March 31, 2007

"You Have To Really Screw Up To Make Cable Look Good"

Joe Nocera has a fantastic article in today's New York Times on MLB, DirecTV, In Demand, and the Extra Innings package. It's a "Times Select" article, which means you have to pay to read it , but here's a sizeable chunk of the article (with my bolding):
ESPN today, for instance, charges cable distributors like Comcast around $3 a subscriber each month, while many regional sports networks can charge $2 a month per subscriber. Nonsports networks, even popular ones like CNN or Discovery, can't charge anything close to that.

As a result, sports has become some of the most valuable content on television. The National Football League, for instance, reaps more than $3 billion in annual television fees — an amount that goes up every time it negotiates a new deal.

The various sports leagues have also tried to take advantage of their power as content providers by starting their own networks, like the three-year-old NFL Network, to reap even more rewards, in the form of ad revenue and subscriber fees.

But here's where things get sticky. The cable companies have a lot of power, too. They hate the amount of money they have to pay to sports networks. Comcast, for instance, has broached the idea of putting sports on a special "sports tier" so only sports fans would pay for it. But the sports networks all want to be on the basic tiers, where there are more subscribers and they can make more money.

... What does this have to do with the battle over Extra Innings? Oh, everything.

Major League Baseball is way behind the other sports leagues in developing its own channel — the current plan is for the baseball channel to begin operation in 2009. ... And seeing the difficulties the N.F.L. and N.B.A. have had getting the cable companies to accept their networks, baseball decided, essentially, to shove its baseball channel down cable's throat.

How did it do this? By making the acceptance of the still-to-be-conceived baseball channel a condition for renewing the Extra Innings package.

For DirecTV, this was a wonderful plan. Knowing that cable would gag at the thought of having to take the baseball channel, it readily agreed to make the channel available to 80 percent of its subscribers when it started up in 2009, which will probably be around 15 million homes. It agreed to pay $100 million a year for Extra Innings (though that price depends on its remaining exclusive to DirecTV). And -- get this -— it got a 20 percent equity stake in the baseball channel. So if cable winds up taking the baseball channel, DirecTV will profit. They are smart guys over there at DirecTV.

Once In Demand, which is jointly owned by Comcast, Time Warner and Cox, got wind of what DirecTV was going to do, it raced to Major League Baseball with its own offer: it would ensure that the baseball channel was available to 15 million homes on the day it went live — so long as it could get a renewal of the Extra Innings package. And it would pay a portion of the $100 million rights fee, though it offered different, less onerous, terms than Major League Baseball wanted. Baseball said no. For In Demand to get Extra Innings it would have to make 80 percent of its digital subscribers available to the baseball channel -— not "just" 15 million homes — and it would have to pay the bulk of the $100 million fee. And that is where things stand now -— and where they are likely to remain.

So let's think about what baseball has done here. In the interest of seeing to it that its baseball channel gets a running start on DirecTV, it has infuriated the cable industry, which is now unlikely to ever give it the time of day. It has turned down the opportunity to be guaranteed an astounding 30 million subscribers on Day 1 because it wants to squeeze the cable industry for more.

"They allowed the cable industry, which is probably the most reviled industry this side of used car dealers, to become the victims in this thing," said Marc Ganis, president of the Chicago-based SportsCorp. "You have to really screw up to make cable look good."

Plus, it has alienated 200,000 of its most passionate customers -— the ones willing to pay $165 a year to see baseball games every night -— taking away from them a fruit they had already tasted. Plus, it has forced those same fans to go to the baseball Web site to see those games -— which, however good the site is, still entails scrunching over a screen and looking at a picture that doesn't compare to say, a flat-screen plasma TV. Plus, it has reminded the world yet again how much sports is just another greedy business -— exactly what its customers don't want to be reminded of. Plus, it's gotten Congress up in arms.

Nice going, fellas. The N.F.L. would never do anything this dumb. Of course, that's one of the big differences between pro football and pro baseball. The football guys actually know how to run their business with some intelligence.

When you talk to baseball officials about this, they sound beleaguered and misunderstood. The baseball channel, Mr. DuPuy told me, was critical to the future of baseball.

"We should be applauded," he said, for making it available in 15 million homes on the day it started. "This is a business judgment," he added, and baseball had a right to make its own business decisions.
The existence of DirecTV's 20% stake in The Baseball Channel is news to me. So if DirecTV's competitors end up carrying TBC, DirecTV will still profit? Nice work. I knew there had to be some shady stuff going on -- the exclusive deal makes no sense from almost every angle -- and this sure seems like some of it.

The deal remains officially unresolved -- and Opening Day is (as I type) about 24 hours away.

1 comment:

L-girl said...

Thanks for posting this. It does make more sense now - although I don't think we know the full story. I wonder who is profiting personally.