Home Pete Toms LWIIB: What Does a Drop in Cable TV Subscribers Mean for MLB?

Like Shoot to Thrill - An AC/DC Tribute on Facebook!

An authentic tribute of AC/DC that covers the best of the Bon Scott era and the best of Brian Johnson's material

Who's Online?

We have 541 guests online

Atom RSS

LWIIB: What Does a Drop in Cable TV Subscribers Mean for MLB? PDF Print E-mail
User Rating: / 7
PoorBest 
Pete Toms Article Archive
Written by Pete Toms   
Monday, 29 November 2010 15:44

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, what does a drop in cable TV subscribers mean for MLB? plus tidbits.

According to MLB, 2010 revenues are expected to be near the $7 billion mark, a record for the league and up slightly from the, then record, $6.6 billion of 09. This despite a decline in attendance of approximately 0.5 % over 09, furthering a trend that has seen fewer fans in the ballparks for the third consecutive season. Revenue from ticketing this past season is expected to be down more than the 0.5% decline in attendance, due to extensive “discounting”. Nonetheless, presumably, ticketing remains the single largest source of revenue for MLB. So, if ticketing revenue is down, where is the growth? The infamous “leaked financial docs” of this year revealed that despite all the hype over digital revenues in MLB, as recently as 08, each club received a dividend cheque of $2 million from MLBAM, a relatively small amount. The steady growth in industry revenues for MLB appear to be driven by local TV rights. Clubs have been routinely signing long term guaranteed deals with RSNs for hundreds of millions of dollars. In addition, at least several clubs have acquired equity in RSNs owned and operated by Comcast. Other clubs have launched their own RSN. MLB has their own cable channel, MLB Network, which is owned in part by the cable consortium iN Demand. Programmers and cable operators have seen live sports as key to their offerings in this era of Over-The-Top TV and MLB has profited handsomely. (see more here)

The growing importance of cable TV within the sports industry is not limited to MLB. Fewer and fewer games are available on local “over the air” channels as sports continue to migrate to the more lucrative “dual revenue” (sub fees and ads) model of cable TV. As the financial health of MLB, and the other of the “Big 4”, is increasingly tied to cable TV, developments earlier this month might be cause for concern. On November 17, SNL Kagan announced that the third quarter of this year saw an unprecedented drop in the number of cable TV subscribers (Read the release - PDF). This marked the second consecutive quarter of decline.

SNL Kagan estimates U.S. cable operators lost 741,000 basic video customers in third-quarter 2010, marking the single largest quarterly dip for cable since SNL Kagan began compiling data for the segment in 1980. Cable MSO’s share of combined video subscribers continues to slide, dropping to 60.3%, versus 62.9% in third-quarter 2009.

AND

Operators are pointing to a continuation of the forces that pushed subscriber gains into negative territory in the second quarter, including the weak economy, high unemployment and elevated churn of former over-the-air households,” said Ian Olgeirson, senior analyst at SNL Kagan. “However, it is becoming increasingly difficult to dismiss the impact of over-the-top substitution on video subscriber performance, particularly after seeing declines during the period of the year that tends to produce the largest subscriber gains due to seasonal shifts back to television viewing and subscription packages.”

In response to the declining number of cable TV subscribers, Time Warner Cable announced a new offering in their NYC and northern Ohio markets called TV Essentials. This new package is aimed at consumers most affected by the recession and includes local broadcast stations and major broadcast networks, as well as 12 of the top 20 highest-rated cable networks. What is most interesting to sports fans and the sports industry is what the TV Essentials offering does NOT include, namely, ESPN (it does include ESPN News) and Fox Regional Sports Networks. TV Essentials is the most recent example of the complicated relationship between sports programmers and cable TV. On one hand, sports programming is vital to the appeal and popularity of cable TV offerings. On the other hand, sports channels command the highest subscriber fees of any programming, inflating the price of cable offerings to non-sports fans. From Nat Worden at the WSJ:

"TV Essentials" may be particularly appealing to those who aren't sports fans, as ESPN and regional sports networks have collected rising fees from cable and satellite companies in return for their programming, driving up the cost of pay-TV.

"It's no secret that the most expensive programming is sports, and so in an effort to create a package that's less expensive, we've attempted to craft a bundle [for] people who may not want access to all the sports programming out there," said Mr. Britt. "Our market research says there are clearly people who are not big sports fans." (Note, Glenn Britt is TWC Chief Executive)

Some wonder if the increasing popularity of “over-the-top TV” will allow smaller cable offerings such as TV Essentials to succeed, where in the past, they have failed.

SELECT READ MORE TO SEE MORE, PLUS THIS WEEK'S TIDBITS

Martin Peers wrote in his analysis for the WSJ:

But this business model may be undermining itself. Consumers frequently complain about having to pay for a large number of channels they mostly don't watch. ESPN, for instance, averaged only 0.7% of the audience a day in 2009, according to Nielsen, below rivals like Nickelodeon.

And now that the array of cheaper online video is increasing, consumers have a choice.

While it is easy to understand TWC’s motives in offering TV Essentials (they are losing subscribers), perhaps more notable is the support of programmers in the initiative. Brian Stelter in the New York Times:

Craig Moffett, a senior analyst at Sanford C. Bernstein & Company, said it was significant that the Walt Disney Company, the News Corporation and other channel owners were cooperating in the trial. “In agreeing to support this package at this price point, the media companies appear to be acknowledging the importance of lower-priced offerings,” he wrote in an analyst’s note Thursday. (Note, Walt Disney Co. owns ESPN. News Corp. owns Fox)

If the cable TV universe continues to shrink and MSOs and programmers respond by offering more packages similar to TV Essentials, is MLB well positioned? Will the MLB partners in Comcast RSNs, the Cubs, White Sox, Mets, Phillies, Astros and Giants, be protected by virtue of partnering with the country’s largest MSO? Will MLB Network be similarly protected by their partnership with the iN DEMAND cable consortium? If “over-the-top” grows in popularity, it may be more advantageous to be on the cable side of the equation than the programmer side. Again, from Martin Peers: “Indeed, while cable channels will lose revenue if subscribers disconnect in favor of online video, cable operators will continue to make money from Internet access.”

Some interpreted the TV Essentials offering not as a response from TWC to watching TV shows over the internet, but rather the reality that a significant number of people cannot afford the current offerings of cable TV packages. Andrew Wallenstein reported for paidContent.org:

Bernstein Research weighed in on TWC’s move earlier in the day: “For distributors and Time Warner (NYSE: TWX) Cable specifically, this is an equally important development, in as much as it allows them to offer a package directly aimed at combating cord-cutting at the low-end. An enormous body of evidence suggests that cord-cutting remains primarily a low-end phenomenon, more typically a result of poverty than of Internet choice and convenience.”

While the overall future of cable TV and the role of sports programming in that future is critically important to the biz of baseball, fans also have much at stake. As televised sports, including MLB, disappear from “over the air”, are they increasingly accessible to only the middle class and up? There are approximately 116 million TV households in the country, approximately 100 million of those are cable or sat subscribers. Will the differences in those numbers grow? Of those subscribing to cable or sat, will fewer be willing to pay for sports programming? Is MLB a public good? If it is, should a minimum amount of it be made available to all Americans (ie. “over the air“)? Both culturally and commercially, the future of cable TV is key to the future of MLB.

TIDBITS

  • The New York Times was granted a motion to unseal an audio tape of a meeting in the chambers of bankruptcy judge D. Michael Lynn during the Texas Rangers Chapter 11 saga. Judge Lynn had very harsh words for one of MLB’s lawyers, Stephen J. Shimsak, who famously commented during a conference call that the league would “take over” (it was quite a bit cruder than that) the franchise if the bankruptcy didn’t yield the desired results. Chuck Greenberg, who fronted the group which eventually purchased the Rangers, was also scolded by Judge Lynn. “Early in the hearing, Lynn said that he would file an ethics grievance with the state of Pennsylvania, where Greenberg practices law, if he ever used his status as a principal in the case to discuss bankruptcy law in the news media.” The Judge, who displayed an enthusiasm for the tangential during the court proceedings, also said about baseball: “I don’t like what’s been done to it, with the designated hitter and interleague play and an interminable playoff,” he said. “But I used to love baseball, and I can talk baseball with — at least in terms of people like Whitey Ford and Bob Turley and their ilk — until hell freezes over.”
  • I missed it when it was announced a few weeks ago, but LWIB TicketNews.com brought my attention to the fact that the Oakland A’s will play a scheduled doubleheader next season. Not a day/night doubleheader but a real, genuine, scheduled doubleheader. According to the report, the good ol fashioned July 16 twinbill will be the first since 1996 in MLB.
  • Merritt Paulson still owns a Triple A franchise. Mr. Paulson wants to sell the franchise to Padres owner Jeff Moorad. Mr. Moorad wants to eventually locate the franchise in the San Diego suburb of Escondido. (with a stop in Tucson along the way) Ballpark Digest brings us up to speed on the negotiations between Mr. Moorad and Escondido politicians over the construction of a new ballpark. Mr. Moorad allegedly won’t finalize his purchase of the Triple A club until he gets the deal he wants from Escondido.
  • An Ottawa Councillor has been talking with the Toronto Blue Jays about relocating one of their minor league affiliates to Ottawa. Seems a bit of a stretch, the Jays don’t own any of their affiliates, the next round of PDC negotiations isn’t until after the 12 season, Triple A flopped in Ottawa previously….but….the Jays are none too thrilled with having their Triple A affiliate in far away Las Vegas, and their recent affiliation with the A level Vancouver Canadians indicates a desire to build their brand across the country, and if Rogers Communications ever launches the Canadian version of MLB Network (they already own the rights), an Ottawa team might fit with their programming requirements. How about the Jays buy a Triple A franchise with Mandalay Baseball and bring it to Ottawa? I promise I’ll support it, I supported Triple A in Ottawa for 16 years and I can’t overstate how much I miss it.

 


Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

 

Follow The Biz of Baseball on Twitter Twitter

FacebookFollow the Business of Sports Network on Facebook

 
 
Banner

Poll

Should MLB Force Jeffery Loria to Sell the Marlins?