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SBJ/March 28 - April 3, 2005/SBJ In Depth
Is MLB extending its reach or overreaching?
Published March 28, 2005
Like many of his Major League Baseball brethren, Houston Astros owner Drayton McLane identifies closely with a baseball era in which putting more than one game a week on television constituted blatant overexposure.
So it is with a mixture of excitement and unease that McLane sees his secretary watching live games on the Internet, or that McLane flips on his TV and scans through as many as 15 games a day, or ponders his first road trip this season, when he’ll be able to listen to KTRH’s Astros broadcasts on his XM satellite radio.
“All of us have a deep concern about how dramatically all of this high technology and communication is going to affect us,” said McLane, a member of MLB’s executive council. “We’re all apprehensive to make sure we protect our revenue sources. Where it is today is not the end of it.”
The 2005 MLB season is a critical juncture for MLB officials, who are charged with managing a perfect storm of peaking demand for content, the emergence of new technologies for delivering it, and the growing number of media outlets demanding a larger piece of both. MLB this season will introduce two new media partners, XM Satellite Radio and a league-owned television network expected to launch in the fall.
How adeptly MLB preserves value for its rights holders while extending the game’s reach could determine the extent to which baseball realizes its long-term media potential.
Any doubts about the delicacy and importance of this task were erased in the aftermath of the deal XM signed with MLB, which had many local rights holders claiming their turf had been invaded.
“The question will become: ‘At what price?’” said Tim Brosnan, MLB executive vice president of business, of the proliferation of content. “At what price to your television partners? At what price to your local television deals? To every action there will be an equal and opposite reaction. Whatever we do should be done for the greater good of the industry.”
Mining for content
Clubs’ local television partners are clamoring for broader and deeper content at a time when baseball is enjoying strong ratings and record attendance, despite a widening steroid scandal that threatens the integrity of the sport.
The Yankees-owned YES Network recently began auditioning fans for the “YES Ultimate Road Trip,” a weekly reality series that will follow four Yankees fans to all 162 games. In small-market Milwaukee, the Brewers invested several hundred thousand dollars to have MLB Productions produce a six-part series giving viewers a behind-the-scenes look at the franchise’s day-to-day operations. And in Atlanta, the Braves late last season launched a new cable channel, BravesVision, that this season will broadcast batting practice, simulcast the radio pregame show from the ballpark, and fill the rest of the time with archived Braves footage.
Channels such as BravesVision have been actively searching for new content. BravesVision programming includes such things as batting practice, player interviews and archived footage.
These initiatives by themselves are nothing but good news for a sport long criticized for underutilizing its product and for neglecting younger fans who were drawn to other sports in part by the broader and deeper access they offered.
But these efforts must be viewed in their proper context, as another step in rights holders’ efforts to meet the demands of a multimedia universe.
Executives from Fox Sports Net, whose regional networks serve 20 out of 30 MLB clubs, have been working with teams like the Seattle Mariners to create ancillary programming similar to what will air on BravesVision, but FSN chief operating officer Randy Freer said there are more sophisticated opportunities for a multimedia company like Fox.
Freer cited video-on-demand and wireless as areas FSN wants to enter. In Los Angeles, for example, FSN West could offer 30-minute highlight packages or interviews as part of a subscription, or for free on an on-demand basis, Freer said.
“That’s exciting to us,” Freer said. “It doesn’t limit you to a 24-hour-a-day schedule and it allows you to create [for the fans] a closer relationship to the team, ownership and the business side when fans are ready to watch it.”
But MLB Advanced Media, the Internet arm of Major League Baseball, has built a hugely successful subscription business not only by streaming live video of more than 2,300 out-of-market regular-season and spring training games and live audio of all games, but also by packaging and selling video on an on-demand basis. After a game is over, the broadcast rights to that game revert from the local rights holder back to MLB, and by extension MLBAM, for commercial use.
MLBAM’s video-on-demand offerings and highlight features include video box scores, condensed games and historic footage, some of which will be available on portable devices by Opening Day. Condensed games, highlight reels and video box scores are included in MLBAM’s All-Access package, which also includes live video of out-of-market games, for $100 a season or $20 a month. MLBAM also sells video of historic matchups for $3.95 apiece as part of its Digital Download Service. In the 2004 season, MLBAM sold more than 800,000 subscriptions to online video and audio content.
MLB and MLBAM officials have not yet determined, or at least have not communicated to media partners, how far local broadcasters can go without treading on MLBAM’s territory.
Also at issue is protecting the investment of national television partners Fox and ESPN, which in recent years have expanded well beyond television into broadband, wireless and other new-media areas. Executives from those networks, who are negotiating extensions of their MLB deals, will not accept an arrangement under which their rights to MLB content start and end with television while MLBAM retains exclusive control of streaming video and all other content distributed through new media.
Executives at ESPN, whose contract to televise Sunday night and Wednesday night baseball expires at the end of the 2005 season, already rejected an initial offer by MLB to include only the bare broadcast rights and no new media in the next deal.
Len DeLuca, ESPN’s senior vice president of programming strategy, declined to comment on negotiations, but DeLuca indicated that ESPN was not going to settle for a stripped-down rights package.
“It’s a simple axiom for us,” DeLuca said. “We want to bring Major League Baseball to the consumers where and how they consume. And that will start with ‘Baseball Tonight’ and ‘Sunday Night Baseball’ and go to all of the things that MLBAM and espn.com do.”
Bob Bowman, MLBAM CEO, declined to comment for this story. However, at the recent Octagon/Street & Smith’s World Congress of Sports, Bowman said he did not think streaming rights would be included in any of the next television deals, but that MLBAM would “reach out” to Fox, ESPN and the regional sports networks.
“We can enhance [what they do],” Bowman said. “It’s not a well-tread path, but we’re getting better at it.”
Further complicating matters is the league-owned network, tentatively scheduled for launch just before the 2005 postseason.
MLB is sitting on a mountain of archived footage, and as the NFL has done with its new network, MLB figures at least initially to create programming around this inventory and around original shows utilizing its access to teams and players both in and out of season.
MLB media rights holders
|• Fox: Six-year, $2.5 billion deal through 2006|
|• ESPN: Final season of $851 million deal for Sunday and Wednesday night games. Division Series games and weekday afternoon regular-season games through 2006|
|• XM Satellite Radio: First season of11-year, $650 million deal|
|• ESPN Radio: Deal through 2010 season|
|Source: SportsBusiness Journal research|
Related statistical information
|Turnkey Sports Poll|
|2005 MLB team TV broadcast deals|
|2005 MLB team radio broadcast deals|
Brosnan declined to elaborate on those negotiations, saying only that there are “internal discussions going on every day as to how we’re going to exploit our content.”
Baseball has this extra hurdle only because of the commercial success of its online business since owners voted in 2000 to consolidate and separate the league’s new-media business. The NFL and NBA offer much less video content online, and nothing live, and their Internet operations and networks are more closely aligned under the league umbrella.
Meantime, local and national rights holders are waiting and wondering how much, if any, content will be left over for them. A clearer delineation between MLBAM’s and MLB’s rights will at least bring clarity, if not satisfaction.
“There needs to be more definition and clarity between the league and the teams in terms of who has what rights to exploit,” said Freer, who added that technologies like wireless and video-on-demand “are coming along in the middle of long-term deals.”
San Francisco Giants chief operating officer Larry Baer, who sits on MLB’s television committee, said that how MLB will ultimately allocate content remains unclear, but that there is plenty of value to distribute.
“We’ve got everything in the mix, not just live games,” said Baer, who cited the amateur draft, international leagues, spring training and the minor leagues.
“It is unclear how the delivery sources and the distribution technology is going to allocate the economics,” Baer said. “That is probably the single biggest opportunity for this sport and most other sports, and also the single biggest question.”
Brosnan’s claim that every action would be met with an equal and opposite reaction rang especially true in October, when MLB announced an 11-year, $650 million deal giving XM Satellite Radio exclusive satellite broadcast rights to MLB. That deal was a coup for XM and a boon for MLB, but much of the noise since then has come from clubs’ radio rights holders bemoaning the continued dilution of terrestrial radio rights.
Several MLB radio rights holders held conference calls in the weeks after the XM deal was announced to discuss their options, and some of them have spent much of the offseason seeking help from the National Association of Broadcasters in lobbying Congress on their behalf. Their legal claim is that MLB’s deal with XM violated the original charter of satellite radio, which they say was created to be a noncompetitive subscription service for people in areas that terrestrial radio did not reach. They say satellite radio has been allowed to evolve into a competitor to local stations.
Their primary gripe, however, is that MLB has been uncommunicative and uncompromising with local rights holders, and industry experts said rights holders’ consequent alienation will make them even less willing to extend their existing deals.
Joel Hollander, chairman and chief executive officer of Viacom’s Infinity Broadcasting, owner of Mets broadcaster WFAN, Yankees broadcaster WCBS and St. Louis Cardinals broadcaster KMOX, said NFL officials better managed their relationship with rights holders by consulting them before signing Sirius Satellite Radio to a long-term deal and by negotiating a rebate for Infinity’s rights holders. By contrast, many MLB rights holders learned about the XM-MLB partnership from the press conference announcing the deal.
For MLB’s part, its satellite situation differed from the NFL’s because some of its local rights holders had been granted satellite distribution in those markets. No MLB rights holders had satellite distribution, so no such rebate was necessary.
Brosnan said MLB recently visited with every club to ensure them that MLB and XM are “well within our rights” in distributing the local feeds on satellite radio.
The relative lack of communication with MLB rights holders does not affect them any more than NFL rights holders by the introduction of satellite radio. Still, the perception that they’ve been overlooked won’t help relationships with clubs that already are on shaky ground, some argued.
Nearly half of MLB’s 30 clubs have switched broadcast partners in the last five years, turnover that club and radio officials attribute to a more scientific evaluation of broadcast rights. In a landscape in which video and audio of virtually every game are available on local stations and online, radio play-by-play rights no longer represent the marketing differentiator for stations that they once were.
“AM stations have come to the conclusion that value is based solely on profitability,” said Mark Lamping, president of the St. Louis Cardinals, whose 50-year-old partnership with KMOX might be in its final year.
Hollander said the true effect of the XM deal on local rights won’t be apparent for several years, when all existing deals expire. For now, the $2 million annually that each club will receive under the XM deal is incremental revenue, but time will tell if it ultimately comes out of MLB’s pockets.
The top recipients, like the Mets ($8 million annually), Yankees ($10 million) and Braves ($13 million), still command huge sums under their local radio deals, but it is doubtful whether some of those deals will continue under the same terms. In many other MLB markets, teams that used to receive $5 million to $7 million annually have been forced in recent years to either switch partners, accept smaller deals or take their rights in-house.
Whether the XM deal itself dilutes the local rights is unclear. MLB officials insisted from the beginning that there will be no adverse effect on terrestrial radio rights holders.
“The XM deal is going to be good for everyone involved,” said Brosnan, who noted that some of the radio executives who claim that satellite radio has diluted their rights also have downplayed the potential of the satellite radio industry.
“I can’t tell whether or not they feel threatened by it,” Brosnan said. “They seem to feel both.”
Indeed, XM, with just over 3 million subscribers and a target audience of out-of-market fans, doesn’t appear to threaten ratings. But rights holders might have a more legitimate gripe about XM’s effect on ad revenue. Although XM will broadcast the local feeds, including advertising, it will create its own pre- and postgame programming around which it will sell ad spots, perhaps to the same advertisers on which local broadcasters rely. In essence, several local radio executives said, the deal lets XM package and sell programming that local rights holders are paying to produce.
Whatever its effect, even club executives who applauded the XM deal acknowledged the need to soothe relationships with terrestrial rights holders and reinforce their importance.
League and club officials maintain that there remains no substitute for local radio broadcasts. Evidence of the medium’s power exists in MLB markets such as Atlanta, Seattle and San Francisco, where MLB clubs in the last year have received higher rights fees than under their previous deals. But the league and clubs, they say, have to do a better job of selling that point.
“Your local radio rights holder will always be king,” Baer said, “and it’s very important that clubs reinforce that in the marketplace.”
Balancing exposure and demand
Interestingly, many of the turf wars over content are rooted in the questionable premise that making content available in more media decreases each medium’s audience. In fact, history has proven otherwise.
Matt Vasgersian (front) and Mark Grant call a Padres game for Cox Communications.
“I honestly believe that the more exposure [the Padres] have in the marketplace, it actually helps us,” said John Lynch, chief executive officer of San Diego’s XPRS-1090 AM, which broadcasts the Padres.
Similarly, MLB officials argue that new media will not cannibalize but rather will complement existing media because no consumers will choose to watch a game or highlights on a computer or cell phone when they have access to the same content on TV.
“Baseball has seen record ratings, record attendance and record revenues since BAM has been around,” Bowman said in a previous interview. “Coincidence? Maybe. But probably not.”
Still, baseball’s rights holders are getting increasingly difficult to compartmentalize, and team and league officials are not taking lightly the task of making sure that all partners feel they own a valuable piece of the product.
“Does [new media and other new applications] compete with television?” said MLB senior vice president of broadcasting Chris Tully. “Look at overall time spent viewing. We view it all as complementary. To the extent that you reach out to a fan and connect, it’s going to inure to your benefit across all the other mediums. There really isn’t cannibalization.”
Whether MLB can sell that point to the partners who matter most is up in the air.
Senior writer Bill King contributed to this story.