Sports, Greed, and the Slow Death of the Cable Industry


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When the Houston Astros and Rockets decided to launch their own cable network last year, their owners hoped to reap a sports-television bonanza. It hasn't worked out that way.

Comcast Corp., CMCSA +0.02%one of the region's biggest cable-TV providers, took a 22% stake in the network and now carries the games. But AT&T Inc. T +0.36%and DirecTV DTV -0.58%have refused to carry the new network, saying it was demanding too much money for programming that their research shows viewers aren't all that interested in. Today, CSN Houston is available in only 40% of area households.

Cable and satellite-TV providers have complained for years about the rising cost of sports programming. Now, armed with detailed new viewing data that they claim show most subscribers aren't big fans, they are beginning to fight back. Houston, the 10th-largest television market in the nation, is the latest battlefield.

It is a well-kept secret of sports on television: Aside from the National Football League and the biggest games of the year in a handful of other sports, such as Tuesday night's Major League Baseball All-Star Game, the TV audience for sports is tiny, amounting to about 4% or less of households on average, according to media-research firm Nielsen's data provided by a major media company. Less than 3% of households with television in any given market, on average, will tune in to watch their hometown National Basketball Association teams play, and less than 2% will watch their National Hockey League teams.

Yet in the average market, sports channels such as ESPN and regional sports networks account for 19.5% of fees paid by cable and satellite operators, according to media-research firm SNL Kagan. The average monthly cable bill in the U.S., before taxes, is now $73.44, Kagan estimates...

Some industry veterans contend the rising cost of sports programming is throwing the entire TV ecosystem out of whack. Leo Hindery, one of the few executives to have run both a cable company (Tele-Communications Inc.) and a major regional sports network (YES Network), says the question being asked is whether sports viewership numbers justify the fees being charged. "I expect every operator and programmer is going to be thrust into this debate sooner rather than later," he says.

AT&T says it used such data in deciding not to carry the new Houston sports network, although it declined to disclose details about the data.

"We'd like to make the channel available to our customers, but the proposed cost is not fair to pass to all of our customers across Texas, Oklahoma, Louisiana and Arkansas, especially based upon our subscribers' historical lack of viewership of Rockets and Astros games," the company said in a statement. "We've offered to make CSN Houston available on an a la carte basis for those fans that want to watch." The new network wants the channel to be part of all digital basic cable.

Data showing that more Americans are shifting viewing habits and going without cable or satellite television altogether further complicates the picture. In the past three years, the percentage of households subscribing to pay television has stagnated at... about 100 million households, after years of steady growth, according to Nielsen.

A younger generation is starting to treat cable and satellite television the way they treat landline phones. All major sports leagues allow fans to subscribe to services that stream games online, and security systems to prevent fans from watching pirated sports streams sometimes don't work.

Some sports and media executives, though, contend that forcing fans and nonfans alike to bear the cost of TV programming isn't a viable long-term strategy. They worry that because consumers have so many entertainment options, they will turn away from sports that aren't readily available online.

"Eventually we are going to have to figure out a way to get to a world where, if a fan wants to watch a game on whatever device that is that they want to watch it on, we have to be able to provide that to them," says Chris Schlosser, vice president of digital media for Major League Soccer...

When Houston's Astros and Rockets launched their own cable network last October, they were following the lead of other professional-sports teams that have given up guaranteed rights payments from broadcasters for equity in a potentially valuable asset. The new owners of the Los Angeles Dodgers, for example, have a similar plan to launch their own sports network next year.

Texas entrepreneur James Crane had bought the Astros for more than $600 million in 2011 and began a major rebuilding program. After dumping high-price talent, the team currently has the worst record in baseball. Mr. Crane didn't respond to requests for comment...

Basketball's Rockets, which are owned by investor Leslie Alexander, were a middling 45-37 last season and recently signed all-star center Dwight Howard to try to make the team better.

By forming a partnership with Comcast, the biggest pay-TV operator in the U.S., the two teams hoped their network would become part of the basic programming offered by Texas' television providers. The network asked providers to pay a monthly fee of $3.40 for each of their subscribers, making it one of the most expensive cable sports networks in the country...

It remains to be seen whether cable and satellite-TV providers can use new types of data on sports viewership to pressure networks to either reduce the fees they charge or to allow only the fans who want the channels to purchase them.

Fox Sports has lately been touting the affordability of its channels. It plans to launch FoxSports1, a new national sports cable network next month, and plans to charge distributors less than $1 per month for each subscriber.

The company used to charge cable distributors about $2.85 per subscriber for Fox Sports Southwest when it carried the Astros and Rockets, as well as baseball's Texas Rangers, basketball's Dallas Mavericks and San Antonio Spurs, and hockey's Stars. That is roughly 16% less than what CSN Houston has asked for the Astros and Rockets.

For the Houston Astros, failing to get picked up by more TV providers could affect how much money Mr. Crane, the owner, has to spend on his team and could depress the value of the franchise.
Read More: Pay-TV Providers Bid to End Sports Networks' Win Streak -

Why is NFL football the most popular sport in the U.S. Well, one reason is that most games are available free of charge to anyone within the reach of local NBC, CBS, and FOX affiliates. Meanwhile the rest of the sports world doesn't seem to get that. They somehow believe that average Americans, who have overall decreasing household incomes, will somehow continue to pay ever increasing pay-TV fees to support cable sports networks that very few people actually watch. The broadcast networks have threatened to pull sports off their OTA networks if Aereo wins its internet streaming case, but that promises to simply lose audience numbers for those sports also. The NFL's Monday Night Football took a major hit in the ratings when it moved from ABC to ESPN. Meanwhile, Sunday Night Football on NBC is the highest rated weekly program on television. Short term profits from retransmission fees may be a temptation, but the smart money always looks toward the long term, and in that area the total number of eyeballs watching your sport and your sponsors' advertising for years into the future is key.


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Why should 100% of subscribers pay for something that only 2%-5% watch?

Sports fans should bear 100% of the cost of ESPN.
Yeah, it still boggles me that the consumer shares the cost for a number of these local sports networks like the Houston one mentioned in the article, the University of Texas, ACC and SEC Networks, etc.

ESPN will always be the 100 lb elephant in the room I think. I'm wondering if we'll start to see more and more sports programming be provided "a la carte"?


ESPN, FOX and the other sports and even the regular programming providers may have to see that they must charge proportionately to actual viewership, not according to the size of their egos.

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