You pay a lot for sports television

There’s an interesting story in the Los Angeles Times today about the rising cost of sports programming in cable/satellite television package. The upshot: about half of your cable bill now comes from the cost of sports programming, which includes both your local regional sports networks, as well as ESPN, MLB Network, etc. This, predictably, has non-sports fans and a la carte television pricing up in arms, which is about as hilariously awful as you would expect it to be if you have a rough idea of how the economics of cable work.

Here’s the dime store version of how this works. In addition to whatever costs related to physical hardware they may have, cable television providers have to pay networks for the rights to broadcast their content. The laws of supply and demand are pretty straight-forward here: popular networks that get relatively large audiences (like ESPN or YES) are able to demand much higher fees than smaller, nichey networks, and providers have much less leverage to balk at their asking prices, as a cable company that didn’t let you watch ESPN or whichever network broadcasts your local baseball team’s games would likely find themselves losing customers pretty quickly. Then, after all of the fees are paid, the providers package up their offered channels into various packages, with the most popular channels generally going in the cheapest packages, for obvious reasons.

This, then, is why you ostensibly get stuck paying for programming you don’t want. In reality, it’s just an unremarkable example of a firm pricing its product at a level that allows it to earn revenue above its operating costs. If a la carte advocates got their way, more or less nothing would change for consumers in terms of cost*. You want to opt out of ESPN because you only watch the Science Channel? DirecTV is going to charge you more for Science than you’re “paying” now, because they’ll still have to pay the cost of obtaining the rights to popular networks, whether you happen to watch those stations or not.

So what’s the fuss about (outside of people who don’t know what they’re talking about getting angry about their bills, anyway)? It’s simple: cable providers want to make more money. If they can cut the payments they have to make to the regional sport networks (and it’s obviously not a coincidence that this story is running in the market where the Dodgers are just about set to sign a record breaking television contract), it lowers their operating costs, and allows them to put a larger share of revenue into their own pockets. If it were really about unmanageable or unsustainable costs, then they’d simply refuse to pay the rights fees, because it would be better for their bottom line even if they lost customers for it. Since they aren’t doing that, it stands to reason that they’re still making money off of the arrangement, just not as much as they want to.

 

*(That is, assuming you’re the sort of person who primarily watches television with a certain amount of network loyalty. If you primarily watch individual shows, and those shows are scattered across multiple networks, your life could get very inconvenient under these plans)

3 thoughts on “You pay a lot for sports television

  1. jay_robertson

    Yup – I'm in Iowa – last year, my alma mater, ISU, was on Comcast, along with the rest of the Big 12, so I got to watch most of the games on my cable system – Comcast is included in their expanded package.

    This year – not so lucky; the Big 12 signed a contract with Fox College Sports – which my cable co does NOT carry. I got to see 3 national games, and nothing else.

    Luckily (I guess,) I can still just subscribe to MLB.TV and get my Yankees fix. Although, I'd love to ala carte that – I'd even settle for a 10% discount, and be happy JUST watching Yankees games.

  2. Derpy

    I cannot possibly see how television, how it is structured today, will be around in 20 years. There is just no possible way. The internet is too pervasive and it has created a system whereby the sellers of content have two choices:

    a: provide the content as people want, and have people pay for the content

    b: provide the content in a way people don't want, and people will still consume the content but without paying for it.

    This is an adapt or die world, and TV is on the cutting block. The old notions of supply and demand completely disintegrate when you throw in the fact that anyone can pirate anything at any time, and piracy has become easier to the point where people who know nothing about the internet or computers in general can do it without issue. And it will only get easier.

    Then you can toss in the firm fact that no amount of legal intervention (short of turning off the entire internet) can even curb piracy and the other (pretty inconvenient for the MPAA and RIAA) fact that piracy INCREASES the value of content when leveraged correctly (and when you try to stamp out piracy, the value of the content dramatically drops).

    TV is going to change, and the cable providers wont have a say in it. Either they will adapt or they will become history. The real question is what is going to happen when the bubble bursts and you see all of these big sports teams and whatnot lose out on these massive contracts they are getting themselves into.

  3. Urban

    And, related, the Yankees have been looking for a partner who is an expert in cable and programming to purchase the Goldman portion of YES. That search was ongoing since 2007 when they finally struck the News Corp. deal. News Corp. will represent the Yankees and YES in the next round of negotiations with the cable networks which will no doubt result in higher licensing fees being paid to YES. The Yankees still own a large chunk of YES, so a percentage of the profits goes to the Yankees through their holding company. The more money News Corp. generates for YES through licensing fees and increased advertising (as well as cost reductions in original programming) increases YES' profits and puts more money in the hands of the Yankees. The reported $85MM TV licensing rights fees is just "window dressing" to show MLB. The other YES revenues are going through Yankee Global Enterprises, shielding it from MLB's luxury tax.

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