Distributors’ new leverage may hold implications for Clippers
It’s not a bursting sports rights bubble, but there seems to be a shift in negotiating leverage when it comes to local media rights.
From what I’m seeing, distributors have gained the upper hand in these disputes, a development that should concern professional sports teams as they consider how to handle local media rights.
It’s happening in Houston, where the Astros and Rockets still can’t get meaningful carriage via CSN Houston. It’s happening in Los Angeles, where the Dodgers have been stymied in carriage negotiations over SportsNet LA.
And I expect it will happen with the Clippers in Los Angeles, where even though the market has six regional sports networks looking for content, the team is not likely to see a bidding war when its local TV deal with Prime Ticket ends after the 2015-16 season.
The biggest problem is that distributors like DirecTV have become emboldened by recent programming disputes with sports networks. DirecTV has not reported significant subscriber losses even though it doesn’t have a national deal with Pac-12 Networks or local sports deals in Houston, Portland and Los Angeles.
DirecTV says it has grown its subscriber base in the Houston market even though it has not carried Astros or Rockets games for nearly two years.
Just last month, DirecTV CEO Michael White said the satellite distributor has seen “immaterial” churn in the Los Angeles market during the two months that his company has not carried the Dodgers.
Of course I expect to see the Clippers reap a rights fee increase. It just won’t be anywhere close to the $200 million that the Lakers are getting annually. It won’t be close to half that figure.
The Clippers’ deal with Prime Ticket pays the team $25 million to $30 million a year on average. Prospective new owner Steve Ballmer should expect those rights fees to more than double.
Sources familiar with Fox Sports’ thinking said the company plans to use the Celtics’ 2011 deal with CSN New England as a model for the Clippers. In that deal, the Celtics went from a deal that had an annual rights fee of $15 million to $20 million to one that pays an average of $65 million a year, a figure that includes a 20 percent equity stake in the channel.
The Celtics get higher TV ratings and have a more storied history than the Clippers. The Clippers generally have more viewers tune in to each telecast.
The Clippers certainly don’t have as big a brand as the Dodgers in Los Angeles or the Celtics in Boston. A big deal for Clippers rights would not have any effect on whether a distributor carries a channel. If Los Angeles subscribers aren’t switching providers for the Dodgers, who really thinks they will switch for the Clippers? That will keep RSNs from entering into a bidding war for the second most popular NBA team in the Los Angeles market.
Why has the negotiating leverage changed? Part of the reason lies in the fact that distributors have become more confident in their viewer research. Privately, distribution executives say they are able to base negotiations on whether teams have avid fans. Set-top box data tells distributors exactly how many people are watching a specific game at a specific time.
It’s unlikely that distributors would drop the Red Sox in Boston, the Bulls in Chicago or the Penguins in Pittsburgh. I still believe SEC Network will be able to work out carriage deals before its August launch with distributors like Comcast, Time Warner Cable and DirecTV because of the conference’s passionate fan base.
But a team like the Clippers doesn’t have that kind of juice.
Ironically, even with the presence of six RSNs that could bid for the rights, a market like Los Angeles is not a good one for the Clippers.
The Lakers have editorial control over two of the channels, and it’s hard to envision a scenario where the Clippers and Lakers agree on a local TV deal.
The Dodgers’ network, SportsNet LA, is another option. A Clippers deal would make programming sense for the channel, filling the late fall and winter months with live game action. But there’s an open question whether the channel could afford another big rights deal. It can’t get carriage on most Los Angeles cable and satellite systems with the Dodgers. How much more would the channel have to charge distributors if it paid up for Clippers’ rights? More importantly, what’s the likelihood a Clippers deal would persuade distributors to do a deal?
Pac-12 Networks runs an RSN in the Los Angeles market, but it is solely focused on Pac-12 college sports and its executives have shown no inclination to expand beyond that.
The Clippers could experiment with launching their own RSN, which would make the market’s seventh such channel. Given the problems the Dodgers are having getting carriage, it seems unlikely that a team like the Clippers could force distributors into a deal.
That leaves the two Fox Sports-operated channels, Prime Ticket and FS West.
Ballmer’s $2 billion bid has the potential to reset franchise values throughout the NBA. The team’s next media rights deal also will prove to be a test case on whether negotiating leverage really has moved to the distributors.