) You won’t have more control over what you pay. But you’ll have more control over what you’re paying for.

Jon Nathanson is a technology columnist, startup investor, and strategy consultant in San Francisco and Los Angeles.

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