SBJ/January 16-22, 2012/Media

ESPN and MLB are on a TV Everywhere collision course

John Ourand
MLB Advanced Media will be pressured to adopt TV Everywhere principles this year when MLB negotiates its next media-rights deal. That’s because TV Everywhere — the concept that allows cable and satellite TV customers to watch channels on several different platforms — has emerged as the standard in cable circles and is backed by the industry’s biggest companies.

ESPN has been leading the charge. Its long-term carriage deal with Comcast, which allows the cable operator to stream ESPN’s channels via broadband and wireless, is the latest example of the growth of the TV Everywhere strategy.

So far, MLB has been slow to support the movement, preferring to rely on its own stand-alone subscription business. Through its MLBAM subsidiary, MLB brings in more than $500 million in total revenue; a significant portion of that comes from online subscriptions.

“What is TV Everywhere?” Dinn Mann, MLBAM executive vice president of content, asked at a conference in the fall. “We look at it as something that is still complex and still evolving.”

But TV Everywhere has reached critical mass. ESPN now has TV Everywhere deals with companies that represent around 40 percent of the country’s pay-TV subscribers, including the two biggest cable operators (Comcast and Time Warner Cable) and the biggest telco (Verizon). More importantly, ESPN has TV Everywhere deals with all the sports leagues with which it does business.

In its upcoming media rights negotiation with MLB, sources say ESPN has made it clear that it plans to make one bid that wraps in linear TV and digital rights. Up until now, that hasn’t been the case. MLB’s current TV partners interested in TV Everywhere have had to cut separate deals with MLBAM to gain those rights, in addition to the bigger deals with MLB for linear TV rights.

ESPN cut such a deal a while ago, but even then the rights were “not as clean as we’d like,” said Sean Bratches, ESPN executive vice president of sales and marketing, speaking at the same conference as Mann. ESPN was able to keep MLB games on its streamed channels, but it had to switch out other MLB content. It was permitted to stream one episode of “Baseball Tonight” per week. Plus, ESPN had a limited number of highlight rights. During “SportsCenter,” ESPN frequently would put up a scoreboard while an announcer described an MLB highlight.

ESPN and MLBAM quietly cut a deal to clean up those rights in the past month, sources said. The new deal, which allows ESPN to stream more MLB content than before, ends in 2013. That’s the same time that MLB’s TV deals end — and that’s when the league and networks may butt heads. MLB may not be willing to strike a comprehensive, all-in-one deal for both buckets of rights.

“At ESPN, we’ve been on this for eight years to buy cross-platform rights,” Bratches said in November. “This is really important to us, and I think it’s fundamental to our brand.”

For ESPN and cable operators, the TV Everywhere push is about more than keeping up with technology. It’s about keeping all their businesses intact.

Comments made at the industry conference in the fall illustrate the tensions between the two sides.

ESPN and cable operators warn that leagues’ failure to adopt TV Everywhere will put sports rights fees, which are at an all-time high, in jeopardy. MLB’s TV deals pay it an annual average of $700 million. A new deal should easily eclipse $1 billion.

“We don’t want to put content everywhere at the expense of the business model that allows us to remunerate Major League Baseball for rights,” Bratches said. “We want to do it in a very pragmatic, cadenced way.”

Mann dismissed those concerns, saying that MLBAM executives are keeping a close eye on industry trends. “We haven’t seen an alarming migration of people getting rid of the one product to substitute it with another,” he said.

But Time Warner Cable’s chief content officer Melinda Witmer pointed to her company’s Extra Innings offer as an example, saying that it is “performing substantially below expectations from where we were when we originally did that deal.” She pointed to MLBAM’s business model as a possible culprit. “We know today that a consumer can buy directly from baseball at a lower retail price than we can sell it at,” Witmer said.

With the expected growth of smart TV technology, which would let viewers buy Extra Innings on their TV directly from MLBAM, Witmer fears that Extra Innings’ performance will become even worse for cable. “There is a perception that we are seeing an impact in our ability to be successful with baseball’s product to a degree because of the head-to-head competition with the ultimate rights owner,” she said. “My concern is that it becomes far more pronounced in a world where a consumer has a beautiful, brand-new smart TV.”

The next few months will show whether MLB legitimizes those fears or whether it places its trust in the growth prospects of MLBAM.

John Ourand can be reached at jourand@sportsbusinessjournal.com. Follow him on Twitter @Ourand_SBJ.
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