Thursday, December 22, 2011

Sports Networks Will Never Allow Cable Tiers

Let's just put it on the table, no major sports network will allow itself to be repositioned onto a cable sports tier. Not now, never. The latest contract negotiation involving a sports network is brewing between MSG, home of MSG networks and Fuse, and Time Warner Cable.

Come the end of this year, the contract is up and plans are underfoot to drop it from basic. Already TWC has dropped its sister network, Fuse, as a sign of things that could come if an agreement is not reached. It seems they are miles apart, MSG wants a 53% increase, TWC is willing to go up to a 6.5% increase. Of course at the end, an agreement will be reached and any increase will be added to their customers' cable bill. Don't even think that TWC or any cable operator will simply absorb that kind of a fee increase; ultimately, the consumer will pay more in their monthly bill.

TWC CEO Glenn Britt has an idea, "Shifting sports channels to a separate tier, as Mr. Britt said, would allow cable operators to shift the cost for sports channels to those sports fans who want the programs—and cut the cable bills for nonsports fans." Not a new idea and certainly not one that a sports programming network would even consider. The highest license fees for networks are with the sports networks. That includes ESPN, MSG, and others. Their monthly fees are based on full distribution across the lowest level of service reaching every household TV. Should penetration fall, those fees typically increase proportionately higher than the lost percentage. So placing sports channels on a tier that reaches half the total audience could result in fees more than double the amount than full distribution. A $5 monthly license fee could be $15 on a tier. Add together all the sports networks being placed on a sports tier and the cost to the consumer now becomes a luxury expense. The price elasticity model won't simply bend, it will break.

But it's not just with ESPN or MSG. Comcast Cable is rebranding its sports network Versus into NBC Sports Network. There is no way that they will want their channel on a tier either . And what about TNT, an entertainment network that also plays NBA games. They too charge higher fees than other networks to cover their sports costs. You also have professional sports with their own sports network, NFL and MLB. And Tennis Channel just won a suit to be repositioned on basic on Comcast systems. The thought of repositioning all sports networks from basic carriage to a separately priced tier may sound like a legitimate idea, but the cost from the loss of subscribers will price this package of sports networks to a level that most consumers won't purchase.

In fact, it may be more likely to push them to the web. Consumers will buy a la carte their NFL or MLB game and stream it through an app or their Xbox. They may watch less, but they will also pay for only what they really want to watch. And encouraging more cord cutting and driving subscribers further away from cable is a bad business decision for cable operators.