Can a cable or satellite operator succeed if it doesn’t carry any sports channels?
That idea — a dream, really, for some distributors — was brought up again last week when Dish Network Chairman Charlie Ergen complained about the high cost of sports channels.
The complaint is a familiar one. For the past 20 years, distributors’ most consistent gripe has been about the cost of sports networks. Ergen last week complained that sports programming makes up 20 percent of daily viewing and 50 percent of the satellite distributor’s costs, a ratio that he’d like to switch.
Ergen, a former professional poker player, has a maverick reputation in the media world. He already has dabbled doing without high-cost sports networks. Dish Network doesn’t carry any of the four regional sports networks in New York and went about a month last October without any of Fox’s RSNs.
“If the economy continues to struggle along, that’s probably a valid long-term strategy,” Ergen told an earnings call last week.
With around 14 million subscribers, Dish Network is the country’s third-largest distributor behind Comcast and DirecTV. Because of its size, Dish Network is an important distributor to programmers, who get paid based on subscriber numbers.
But after reporting a loss of 111,000 subscribers in the third quarter, Ergen was in the mood to find new pay-TV models. It didn’t help matters that Dish Network’s satellite rival, DirecTV, added 327,000 subscribers in the third quarter, thanks largely to its exclusive NFL Sunday Ticket deal.
“You’ve really got four providers in every market now: the phone company, cable company and two satellite companies. Everybody sells the same thing,” Ergen said on Dish Network’s earnings call. “As contracts come up for renewal, there could be a day when one of the big providers just doesn’t have a sports offering, so they can differentiate their programming in a major way. In theory, their cost could be cut by half to the consumer.”
Ergen suggested that he wanted to test the theory out last year, during his carriage dispute with Fox that lasted four weeks in October 2010. The deal kept Fox’s 19 RSNs off of Dish Network throughout October. The satellite distributor ultimately cut a deal as the NBA season was about to start.
“We ultimately were able to reach an agreement,” he said. “But had we not, we were certainly prepared to not have regional sports.”
Of the four RSNs in the New York market, Dish Network has never carried YES Network. Just before the MLB season, it dropped SportsNet New York, which carries New York Mets games. It also is operating without MSG or MSG Plus, which carry the NBA Knicks and NHL Rangers.
During the earnings call, Ergen said Dish Network’s results in New York show that distributors can exist without local sports rights.
“We certainly have plenty of customers in New York,” he said. “I think that there’s a limit to where sports costs can go and at some point, it’s not going to be in 90 percent of the homes if the costs go too high.”
The numbers, however, show that Dish Network is hardly thriving in New York. Its costs are down; the four RSNs cost distributors around $10 per subscriber per month, according to numbers from SNL Kagan. But Dish Network’s subscriber numbers also are way off in the New York DMA, where five other distributors have more subscribers.
According to MediaCensus 2011 numbers from MediaBiz, Dish Network has 327,296 subscribers in the New York DMA, putting it well behind Cablevision (more than 2.915 million), Time Warner Cable (more than 1.352 million), Verizon (862,818), Comcast (714,970) and DirecTV (663,327).
Without the four RSNs, Dish has less than 5 percent of the pay-TV footprint in the tri-state New York area. Nationally, it has around 17 percent.
Last week, I asked Time Warner Cable’s Melinda Witmer if she would ever consider rolling out a service. She said no, citing the popularity of sports networks.
Industry analysts also question the limited sports strategy, saying that live sports is the one genre that distributors offer exclusively. Many, like media consultant Chris Bevilacqua, point to live sports as the main reason why cord cutting hasn’t taken hold.
“What’s holding the MVPD business together?” he asked, regarding multichannel video programming distributors. “As Hulu and Netflix and video on demand and non-linear viewing changes, and people’s viewing habits disperse in different places, the one thing you can’t get without an MVPD subscription is live sports. It just becomes more valuable.”
The idea of dropped expensive sports channels may be attractive to some — but evidence shows that distributors who drop sports channels will be shedding subscribers soon afterward.
John Ourand can be reached at jourand@sportsbusinessjournal.com. Follow him on Twitter @Ourand_SBJ.
