Distributors say their leverage varies with each market, team
A couple of weeks ago in this space, I wrote that distributors have regained leverage from sports networks.
I pointed to the problems regional sports networks are having in Houston, Los Angeles and Portland as evidence that cable and satellite operators have become more emboldened by these fights and more willing to push back on sports’ rate hikes. Pay-TV companies have more confidence that subscribers won’t drop their service if they refuse to carry some sports networks. For example, DirecTV says it hasn’t shed a significant number of subscribers by not carrying Pac-12 Networks, and Time Warner Cable’s business in Texas was not hurt by the fact that it didn’t carry Longhorn Network at the network’s launch.
To me, it feels like the early 2000s, when cable operators successfully kept team-owned RSNs from the Minnesota Twins and Kansas City Royals from gaining broad distribution. That move kept other teams from exploring that route, at least for a couple of years.
But in the weeks since that column was published (SportsBusiness Journal, June 9-15 issue), several distribution executives have reached out to say that they disagree.
It’s not so much a change in negotiating position. Rather, they say, leverage remains the same as it’s always been.
They remember those battles in Minneapolis and Kansas City, two markets that launched team-owned RSNs in 2003. But they also remember, around the same time, YES Network launching in 2002 and MASN launching in 2005.
Strategy varied by market and by team in 2003, just as it does in 2014, they said. Back then, it was easier to hold out in markets like Minneapolis and Kansas City than New York and Washington, D.C. Today, it’s easier to hold out with the Rockets than with the Lakers.
None of the executives wanted to be quoted on the record, as they didn’t want their company PR staffs to know that they talk with the press. But all of them described the current market as one where cable and satellite operators have little leverage against good teams that have strong local followings. Cable and satellite operators also have little leverage during big events, such as the Olympics. In the late 1990s, NBC used Olympic programming to grow its cable channels, like USA Network.
The same scenario played out last summer, when CBS tried to get an increase in retransmission consent fees from Time Warner Cable. CBS went dark for about a month, and Time Warner Cable wound up losing 306,000 subscribers in the third quarter. One of the reasons customers switched was because of the threat of not being able to see regular-season NFL games. There are several examples like this where sports networks hold leverage. I am confident that SEC Network will have most of its major deals in place by its launch in August.
A distribution executive with knowledge of the negotiations said some of the bigger companies, like Comcast, DirecTV and Time Warner Cable, are pushing back on SEC Network’s demand to get full carriage outside of SEC territory. But I still sense a changing landscape in these negotiations. Cable and satellite executives are smarter about when to fight and when to back away because their viewership data is more sophisticated. They can use set-top box information to see — down to the minute — who’s watching and when.
“Viewership measurement allows [us] to predict exactly how many of its subscribers are at risk if a network is dropped,” another distribution executive wrote in an email. “I have been dropping nets for years, including one well-known niche sports net that cost the company five (yes, five) subs and another one that lost us 15 subs.”
I called industry media veteran Chris Bevilacqua to get his thoughts. He agreed that a “one size fits all” approach is not applicable because each market and each team is unique. But he pointed to a broader industry consolidation — Comcast buying Time Warner Cable, and AT&T buying DirecTV — that looks to be bad news for teams exploring what to do with their rights. With huge, multinational corporations (like RSN owners Comcast and News Corp.) negotiating with other huge corporations (like Comcast and AT&T) for local sports carriage, Bevilacqua believes the market for team-owned RSNs will shrink. It’s the same problem small, independent programmers have in the broader cable marketplace.
“It will be more difficult for team-owned RSNs to execute over time because of that consolidation,” he said. “This is going to be the land of the giants going forward.”