I am quite troubled by the soaring price of monthly cable and satellite TV bills fueled by hyperinflationary increases in TV rights fees won by the NFL and many other sports organizations. Non-sports pay TV subscribers are massively subsidizing sports viewers by an estimated $3 billion annually. A sports tier designed to reflect actual consumer demand for NFL games, golf tournaments, and baseball doubleheaders has the potential to allocate programming expenses more fairly within the pay TV universe.
Like millions of Americans, I have a deep love affair with professional football and will eagerly tune in to watch the Super Bowl between the New York Giants and the New England Patriots, a championship game rematch from 2008 filled with many great storylines. I can hardly wait. My soda and pretzels are safely stashed away until moments before Sunday’s kickoff.
But my passion for the game has a limit. In my role representing small and mid-size cable television companies across the country, I am quite troubled by the soaring price of monthly cable and satellite TV bills fueled by hyperinflationary increases in TV rights fees won by the National Football League and many other sports organizations at both the professional and collegiate levels. The trend is disturbing because it is contributing to a pay TV affordability crisis engineered mostly by sports programmers, who are happy to let cable and satellite TV companies take the heat from angry consumers.
Let me share some facts to put things in their proper perspective.
In recent months, the NFL has announced $42 billion in new cable and broadcast TV deals struck with ESPN, NBC, CBS and Fox, representing a 60% jump over current contracts. Inarguably, these new transactions mean that huge pay TV fee increases are coming soon and will hit family budgets hard. Why? Because the nine in 10 U.S. households that subscribe to pay TV service do not have any opportunity to opt out of paying for the channels on which these NFL games will appear. It’s either pay the bill or surrender your remote and set-top box at the local business office.
The absence of real consumer choice, combined with the vast sums of money involved, drew the attention of author and sports journalist Frank DeFord. In a recent commentary for National Public Radio, DeFord put it bluntly: “If you pay for cable, you’re a hostage of sports.” True, the Super Bowl will stream on the Internet for the first time domestically, but this free offer, announced just a few days before Christmas, won’t mean much to consumers who have signed long-term service contracts or have already paid their February installment.
Many within the pay TV business, including now leaders on the entertainment content side, want to know when the insanity on sports rights fees is going to end. Liberty Media Corp. CEO Greg Maffei, who controls QVC and Starz, has described the rising cost of ESPN as a “tax on every American household.” Viacom Inc. CEO Philippe Dauman called ESPN a driver of rising subscription prices, noting that ESPN “is double the cost of all our networks combined.” Viacom is the owner of MTV and Nickelodeon.
Outdated federal policy is partly to blame for the problem. The NFL, for example, is permitted to act like a cartel in negotiating TV rights under an antitrust exemption in the Sports Broadcasting Act of 1961. This grant of immunity gives the NFL the leverage to reap much higher returns on the sale of TV rights than NFL member teams could by bargaining on their own. Because the NFL’s windfall is blitzing consumers with higher costs, Congress needs to modify or repeal an anti-trust exemption that is no longer serving the public interest.
For some, the creation of a sports programming tier would represent a prudent step toward taking financial pressure off non-sports fans. According to Bernstein Research analyst Craig Moffett, ESPN and ESPN 2 alone on average account for about 20% of the wholesale cost of cable programming but attract slightly less than 2.5% of total viewership. What’s going on is painfully clear: Non-sports subscribers are massively subsidizing sports viewers by an estimated $3 billion annually. A sports tier designed to reflect actual consumer demand for NFL games, golf tournaments, and baseball doubleheaders has the potential to allocate programming expenses more fairly within the pay TV universe.
There is no industry consensus on this issue. ESPN, which renewed its Monday Night Football contract with the NFL for $15.2 billion, refuses to allow its marquee channels to migrate to a sports tier. Asked by Newsweek if sports fans should pay the true cost of their pay TV consumption habits, ESPN CFO Christine Driessen affirmed the network’s fealty to the big program bundle offered on a take-it-or-leave-it basis: “This notion of trying to appropriately charge the ‘correct’ cost to the consumer — it’s just not going to work out that way.”
Under ideal conditions, channel bundling works: It is efficient for consumers, distributors, programmers and advertisers. It provides the economic foundation for a rich, organic and diverse programming culture to flourish. Unfortunately, the pay TV bundle isn’t working today because sports channels have grown far too expensive and their owners stubbornly cling to a status quo business model at war with a Steve Jobs-invented micro media climate saturated with apps and options. Industry needs to huddle and fix the problem soon before powerful people in Washington, D.C., decide they know how to block sports channels from sacking the consumer.
Matthew Polka is president of the American Cable Association, a Pittsburgh-based trade group representing small cable operators.