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L.A. in the spotlight: The dynamics of the nation’s hottest sports market

A panel discussion at the 2014 IMG World Congress of Sports the examined the unique qualities of the Los Angeles market picked up on a discussion from the day’s opening session about whether there’s any end in sight for rising rights fees.

Chris Bevilacqua, co-founder of Bevilacqua Helfant Ventures, said, “Since I’m aligned typically with the sellers, I have a selfish interest to say the rights are going to keep going up. But having said that, I believe that. Everybody can just go and look at the quarterly earnings reports to all of these big media companies. It’s record profitability, record shares. The business itself keeps growing and sports is a real driver.”

He sees growth in the rights because sports is not just a “television ecosystem,” but a “mass media communications information delivery system.”

Jeff Krolik, President, Fox Sports Regional Networks, responded with the quip, “My father used to always say, ‘Never ask a barber if you need a haircut.’” He thought never-ending rights growth was less likely. “There are many cautionary tales out there. Steve Greenberg was just quoted as saying he’s reminded about all the people who took out big mortgages because they were convinced that housing prices only had one way to go, and that was up, up, up. They do go up – until they don’t. There are cautionary tales aplenty out there. Before we go forth and say they have no way to go but up, they have other ways to go.”
Bevilacqua wouldn’t point to a ceiling, but he conceded that “at some point, it doesn’t go up forever. Maybe it accelerates a little less.”

The value of shoulder programming

Panelists also debated the value of the shoulder programming that fills thousands of hours of air time, but, moderator John Ourand pointed out, doesn’t get ratings as high as the live games.

“From our point of view … once you get your distribution you better be able to deliver a good product,” said L.A. Lakers Executive Vice President Jeanie Buss.

“That’s what it’s really all about. Once you get on the air … make sure you’re delivering to your customers what they want. For us, when we were looking for a new broadcast partner, what was really important to us was the ability to have the shoulder programming, the ancillary programming. To have a partner that would understand how important it was for us to further our brand, not just the games, because the fans enjoy the games, but in our case our fans were letting us know that they wanted more.”

And Buss added that the shoulder programming affected more than just the fans. “With a new collective bargaining agreement in the NBA, it’s really important that you can tell a story for your franchise that will attract free agents,” she said, “and having that kind of platform is attractive for the players.”

Mark Shuken, senior vice president and general manager for TWC Sports Regional Networks, said, “This is an entirely different conceit around RSNs. This is no longer about games fitting in between poker and other team games and infomercials. I hate the term shoulder programming because it suggests a sort of good stuff and other stuff. Our programming beyond the games is measurably rated and rated very well. I think it’s relevant because people get a connection to the players and the front office that they’ve never had before and want. It all speaks to the consumers’ expectations around media and social media, and they’re used to getting behind the scenes. I think this shoulder programming notion is something we need to get over.”

Over-the-top programming

The end of the panel featured a spirited discussion about over-the-top programming, online programming that is available outside of a regular cable subscription package. Krolik said, “Over the top makes me nervous. I think over the top makes all of us nervous. Our number one objective is preserve, protect and defend the basic cable model against all enemies, foreign and domestic. I think over the top is a Trojan Horse that threatens our very business.”

Bevilacqua: “I’m not sure I agree with Jeff. If you could get your RSN priced right … If you were able to able to deliver a subscription product, and you were getting paid for it, why would that be a bad thing?”

Krolik talked about an la carte business, and Bevilacqua said, “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 really buying pay TV now. Shouldn’t it be additive?”

Krolik: “I don’t believe so.”

Bevilacqua: “I obviously don’t agree with that. I actually think that there is some way to make it work in the ecosystem.”

Shuken: “I think they’re not mutually exclusive. Jeff is right, 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 over the top is cool and it can all be great. I said if we protect the core rights, there is a way to cross promote and ultimately benefit the core rights. But I agree from Time Warner cable perspective, from a distribution perspective, we have 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 and if you’re carrying something over your network and we go usage-based pricing, why is that bad?

Shuken: “Like I said, they’re not mutually exclusive if there’s a way that protects the core economic model and then elevates it …”

Bevilacqua: “Yeah, that’s what I’m saying.”

Shuken: “I’m not disagreeing with either of you. I’m saying it’s all about the execution. Trojan horse? Could be. Opportunity? Could be. It’s somewhere in the middle if they do it right.”

Quick hits:

On the importance of a broad base:
Bevilacqua: “One of the things we always try to do is put together a portfolio. Any team, even great teams, are going to have cycles where they are down. The broader your portfolio, the better the product that you can bring to the market.”
Shuken: “Chris is right. Ultimately these multi-billion dollar evaluations and investments are predicated on long term successes.”

On the appeal of the L.A. market: Bevilacqua: “The Los Angeles market is different than you might see in other markets around the U.S. in terms of how local sports is viewed and consumed here. There’s a lot of choice here … in terms of entertainment options. It’s a large geographical market, it’s dense and it’s got all the right ingredients to have a really robust RSN market. L.A., just because of all the other options you have, is much different that other markets where there is more specific passion around the local sports teams.”
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