SBJ/Nov. 25-Dec. 1, 2013/Media

Programmers say they see the big picture on channel pricing

John Ourand
DirecTV CEO Michael White kicked off our annual media conference earlier this month with a message that threatened to throw a wet blanket on the good feelings in the sports media business.

“The concern we have as distributors is if you keep raising prices far in excess of [Consumer Price Index] inflation and household median income — especially for the bottom 60 percent of America, whose incomes are not growing,” White said. “There are some significant consequences down the road that we better be thinking about.”

White’s comments were a warning to broadcast networks and sports channels that the pay-TV model that has brought so much money into the sports business is being threatened by the increasing cost of those sports.

It’s a message that carries heft coming from DirecTV, a company that has marketed itself for years as the home of sports programming. Given the pending launch of the SEC Network, not to mention carriage fights DirecTV is having with CSN Houston, Pac-12 Networks and Longhorn Network, it is a message that DirecTV has been pushing for the past year.

The good news for White is that programmers already have bought into it. Networks and distributors still will fight over prices, of course. But programmers at the conference acknowledged that they need financially healthy distributors for their businesses to be successful.

“We’re all doing what we can do to keep the model sustainable,” said Big Ten Network President Mark Silverman. “If the model starts breaking down, everybody’s in a lot of trouble. We all need to work to figure out how to keep it working.”

SportsNet New York President Steve Raab echoed that point, warning that corporate “greed” — where TV channels fail to see a bigger picture — is the biggest threat facing the pay-TV industry today.

“My concern is that too many programmers think that … [they] are entitled to big resets and big increases across the board,” he said. “To me, it’s about value, partnership and delivering and improving and unlocking value.”

Programmers are exploring those partnerships through their TV Everywhere initiative that gives subscribers access to programming on multiple devices. The idea is that while distributors are paying more for their programming, they are getting a lot more content as well.

Silverman referenced his TV Everywhere application, BTN2Go, which has around 1 million downloads and has seen a 50 percent jump in viewership from last year. Thanks largely to ad sales around BTN2Go, Big Ten Network digital revenue is growing at a higher rate than any other revenue stream, Silverman said.

“If you get a cable subscription, you should get the network on any device you want. You shouldn’t have to pay anything more for it,” he said. “All of us are cognizant of costs that are going up. We need to keep cable subscriptions to where they are now and not have churn.”

While networks want to make sure the cable-satellite model remains healthy, they also believe live sports content will become even more valuable as the media world becomes even more fragmented. If it weren’t for live sports programming, distributors would be seeing many more cord cutters. Doug Perlman, founder and CEO of Sports Media Advisors, predicted that the next two leagues to negotiate rights deals — the NBA and Big Ten — will see significant rights fee increases.

“This is not irrational exuberance,” Perlman said. “To frame it as a bubble suggests that there’s sort of an impending radical change, which suggests that you think some of those dynamics are going to change. That’s possible. There could be massive disruption in the economy and in the global scheme. Short of that, I don’t see any of this changing.”

> DIRECTV WILL LIKELY WAIT ON WATCHESPN: Almost once a week, it seems, I hear from DirecTV subscribers wondering when it will start offering WatchESPN. I asked White that question on stage, and this was his response:

“We have a deal with Disney and ESPN that isn’t up yet, but will be up in the next couple of years. … They’d be happy to give it to me today if I paid them an arm and a leg for it. My customers won’t pay me anything for it. They expect it to be free. My view is that we probably will carry it. But it will be part and parcel of the digital negotiations that go with the next deal that we do with Disney-ESPN.”

Translation: DirecTV subscribers won’t have access to WatchESPN for at least two more years.

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

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