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Volume 21 No. 26
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Even a court victory for Aereo won’t torpedo sports rights fees

The Aereo case, which was heard at the Supreme Court last week, has the potential to throw the broadcast TV business out of whack.

But while the high court’s ruling, expected in the next few months, has the potential to be disruptive to how broadcasters conduct their business, few believe that it will be the pinprick that bursts a sports rights fee bubble.

Over the past two years, I’ve asked sports media executives about their view of Aereo, a service that redistributes broadcast signals via the Internet for a small monthly fee. The fear is that Aereo has the potential to be as disruptive to television as Napster was music — that it would shake up the system so dramatically that the lucrative retransmission consent fees that distributors pay broadcasters would be cut. Any significant cut in retrans revenue threatens broadcasters’ ability to afford multibillion-dollar sports rights fees.

Still, most of the media executives I’ve contacted believe sports rights fees will remain high regardless of how the high court rules, even if the decision leads to significant changes in the television business.

n If the court sides with the broadcasters, nothing changes and the current business model is preserved.

n If the court sides with Aereo, broadcasters will have to change their business model and develop new revenue streams.
It’s become popular to view a Supreme Court win for Aereo as a significant threat to the lucrative multibillion-dollar business that is TV sports. The thinking is that if the court decides Aereo can redistribute broadcast signals without having to pay retransmission consent fees, broadcasters would lose a big revenue stream that has allowed them to compete for sports rights.

That’s because if Aereo is successful, cable and satellite distributors are certain to follow suit and cut their retrans payments. In the last year alone, both DirecTV’s Michael White and former Time Warner Cable executive Glenn Britt publicly said they would mimic Aereo’s strategy should the company win a favorable ruling. That would allow distributors to skirt around retrans fees that are among the most expensive in the industry.

This is where the sports media community sees the biggest potential for danger as it relates to leagues and teams. But broadcasters already have plans in place to preserve the retrans revenue, which brings in billions of dollars per year.

News Corp.’s Chase Carey has said that he would consider turning Fox into a cable channel, shedding the local affiliate system. This would ensure that distributors can’t carry the Fox channel without paying a license fee.

Another option would be to stream the channel. CBS CEO Leslie Moonves has said that he would consider making CBS available over the Internet should the Supreme Court side with Aereo. Just last month, Moonves told a financial conference that an over-the-top network is a real option should Aereo win at the Supreme Court. Moonves was short on details, but any over-the-top service would have to have a subscription component to offset a possible loss in retrans fees.

Both examples would preserve broadcasters’ ability to pay sports rights fees, which is what’s really important to the leagues. But both cases would create headaches for existing media rights contracts the leagues already have signed.

Take the NFL, for example. The league’s deals with CBS, Fox and NBC specify that the league’s games must be carried via a broadcast channel. If broadcast channels become cable channels, those contracts would have to be reworked. Plus, odds are that the leagues would demand a higher payout from a channel that moves from 116 million broadcast homes to 98 million cable homes.

An Internet-delivered channel presents similar problems. Most of the broadcasters’ media rights deals with leagues are for broadcast television. Internet streaming deals tend to have their own, separate contracts. A league would not allow its programming to move from broadcast TV to a less popular platform for free. These negotiations almost certainly would be onerous.

Ever since professional sports leagues started seeing big media rights fees increases, they have seen bogeymen all over the place.

League executives have fretted that online video pirates, cord cutters and aging fan bases threaten the model that has brought them riches.

Leagues and networks work hard to maintain the status quo. That’s been the impetus behind the TV Everywhere push, which has attempted to create an online environment that thwarts cord cutters and pirated streams.

Aereo is nothing more than a new bogeyman. Networks and advertisers still value live sports as the best way to aggregate big, young audiences. That won’t change, regardless of what the high court decides.

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