SBD/January 28, 2013/Media

Dodgers Officially Agree To Nearly $8B Deal With TWC That Includes Own Channel

TWC will provide non-game production and technical services to the network
Time Warner Cable's 25-year deal with the Dodgers became official this morning. The deal is worth nearly $8B and will lead to the creation of a sixth RSN for the L.A. market. The Dodgers will launch SportsNet L.A. in '14 through American Media Productions LLC, a fully owned subsidiary that the team quietly launched just last month. TWC will not have an ownership stake in the RSN. Rather, it will handle all ad sales and affiliate sales for the channel. TWC has assumed most of the risk around the channel and promised to cover affiliate fees from distributors who refuse to carry it. TWC already has agreed to carry the service on its systems in southern California and Hawaii. TWC will provide non-game production and technical services to the network, as well. The deal has some big hurdles to work through, as it still needs MLB approval. A league spokesperson this morning said, "We are still in the process of discussing with the Dodgers. We are awaiting final documentation on the deal and will then review it as we do all broadcast deals." MLB Exec VP/Economics & League Affairs Rob Manfred has been in extensive talks in recent weeks with Dodgers Chair Mark Walter over the agreement, including sessions in Phoenix and N.Y. At issue is the amount of revenue in the pact that will be shared with the other clubs. Under league rules, teams must contribute 34% of local TV revenue to aid small-market clubs. A bankruptcy court settlement between the league and Dodgers pegged the fair-market value of the club's local TV rights at $84M per year plus annual escalators. With the 25-year deal worth an average of $280M per year, the outstanding question is how that additional money will be divided.

RSN WILL BE COSTLY TO CARRY: It is too early to determine how much TWC will charge for the channel, but it is certain to be one of the country's highest-priced RSNs. TWC Exec VP and Chief Video & Content Officer Melinda Witmer said that the deal makes sense for TWC because it builds cost certainty into its business. "Being able to secure the content for a very, very long time without the risk of third-party decision making around the rate of increases on the product is very helpful," she said. "We have an opportunity to secure content we want for a long time to come and to have control over our economic destiny." TWC last year launched two RSNs in L.A. around the Lakers, one in Spanish and one in English. Fox Sports operates two RSNs in the market, FS West and Prime Ticket. Pac-12 Networks has a Southern California channel in the market that focuses on USC and UCLA. Now the Lakers' offering means that six high-priced sports channels will be in the market as of '14. Even though it lost the Lakers last year and will lose the Dodgers next year, it is unlikely that Fox would shut down either of its two channels. In N.Y., for example, MSG still operates two RSNs even though it no longer carries the Yankees or Mets. Witmer said she is conscious of consumer costs but said sports providers are not the biggest problems for distributors. "As one of the largest providers in that market, we are unquestionably very focused on what costs are to consumers," Witmer said. "As an operator, the rate of increase that we experience (with sports) is outpaced by retransmission consent asks by many multiples. Yes, I do think that rising costs is a big issue for operators. There are a lot of ways that we are doing the best we can to manage it."

IMPACT IN OTHER MARKETS: Consumers in other markets could experience a knock-on effect from the Dodgers deal. Over the next few years, TWC will have to negotiate with Fox RSNs in close to a dozen markets, including N.Y., where Fox owns part of YES Network, Dallas (FS Southwest) and Milwaukee (FS Wisconsin). Look for Fox to try to get a similar affiliate fee as either the Dodgers or Lakers' channels in those markets. Reports have suggested that the Dodgers' channel could cost distributors around $5 per subscriber per month. Witmer said the team never discussed a straight rights deal with TWC. "From the first conversation we ever had with the team, they had already made the decision to launch their own vehicle," she said. "That was not a conversation that they were open to when we met with them." There has been no decision yet about who will run the channel or how it will be staffed.

ENTERING SWAN SONG WITH FOX: The Dodgers will spend one more season on the Fox Sports-owned Prime Ticket before launching SportsNet L.A. Sources said Fox had talks over the weekend with the Dodgers about getting involved in the planned channel, but the two sides did not come to an agreement. Fox Sports held certain back-end rights that would give it the right to match or object to any deal. Sources said that the matching rights would not kick in if the Dodgers launched a channel on their own.
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