SBJ/March 31-April 6, 2014/Media

TV execs worry broadband services are cord-cutting catalysts

Two of the biggest threats to the sports TV industry are launching later this year, when 120 Sports and NFL Now roll out their broadband video services.

That’s the opinion of several sports TV executives who view these kinds of over-the-top services as potential threats that could take money out of the pay-TV industry.

Executives with these services say they are looking to attract “cord nevers,” a name the industry uses for young people who have never subscribed to a pay-TV service. But sports TV executives worry that these types of services also will attract “cord cutters,” an industry term for people who give up their pay-TV subscriptions in favor of broadcast and Internet video.

The industry has worried about cord cutters for a long time. Channels like ESPN and Fox Sports get revenue on a per-subscriber basis; the more subscribers a distributor has means more money for sports channels, which translates into the ability to pay higher fees to leagues.

Chris Bevilacqua and Jeff Krolik discuss over-the-top services.
Photo by: TONY FLOREZ PHOTOGRAPHY (2)
If these free over-the-top services start to attract cord cutters, the sports business as we currently know it will be threatened.

“Over-the-top is a Trojan horse that threatens our very business,” said Jeff Krolik, president of Fox Sports Regional Networks. “Live local sports drives the cable ecosystem. The cable ecosystem has worked well for all of us. We have to be very careful about anything that can
Mark Shuken
erode that.”

The looming threat of over-the-top services provided one of the more interesting back-and-forths at the World Congress of Sports earlier this month. During one of the panel sessions, two network executives debated with a team consultant about the threat posed by these networks.

Here’s a transcript of that back-and-forth, edited for context:

Chris Bevilacqua, co-founder, Bevilacqua Helfant Ventures: Is there going to be over-the-top in a meaningful way with live sports content? The answer to that is probably yes. The consumer will still end up getting all of their Los Angeles-based sports programming, maybe in the current form of RSNs, but maybe not. Maybe it’s just programming packages delivered to the end user in some way that they have a choice to get it and to get it fully distributed.

Mark Shuken, senior vice president and general manager of TWC Sports Regional Networks: The core content resides in the rights that we’re granted and we acquire. If we do it right with our leagues and team partners, those rights are complementary. Ultimately, as long as we’re careful about protecting the core rights, they can be complementary.

Krolik: Over-the-top makes me nervous. Over-the-top makes all of us nervous. Our No. 1 objective is to preserve, protect and defend the basic cable model against all enemies, foreign and domestic.

Bevilacqua: I’m not sure I would agree. Why wouldn’t you go over-the-top, if you could get your RSN price? The cord-never generation is not buying cable now. If you were able to deliver them a product, and it was a subscription product that you’re getting paid for, why would that be a bad thing?

Krolik: Mark and I worked together at what was then SportsChannel Pacific, which was a subscription-based business [like you’re talking about with over-the-top services]. We paid one team $650,000 a year. Not a game, a year. They were happy to get it. [Rights fees were low.] A subscription-based business, an a la carte business …
Bevilacqua: I’m not saying a la carte. I’m saying a bundled package over-the-top that addresses a segment of the population that isn’t buying pay-TV now. It should be additive. I know you don’t agree, but I think there is some way to make it all work in the ecosystem. The WWE is a good test case because they have some broadly distributed licensed packages and they have, now, an over-the-top network. The retail experience is really complementary to a broad licensing strategy. Both can work harmoniously if it’s packaged the right way.

Shuken: If you’re Time Warner Cable, your evaluation of your entire product offering and your entire economic model is protecting that golden goose. I didn’t say that over-the-top is cool and it will all be great. I said that if it protects the core rights and there’s a way to cross promote and ultimately benefit the core rights, it could work. But I agree, from a Time Warner Cable perspective, from the distribution perspective, we’ve got to be very sensitive to how we protect that model.

Bevilacqua: But Time Warner Cable is one of the biggest broadband providers in the world. If you’re carrying something over your network, and we go usage-based pricing [where the heaviest Internet users pay more], why is that bad?

Shuken: They’re not mutually exclusive. It’s all about the execution of it. Trojan horse? Could be. Opportunity? Could be. I think it’s somewhere in the middle if you do it right.

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

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