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SBJ/Feb. 24-March 2, 2014/Media
Sports programmers, teams could benefit from cable merger
Published February 24, 2014, Page 9
That’s a view that runs counter to prevailing wisdom that believes the combination of the country’s two biggest cable operators would shift too much leverage to Comcast during carriage negotiations.
But several sources who regularly deal with Comcast predict that the creation of such a behemoth will cause Comcast executives to be wary of engaging in public battles over channel pricing for fear that regulators will get involved.
As evidence, these sources point to Comcast’s behavior over the past several years. The company that waged bruising public battles with channels like MLB Network, Big Ten Network and NFL Network quietly has been cutting deals in recent years. Negotiations with ESPN and Fox, in particular, stayed under the radar, with no leaks and no public posturing. Both programmers wound up cutting long-term carriage deals with Comcast.
The SEC Network will be the first big test to see if this theory is on target. The ESPN-owned channel is launching to a slew of Comcast and Time Warner Cable markets in the Southeast this August for an in-market rate of $1.30 per subscriber per month. I would be surprised if either Comcast or Time Warner Cable engages in a public fight over the channel.
Until federal regulators approve it, nobody knows what the merged company will look like or what kind of conditions will be placed on it. Several industry veterans expect some conditions to look similar to when Comcast and Time Warner Cable bought Adelphia in 2006. Regulators at that time mandated that federal mediators solve any carriage disagreements with regional sports networks.
The high price tag on RSNs is sure to be a focus for regulators this time around, as well, which would mitigate the leverage of a distributor with more than 30 million homes.
The aspect of this deal that I will be watching the closest relates to what happens to Time Warner Cable’s sports division, which launched in 2011. When you combine two companies of this size, you’re certain to see some layoffs at the executive level, where jobs are duplicated.
Greg Rigdon runs Comcast’s programming department as executive vice president of content; Melinda Witmer runs Time Warner Cable’s as executive vice president and chief video and content officer. Jon Litner oversees Comcast’s RSNs as president of NBC Sports Group; David Rone oversees Time Warner Cable’s RSNs as president of TWC Sports.
As for Time Warner’s sports channels, they should benefit from the merger, too. In fact, several sources say they wouldn’t be surprised to see Time Warner Cable drop the price of the Dodgers channel in order to get carriage. It has gone to market with a $5 per subscriber per month price tag, a rate that most distributors seem prepared to fight.
But many sources expect that price to come down as the bigger deal winds its way through regulatory hurdles. In the context of a $45 billion merger, the rate paid for the Dodgers network is small change. Carriage battles for a high-priced RSN would not be worth the potential political fallout.
Another aspect of this merger that is worth watching involves how such a big distributor deals with smaller, independent networks.
“It cuts both ways,” said Randy Brown, executive vice president of distribution for One World Sports, which does not have a deal with either Comcast or Time Warner Cable. “Combining the top two cable operators could be a really efficient way to scale our business. But not being in business with a 30 million-household distributor puts pressure on cutting deals with everyone else.”
Perhaps the biggest winner from this merger will be professional sports teams, which are expecting the merger to create even more competition for local sports rights. Comcast and Time Warner Cable already are big players for local rights in markets where they operate cable systems. Lee Berke, president of LHB Sports, Entertainment & Media, believes the combined might of the new company will make them even stronger, potentially causing rights fees, which already are at historically high levels, to grow even further.
“One of the biggest competitions in media over the past 20 years has been between Fox and Comcast in the local sports market,” Berke said. “Overall, this deal is going to increase competition for Fox, and more competition means increased rights fees and revenue for teams.”
John Ourand can be reached at email@example.com. Follow him on Twitter @Ourand_SBJ.