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Home Pete Toms Television Rights and MLB: Extra Innings, MLB Network Reshape the League

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Television Rights and MLB: Extra Innings, MLB Network Reshape the League PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Sunday, 07 December 2008 17:30

A Biz of Baseball Original ArticleThe 2008 World Series was the least viewed in history.  In October, SBJ reported that “Television ratings for Major League Baseball games were down almost across the board, as the national networks and most regional sports networks suffered significant declines during the regular season” 

 In spite of declining TV ratings, competition for MLB programming has probably never been more intense and the stakes potentially greater.  In July, Lee H. Berke,  president and CEO of LHB Sports, Entertainment & Media Inc. wrote;      

The reality is that an increasing number of media distributors and technologies are chasing after a relatively fixed quantity of brand-name sports properties that can drive and retain viewers, subscribers, sponsors and, of course, revenue. Programmers, cable operators, satellite distributors, the telcos, wireless providers — the media list keeps growing, but the list of key leagues, teams and events that fans follow remains relatively fixed. Insatiable fan demand for this content gives these entities the opportunity to control at least some of their own programming destiny.

On January 01, 2009 the MLB Network launches.  MLB is the last of the “big four” North American professional leagues to launch its’ own TV channel.  MLB Network will be the most successful launch ever for a cable channel, debuting in 50 million plus households.  Conversely, the NFL Network, despite being on air for five years, is available in only 42 million households.  Tim Brosnan, Executive Vice President, Business MLB,  accomplished what the NFL has not by offering the largest cable operators the MLB “out of market” package “Extra Innings” as well as a 1/6 stake in MLBN (DirecTV and iN Demand, a consortium of cable operators including Time Warner Entertainment-Advance/Newhouse Partnership, Comcast iN Demand Holdings Corp and Cox Communications Holdings Inc, each own a 16 percent stake of MLB Network, while MLB retains the remaining majority). While the NFL continues to battle cable over expanded carriage, MLBN will be available on the most widely distributed “basic” tiers from inception.  Mr. Brosnan was quoted in SBJ, "We knew that the Extra Innings package gave us enormous leverage.”  The same SBJ piece speculates that “ by 2015, revenue from cable subscriber fees and advertising is projected to soar beyond $210 million, with a net value easily exceeding $1 billion.” MLBN is expected to “…air weekly games on Thursday nights, when they won't face other national TV MLB games or many local TV games”, according to Michael Hiestand.  MLBN’s nightly studio shows is expected to be a direct competitor to ESPN’s “Baseball Tonight.”

Earlier this month MLB announced a deal with broadband and telecom provider Verizon.  The Biz of Baseball reported, “MLB Network will be available to all Verizon FiOS TV customers as part of the Essentials and Extreme HD packages on channel 86, when it debuts January 1, 2009.” […]  “In addition, Verizon and Major League Baseball have entered into a new multi-year agreement to provide the MLB Extra Innings package on FiOS TV, offering baseball fans up to 80 out-of-market Major League Baseball games per week. The two agreements mark the first television arrangements between Major League Baseball and Verizon.”

MLB, via MLB Advanced Media (MLBAM), has been live streaming “out of market” games on MLB.com since 2002.  According to MLBAM they,”… launched the first full-season subscription video product in professional sports the following April. MLBAM reports that since that time, more than one million fans have subscribed to MLB.TV.”   While MLB revenue growth slowed in 2008, BAM performed strongly.  The Biz of Baseball reported in September, “The strong growth area continues to be MLB Advanced Media. While revenues have not been formally disclosed, BusinessWeek reported in August that MLBAM brings in about $450 million per year, about half of which comes from live game streaming.”  In April, MLBAM and Yahoo!, “… announced a three-year video and advertising partnership that includes access to out-of-market MLB games on Yahoo! Sports. Financial terms were not released.”  In July, Apple introduced it’s MLB.com “At Bat” application, allowing users to view “near real time video highlights”.  The Biz of Baseball reported last month that the “At Bat” app, “ has sold over 140,000 copies since mid-July of 2008. At $4.99, that translates to approximately $700,000 in revenues before any fees are paid to Apple.”

Not surprisingly, Fox Sports, which in 2006 signed a seven year agreement with MLB granting them rights to the World Series, All Star Game, and Saturday afternoon baseball, is not happy that MLB is expanding its’ media partnerships.  Neil Mulcahy, Executive VP, sales, Fox Sports, told SBJ in September;

“...leagues and teams are wanting to increase their ways of distributing games that we have paid billions in rights fees for. You are still going to see a lot of pushback from us on that. … We are paying a heck of a lot of money in rights fees, and to start having other people get involved in that process means they [the leagues] are wanting to increase ways of distributing live content that we have paid billions for.

David Hill, chairman of Fox Sports, was very candid in a March 08 Q&A with SBJ on the future relationship between professional sports leagues and broadcast networks:

Do you see any new models in terms of how networks deal with the leagues beyond right fees?
Hill: Who knows? The modeling might change. The modeling might remain the same. I don’t know. But it’s going to be a sad day for the leagues if the current model disappears. It would require a lot of late nights on Park Avenue, with the lights burning to try and figure out what their economic structure looks like without the networks.

So then why are leagues launching NFL Network and MLB Channel to compete with you?
Hill: What’s the financial viability of the NFL Network? Do you think the NFL is going to say to the networks, “See you later. We’re going to go make our money off of the NFL Network”?

If we’re talking about 20 years, yeah, I can see that as an end goal.
Hill: It could well be in 20 years, but certainly not in the next decade. Same thing with MLB Network. Talk to David Stern. He’s had NBA Network going for what, 15 years now?

So what are the biggest threats leagues face today?
Hill: The real threat for the leagues is the sports-only channels because a league puts a sport on a sports-only channel, you can guarantee that the ratings are going to die. How do you attract a new viewer to a fan base if you are speaking to the converted? The reason why leagues should embrace network coverage is because it allows them to continually refresh their fan base. On a multi-entertainment choice, you stand the chance of attracting new fans.

While Fox Sports will broadcast the World Series until at least 2013, already there is speculation that a move to cable is inevitable. ESPN’s recent acquisition of the broadcast rights to the BCS brought increased attention to the accelerating migration of sports properties to cable from broadcast networks (Since 2006, one of the LCS has been broadcast on cable channel TBS). The cable model of subscriber fees combined with ad revenue gives them an enormous advantage over the broadcast networks, who are reliant on ad revenue only.  Richard Sandomir recently wrote, “The World Series would fit perfectly into ESPN’s matrix. Tim Brosnan, M.L.B.’s executive vice president for business, cagily told The Sports Business Journal last week that if the Series ever went to cable, “it means a lot of other sports have gone there first.”

If MLB moves the World Series to cable will there be a political and popular backlash?  The NAB is lobbying Congress and the FCC in hopes that broadcast networks will retain rights to major sports events.  From the November 26 edition of the Washington Post;

The major television networks and their affiliate stations yesterday said they will push policymakers to support free access to premier televised sports events after ESPN last week contracted to carry college football bowl games on cable and satellite channels.

The National Association of Broadcasters said ESPN's $500 million deal to carry the Bowl Championship Series....would leave out about 20 million television viewers who rely on free over-the-air television.

And the same piece quotes FCC Chairman Kevin J Martin, "This is part of an overall trend we've seen of sports programming moving from broadcast to pay services. I'm concerned about that for viewers,"

Would a proposed move of the World Series to cable also prompt politicians to revisit MLB’s antitrust exemption? In March 2007, in response to an eventually unfulfilled expectation that MLB would grant DirecTV exclusive rights to distribute the “out of market” “EI” package, the US Senate Committee on Commerce, Science, and Transportation held hearings entitled “ Exclusive Sports Programming: Examining Competition and Consumer Choice” .  Following are excerpts of the opening statement of  Sen. John Kerry (D-MA);

Is this type of deal in the best interest of consumers?  Does it serve the sports fans?  These are legitimate questions.

Baseball is an integral part of American culture.  Commissioner Selig himself has said that baseball is a social institution with enormous social responsibility.  I agree with him.

Recognizing that, baseball has benefited from an array of favorable Government policies.  The sport enjoys a broad antitrust exemption.  It allows them to negotiate carriage deals, and gives them tremendous market power.

[…]

We should support baseball, and in return, I believe baseball should serve the public interest.  It is fair to expect baseball to provide broad access to their games.

[…]

I am concerned about exclusive carriage deals in the sports industry.  These deals may be good for the short-term financial interests of the sports leagues; they may improve the competitive position of the cable or satellite firms that get the rights -- I have no doubt that there are business advantages --

But we need to discuss the impact of these business changes on baseball fans as well. 

At the local level, clubs are leveraging control of their local cable television rights to either launch their own RSN or reap lucrative rights deals.  In June, John Ourand reported in the SBJ, “A little more than two years ago, the Cleveland Indians decided to launch their own regional sports network, spurning FSN Ohio’s offer of more than $30 million a season, nearly three times more than it had been paying previously. Instead, the Indians launched SportsTime Ohio…”  And from the same piece, “Fox Sports Net has signed rights deals with 24 MLB, NBA and NHL teams in the past two years thanks to a change in thinking that led the group to commit more money to get those rights, embrace more of a local strategy…” 

In 2007, Seattle secured a $500 million commitment from FSN Northwest in exchange for the rights to broadcast the Mariners for 12 seasons.  Despite a decline this season in TV ratings of 5.5% over 2007, the Rockies recently announced a 12 year extension with FSN Rocky Mountain. Earlier this season, the Giants acquired a 30% stake in Comcast CSN Bay Area in exchange for a 25 year rights deal.  SBJ reported, “Comcast is developing an RSN strategy that sees it sharing equity in its RSNs with MLB clubs. Beyond the partnership with the Giants, the New York Mets hold part of SportsNet New York, and the Chicago White Sox and Cubs are part-owners of CSN Chicago."

Location of minor league affiliates is being influenced by the parent clubs’ RSN programming needs.  In September, Eric Fisher wrote about, “…a greater use of farm clubs for strategic marketing and media content purposes.”  On the move of Indians’ AAA to Columbus from Buffalo, he commented that the Clippers will serve as a “key source of content for the Sports-Time Ohio regional sports network that is owned in part by the Indians.”   And on the move of Mets’ AAA to Buffalo, “The Mets and Bisons share several sponsors, and the Mets’ SportsNet New York TV outlet is well distributed in western New York.”

Clubs also see themselves as better able to grow their brands locally when they control the local TV content.   Sports consultant Marc Ganis said of the Yankees’ RSN,  “YES has not only been a financial success, but also a critical success creating programming and implementing sponsorships that bring fans closer to their favorite team and players that likely never would have been done with a non-team-affiliated broadcaster,”   

Along with the competition amongst “media distributors” for MLB programming, there is a battle within MLB over control of content.  Access to local digital rights is a very contentious matter within ownership ranks.  The debate is about two issues.  1.  Centralizing revenues.  2.  Who is best positioned, league or club, to maximize the value of the rights.  SBJ reported in September:

MLB Advanced Media, which manages the interactive rights for all 30 clubs and acts as a key source of revenue sharing for the industry, has for years successfully sold live streaming of games through its MLB.TV out-of-market package, a product that applies local-market blackouts like its TV counterpart, Extra Innings.

But a group of clubs, including the Boston Red Sox and Baltimore Orioles, have been pushing hard for changes to MLB policy to allow for in-market streaming as a means to supplement coverage on club-owned regional sports networks.

[...]

“This is all a very, very complicated matter,” said one club official. “Who really has these [digital] rights and how do we best bring them to the marketplace? That’s the big question. And though we’re in sort of a holding pattern right now, it’s no doubt the single biggest economic issue our industry is facing.”

Maury Brown wrote in September on the subject of control of local digital rights; “MLB Advanced Media, the highly successful, centralized digital wing of MLB, has done exceptionally well selling MLB.TV, the online counterpart to MLB Extra Innings, the MLB out of market package. But some clubs are looking to gain extra revenues at the local level without having to deal with revenue sharing.”

Within MLB, negotiations over control of local digital rights continue. Meanwhile, in August, MLB renegotiated its’ digital rights agreement with ESPN. According to the aforementioned SBJ piece, some owners are not happy with the expanded digital rights afforded ESPN.  “Executives with several MLB clubs, speaking on the condition of anonymity, said that while ESPN is a valuable partner and lucrative source of income, the new deal grants the network rights far in excess of what’s available to individual clubs and regional outlets.”

William Houston recently reported from a sports management conference in Toronto that the imminent introduction of HD quality live streaming on the Internet could see it replace sports broadcasting on cable and satellite.   Doug Beeforth, president of Rogers Sportsnet,  speculated that ownership of the content is a hedge against technological obsolescence.  Houston wrote, “But Beeforth noted that a cable company such as Rogers can protect itself by owning the content and, therefore, deciding how it gets distributed. For example, Rogers, in addition to Sportsnet, also owns the Toronto Blue Jays”.

When the 2009 World Series concludes and the TV ratings are the worst – or amongst the worst – ever, pay no attention.  There is plenty of demand in the media world for MLB.


Pete Toms is a staff member of the Business of Sports Network. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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