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Soaring Live Sports Carriage Fees: Racing Toward the Content Cliff

From the Experts

December 12, 2012

Soaring Live Sports Carriage Fees: Racing Toward the Content Cliff

By Bob Wallace
VP of Content

Insatiable appetite for live sports programming is fueling a fundamental reshaping of the video industry food chain that has long relied on traditional TV broadcasting, pay-TV subscriptions and longstanding carriage fees to deliver coveted content to voracious fans.

Rising programming fees have pay-TV providers and their customers crying foul, distributors frustrated over slow evolving online advertising options as the number and type of sports events broadens along with fan bases in the U.S. and overseas.

It’s not the type of fiscal cliff facing Congress, but the severity of the situation has former FCC (News - Alert) Chairman and Cable Industry Head Michael Powell  and cableco heads warning that the government might take a look at what he called rampant content fee increases.

Battles between broadcasters and pay-TV service providers over rights fees in general continue to escalate and intensify. But it’s fees for live sports carriage that represent the flashpoint.

Breakthroughs & Fees

These milestone developments in the wide world of live sports put the contentious situation in perspective. Streaming of lived sports is making some forward progress, but not fast enough for those paying rights fees to carry the content. This is taking place against a backdrop of impatient and crazed sports fans seeking more access to a lengthening list of contests.

1)      NBC live streamed the Super Bowl , a first, this past February and reported 2.1 unique viewers.

2)      NBC live-streamed every event of the 2102 Summer Olympics in London for the first time ever, and required authentication for potential viewers.

3)      DIRECTV has imposed a $3 regional sports fee per month on customers in 20% of its serving area according to the Wall Street Journal.

4)      In late August, sports programming kingpin ESPN (News - Alert) signed an eight-year, $5.6 billion content broadcasting deal – a whopping 100% increase in Major League Baseball (MLB) rights fees – for content it will deliver through multiple platforms.

5)      New college-level sports channels and networks, along with newer sports such as MMA and UFC are expanding the choices for fans throughout the U.S., while international sports, and their tournaments are drawing larger (global) audiences thanks to access beyond wired devices.

6)      Sponsors of live sports telecasts, such as beer makers, still see in-venue signage and general sponsorships as the most effective form of advertising for sports like baseball.

7)      Content owners tied to pay-TV providers’ TV Everywhere offerings (free online with a subscription) seek opportunities to monetize their precious video assets in a time of broader access options beyond their restrictive current obligations.

The Good, the Bad & the Ugly

So the good/great news is that fans can watch more sports in many different ways. The bad news is that more channels and networks means higher costs for carriage rights which typically results in higher prices for subscription pay-TV services unwilling to accept the hit alone.

What could be considered as the ugly of the fast-changing sports landscape is that monetization options for this increasingly pricey content have not kept pace, forcing those distributing big-name content to rely, as CBS does, on pay-TV advertising spots to pay the bills and provide a healthy ROI.

For example, ads for the Super Bowl to be held in February are going for $3.7 million or so a pop. CBS is selling digital ads for far less in an effort to supplement its previously one-trick pony revenue river for the annual mega-event.

Government Intervention?

The soaring costs of sports programming has drawn fire from many quarters, chief among them the cable TV industry, with former FCC Chairman and Cable Industry Leader Michael Powell suggesting the situation is likely to worsen to the point where regulators need to get involved. Liberty Media CEO John Malone (News - Alert) echoed Powell’s sentiments and concerns, and more.

According to a published report in the L.A. Times Monday, Powell said during an interview on C-SPAN “that fee jumps, such as the recent 73 percent premium hike the NFL was able to demand from ESPN to continue televising Monday Night Football, are getting out of control, and that if costs continue to rise, the federal government may have to step in. He acknowledged this is a turn of events that no one in the pay TV ecosystem would like to see happen.”

In fairness to viewers past and present, as a pay-TV subscriber, service providers add new and popular sports channels into special sports packages that either carry an additional monthly charge and/or are only attainable through the higher priced subscription tiers.

More Content, Limited Ad Options

Why the seemingly endless and hefty fee jumps for sports programming carriage? One bi driver is climbing demand for multi-platform access from fans, “ pink hats” & posers, and a growing sea of casual viewers/bandwagon jumpers.

The ESPN-MLB (News - Alert) deal speaks volumes beyond it being a deal for just one U.S. professional sports league.

1)      TV ratings and ads rake in more money than the live gate for any physical sports venue. Combine this reality with soaring viewer use of big screen TVs in their homes and other gathering places to watch sports events. The NFL has admitted that game attendance has been dropping for years.

2)      Demand drives supply. Viewer demand for live sports viewing beyond staple sporting events has given rise to team and conference-specific channels/networks which mean additions – and likely higher prices – for pay TV providers. College-level programming demand is skyrocketing, and all the way out to mobile devices. High-school level programming will be next.

3)      Not-so-advanced ad options to accompany multiplatform programming delivery. If ad options were many and partly robust, content distributors could (would?) spread the impact over multiple delivery methods. From wireline to wireless and back again.

There is a finite list of online viewing destination for live sports, but it needs to be much, much longer.

Online Options beyond Broadcast “Enhancers”

Online outlets have chiefly been used to augment and enhance the broadcast TV efforts of those delivering sports programming, but it’s streaming pioneer CBS (Turner last year) for March Madness, ESPN3 and events such as the World Cup and international sports tournaments that have led the pack.

Deriving revenue from these additional viewing options and enhancements is still largely a work in progress for most. Extending viewer engagement has been achieved through these additional options, highlights, unique/original extra content, leaderboards/scoreboards and such. Sponsors are excited about evolution but want the revenue generation element to happen faster.

In the meantime, content owners are limited to some extent by the very pay-TV providers that are crying foul as they want online and other options for viewing free of charge through their TV Everywhere customer retention strategies.

This reality leaves a short list of content monetization options that still include syndication, app sales as was conducted with March Madness this past spring, the ever-present sponsorships and most anything a wireless device (tablet, smartphone etc.) owner will pay for to get live sports programming on the go.

Finding Common Ground

What’s the solution or solution(s) to the problem of escalating rights fees for coveted live sports content? What possible options can make content owners and those that distribute that asset to a growing sports fan audience happier?

Stay tuned to have those questions addressed, if not answered in continuing coverage of what’s shaping up as a crisis for increasingly frustrated pay-TV operators – and their customers.

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