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Home Pete Toms MLB Network Vs. Other League Networks

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MLB Network Vs. Other League Networks PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Friday, 04 December 2009 12:36

MLB NetworkOn January 1st of this year, MLB became the last of the “Big 4” to launch their own TV channel with the debut of MLB Network (MLBN). The initial year of MLBN has been deemed a success by MLB officials. The channel debuted in 50 million plus homes (a record launch for a cable channel), ad revenues were reportedly strong (given the recession) and the programming received positive reviews (the addition of Bob Costas gave the channel’s journalistic credibility a major boost).

But what is the future of league owned networks? MLB’s rights deals with all three of their national TV partners (Fox, TBS and ESPN) expire in 2013. Those deals pay MLB upwards of $650 million per year. All of the “big 4” (most notably MLB and the NFL) must balance the enormous value of their national TV deals against the challenge of growing the revenues of their own channels. In a nutshell, the leagues have become competitors with their broadcast partners. Neal Pilson, former president of CBS Sports, was quoted in a recent Los Angeles Times piece by Jon Weinbach titled, “Sports league cable networks play a dangerous game”, (Leagues) "have to be aware of -- and careful not to kill -- their golden goose, What is the endgame?" In a March 2008 Q&A with The SportsBusiness Journal, Fox Sports Chairman David Hill addressed the relationship between league owned networks and their broadcast partners:

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?

In the present, how important are these league owned cable channels? There are approximately 115 million TV households in the US. MLBN and NFL Network (easily the most widely distributed of the “big 4” channels) are available in approximately 53 million of those homes. The NFL Network launched in 2003 and only this season achieved the same level of distribution as MLBN. (more on that below) By comparison, ESPN is available in approximately 99 million homes.  Last month, The SportsBusiness Journal quoted Comcast Programming Group President Jeff Shell, “The amount of money each of the leagues is making from their network is de minimis compared to the amount of money we’re all paying for rights,…” Jon Weinbach reported in his aforementioned piece, “Networks with fewer than 70 million subscribers are generally not considered "national buys" by advertising agencies, and therefore can't generate premium rates for commercials.”

If the league owned cable channels are relatively minor players today, is that set to change in the near future? There has been much speculation that the “big 4” are concerned about the increasing dominance of ESPN in the sports TV marketplace and that the league owned channels are necessary to protect the future value of broadcast rights. Over the air broadcasters have concluded that their “ad based” model can no longer compete with the “dual revenue” (ads and carriage fees) model of cable TV. As a result, the over the air broadcasters are negotiating with cable operators over compensation for the “retransmission rights” to their local stations. In some markets, broadcasters have even threatened to “pull“ their local stations from the cable operator over “retransmission fees”. ESPN receives a monthly subscriber fee from cable operators and sat providers of upwards of $4. That before they sell a single ad. John Ourand reported last month in The Sports Business Journal:

The debate over retransmission rights — where broadcasters want cable operators to pay cash to carry their local stations — will be one of the most closely watched issues over the next year, as the two sides try to determine how high the monthly “retrans fee” should be

It’s not a stretch to suggest that the long-term future of broadcast networks as pivotal players in televised sports is at stake. If broadcasters somehow don’t add dollars to their coffers, the likelihood of big payouts during the next round of major sports TV negotiations from 2011 to 2013, which include the NFL, MLB and NHL, seems remote.

Tom Van Riper reported last month for Forbes:

The most obvious advantage to starting your own programming arm: controlling the pipeline through which your product goes out. Baseball's rights deals with ESPN and Fox both expire after the 2013 season. With new agreements to be negotiated, what's better leverage than having the option to tell a potential network partner that you can put the games on the air yourself if the price isn't right?

"You want to become a content provider, because you never know what the future holds," says Lee Berke, a New York-based sports media consultant.

Last month, John Ourand and Tripp Mickle of The SportsBusiness Journal filed a report titled Are leagues only potential ESPN rival?”from the Sports Media & Technology conference.

The sports industry continues to look for a competitor to step up and compete with ESPN, and the consensus at an industry conference last week is that only one group is poised to pose an actual threat to the sports media giant: the leagues.

The majority of attendees at last week’s conference said they believed league-owned networks were most likely to compete with ESPN.

In the same report, Dick Ebersol, Chairman NBC Sports & Olympics, remarked on the “dual revenue” advantage that ESPN has over the over the air broadcasters:

“No one in the history of media has ever opened up the new year every year knowing they have $5 billion sitting over there on the side of the room,” he said. “So anything ESPN wants, ESPN can have. Now whether that’s healthy in the long run for every sports property in America, you decide — because at a certain point in time, all of us will be out of business, and then they’ll only be there to deal with everybody, and I don’t believe the goodness of their heart is better than the goodness of anyone’s heart in this room in a situation like that.”

No doubt the “Big 4” are extremely happy about the merger of the nation’s largest cable provider Comcast with NBC Universal. Long rumoured, the deal has the potential to turn Comcast’s sports channel “Versus” into a worthy rival to ESPN. (see The Biz of Hockey report, NBCU & VERSUS: An Alternative to ESPN?) Although regulatory approval of the merger is expected to take at least a year and likely more, the impact on the sports broadcast industry is potentially huge. Earlier this week Richard Sandomir reported in The New York Times:

Comcast would have to decide to spend what is necessary to lure viewers from ESPN and ESPN2 by acquiring bigger events, like the Olympics, Major League Baseball, the N.F.L., Nascar and the N.B.A. — properties on a tier above its current rights to IndyCar, the Professional Bull Riders, Mountain West Conference football and mixed martial arts.

AND

So, if Comcast is serious financially and qualitatively, it and NBC could turn Versus into a credible rival. It could turn Versus into a network that would provide cable operators (like Comcast) leverage in negotiations with ESPN.

It might also make leagues giddy, knowing they could potentially juggle large-scale bids from Versus.

“You can see that the leagues must be concerned about the next round of negotiations,” said Randy Falco, the former president of the NBC Universal Television Group. “They’re asking, ‘Where’s the money coming from?’ Less and less over the next 10 years will it come from the broadcast networks, so they’re looking for an alternative.”

In the immediate future, the league owned cable channels will attempt to add subscribers, which in turn boosts ad revenues. Adding subscribers has proven a difficult challenge for the league owned channels. Cable operators have been pushing back against the rising cost of sports programming with lengthy battles ensuing over the relegation of sports channels to “sports tiers” as opposed to the more deeply penetrated “basic tiers”. The NFL and MLB have opted for different approaches in their negotiations with cable and sat providers.

As previously noted, NFL Network only reached the same level of distribution as MLBN this season, despite launching six years earlier. Despite the relatively minor availability of the channel, in 2006 the NFL gave their network the sole right to broadcast 8 regular season games. (Played on a Thursday or Saturday) The league reportedly rejected a $400 million plus offer from Comcast for the 8 game package, convinced that demand for the games would incite fans to pressure their cable providers to add NFL Network to their line ups. Comcast (the nation’s largest cable provider) responded by moving the channel to a more expensive and less penetrated “tier”. A court battle and bitter public relations campaign ensued until this season when the two sides came to an agreement. A resolution was reached as a result of the NFL lowering their carriage fee for the channel and the launch of the NFL’s RedZone channel, a companion “Sunday look in” product tailored to the “fantasy” fan. Cable operators had long argued that DirecTV had an unfair advantage in programming the NFL as the exclusive provider of “Sunday Ticket”, long a hit with “fantasy” fans. The new agreement has resulted in an additional 11 million subscribers for NFL Network, 53 million as opposed to 42 million last season.

Select Read More to see why MLB Network's model has been a success compared to other league-owned networks

MLB was able to launch MLBN in 53 million homes because they made many of the biggest cable and sat providers partners in the channel. The cable operators are obviously more motivated to program MLBN on their most popular services if they own a stake in the channel. (The NFL long argued that Comcast gave preferential treatment to sports channels that they own. I.E. The Golf Channel) MLB also made their popular out of market “Extra Innings” package available to their MLBN partners. (similar to the NFL’s recent introduction of “RedZone”) Last month, Stuart Miller reported for Multichannel News:

MLB Network, the latest entrant among the bunch, took a distinctive path to gaining distribution, selling minority ownership stakes to some of the biggest players in the game: Comcast, Time Warner Cable, Cox Communications and DirecTV. Thanks to this tactic, the big leagues' network launched last January in a record 53 million homes — roughly half the TV universe. (The network also tied carriage to its out-of-market “MLB Extra Innings” package.)

“We feel really good about where we are,” said network president Tony Petitti, who credits MLB's executive vice president of business, Tim Brosnan, with the plan.

That's because in one year, MLB caught up to NFL Network, also in 53 million homes, even though the gridiron channel has been around since 2003.

Lee Berke, a sports media consultant, spoke with Tom Van Riper for the aforementioned Forbes report:

He likes MLB Network's strategy of avoiding its cable carriers' premium tiers, going for wide distribution over greater revenue per subscriber. The network debuted to a potential audience of 50 million homes in January 2009, many more than its NFL and NBA counterparts……

"A subscription service that gets $5 or $10 a channel might get only 10 million homes," says Berke. "Better to be in 50 million homes, that's how you maximize affiliate [advertising] revenue." Advertisers like predictability--knowing roughly how many viewers comprise the audience. Staying off premium channels greatly reduces the audience churn rate: People come and go from premium services all the time, while most everyone sticks with the basic services.

In fairness to the NFL, which has been widely criticized in the sports media for mishandling negotiations with the cable and sat industry over distribution of their channel, they are now in the same number of homes as MLBN. But, NFL Network charges double the carriage fee of MLBN (reportedly approx. $0.50 per sub compared to approx. $0.24 per sub) and they have not given up 1/3 of the equity in their channel to cable and satellite.

Ultimately, the league owned channels best opportunity to increase subscribers lies in increasing the number of live games they broadcast. MLBN has plans to broadcast more live games next season. Whether or not the leagues are cannibalizing the existing value of this programming to RSNs and national TV partners is a matter of debate. From Jon Weinbach’s aforementioned piece in the Los Angeles Times:

"League offices have an unhealthy belief that viewers, consumers and distributors want more of their product," said one veteran cable executive, who declined to be identified because his network is in business with all of the leagues. It’s going to be interesting to see over time how they manage that contradiction and how they manage a fair bidding process when the auctioneer is one of the bidders.”

Tim Brosnan, MLB’s Executive Vice President, Business commented last month in the SportsBusiness Journal on the subject of programming more live games on MLBN (Mr. Brosnan is credited with leading MLB’s successful negotiations with cable and sat during the MLBN launch):

MLB executives are quick to acknowledge the power of live MLB games as the surest way to expand the network. Last season, the MLB Network carried more than 50 live MLB games.

“We know from the cable networks and the broadcast networks in the sports business, it’s live events that really draw the customers in,” Brosnan said. “You can make a lot of money on syndicated shows and talk and highlights. But you draw bigger audiences on events.”

Still, Brosnan said MLB is not close to making a decision on whether to add to the channel’s live game schedule when the league’s TV contracts with ESPN, Fox and TBS end in 2013. “The biggest decisions that are going to have to be made in our industry as it relates to MLB Network is the depth and level of events that we put on our air,” he said.

Beyond building equity and reaping operating profits from these channels, there are ancillary benefits for the leagues. MLB uses MLBN to promote the WBC and the amateur draft (MLB has long sought the media attention that the drafts in the other “stick and ball” leagues generate). The NFL Network has generated significant interest in broadcasting the “scouting combine”, which ties in with promotion of the already wildly popular NFL draft.

If there is concern amongst distributors, programmers, leagues and fans that there is too much sports on television, it might be premature. Yes, the recession might be keeping more fans in front of their sets but the TV audience numbers for NFL games this season are still astounding. Yes, the Yankees were in the World Series for the first time since 2003 and there were many thrilling postseason contests but still, the TV audience numbers for the MLB playoffs were enormous. A lacklustre MLB regular season (lack of compelling playoff races), resulted in diminished ratings for FOX and ESPN while TBS ratings were stable. Perhaps more importantly, RSN ratings for regular season baseball were stable (albeit interpretation of those numbers on a macro level are made more difficult because ratings are directly tied to team performance). Going forward, whether or not broadcast networks remain a major player in TV sports, or whether or not Versus steps up to increase demand for sports programming, or whether or not the league owned networks become increasingly important, remains to be seen. What we do know is that in this era of audience fragmentation, DVRs, video games, internet and social networking, live sports remains one of the last (THE last?) media properties capable of delivering a mass audience. The last word from the aforementioned report from Multichannel News:

Most sports attract loyal viewers, mostly men in crucial demographics, and have the potential to draw big TV crowds. Live professional sports programming, especially in high definition, is the ultimate penetration driver, said Tennis Channel CEO Ken Solomon.

“It's the one thing in television that continues to defy ratings gravity,” he said.


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