Senator John McCain introduced a bill in the Senate last week which aims to ban local TV blackouts for sporting events played in publicly-financed stadiums. But don’t get too excited baseball fans. The bill is aimed NFL blackout rules, for the most part. MLB blackouts due to the crazy MLB blackout map won’t change under this proposed legislation. The Fox Game of the Week blackouts on Saturdays may be covered, but those will disappear in 2014 anyway under the new Fox/MLB national TV contract.
Dubbed the Television Consumer Fairness Act of 2013, McCain’s bill proposed legislation has three goals:
- remove barriers to cable and satellite companies offering a la carte programming;
- penalize networks that move programs to cable and satellite to avoid new, commercial-free technologies, like Aereo; and
- prohibit local TV blackouts when a game is not sold out, if the home team plays in a stadium constructed at least partially with public funds.
Let’s tackle the blackout provision first. Local TV blackouts arise from the Sports Broadcasting Act of 1961. That law allowed teams in a sports league to collectively negotiate TV contracts without running afoul of antitrust laws and made it legal for leagues to blackout home games in the local market. The law is codified at 15 U.S.C. 1292. The Federal Communications Commission later issued regulations extending the blackout rule to cable and satellite operators. As a result, if a game is blacked out locally, a cable or satellite network like ESPN or NFL Network can’t step into the breach to air that game for local fans of the home teams. The FCC is currently reviewing a petition to eliminate its sports blackout rule.
McCain’s proposed legislation side-step the FCC’s review process and eliminate the sports blackout rule for games taking place in stadiums financed, at least in part, by money from the federal, state, or local government. When he introduced the bill, McCain spoke on the Senate floor and said:
When the venues in which these sporting events take place have been the beneficiary of taxpayer funding, it is unconscionable to deny those taxpayers who paid for it the ability to watch the games on television when they would otherwise be available.
Amen, Senator McCain. Good on you. But the Sports Broadcasting Act and the FCC regulations pertain, for the most part, to NFL games. Baseball games aren’t blacked out locally; they are blacked out regionally based on an antiquated and nonsensical blackout map. What can you do for Arizona Diamondbacks fans who live in Utah but can’t watch Diamondbacks games on MLB Extra Innings or MLB.tv because Utah is considered part of the Diamondbacks’ broadcast territory? Or San Diego Padres fans in southern Arizona? What steps are you taking to put an end to this MLB blackout map?
I made several calls Senator McCain’s office for comment on MLB blackout issues. I was sent from voicemail to voicemail and never spoke to a staff person. Requests for comment were also made to Sports Fans Coalition, a non-profit advocacy group that says it “fights to make sure that fans have access to games both on television and in the stadium.” Ending the NFL blackout rules has been a priority for Sports Fans Coalition since the group’s founding in 2009. The group’s website doesn’t address MLB blackout issues.
As I wrote in January, a lawsuit challenging MLB’s blackout rules is pending in federal court in New York. The case is well into the “discovery” phase, during which the parties exchange documents and depose key witnesses under oath, in preparation for trial. MLB and the teams that were individually named have filed several motions to dismiss the case or to have it stayed. All have been denied by the court.
McCain’s bill won’t change MLB’s blackout policy, but it might very well change the economic underpinnings of the sports rights-fee bubble. The bill would eliminate regulatory barriers to a la carte programming by cable and satellite operators and create incentives for networks to unbundle their programming. What does that mean? Here’s the example Senator McCain used: Disney owns ABC, Disney Network and ESPN. If a cable or satellite operator wants to offer ESPN to its customers, it must purchase and pay for all Disney-related programming, and vice versa. The cable or satellite company then has no choice but to offer ESPN and Disney Network as a bundle, even if some customers only want ESPN and others only want Disney. McCain’s proposed legislation would change that.
ESPN charges cable and satellite companies $4.69 each month to carry the network. When some consumers want ESPN and others want Disney, the cable or satellite company has no choice but to pay the $4.69 for ESPN and whatever the carriage fee is for Disney, and pass those costs onto their customers. If a la carte programming takes hold, then cable and satellite companies will purchase ESPN only for those customers who want the World Wide Leader. That means less money to ESPN in the short term. And it may force ESPN to raise its industry-leading carriage fee even higher. That may cause additional consumers to fall away, based on cost. In other words, unbundled programming will test how elastic the demand is for ESPN and other sports networks.
ESPN has banked on the bundled programming — and the resulting steady stream of carriage fees — to cut increasingly lucrative deals with sports leagues and individual teams. Last August, ESPN agreed to pay MLB $700 million a year for the 2014 through 2021 seasons. ESPN will broadcast up to 90 games regular season games, any tie-breaker games, and one of the two Wild Card games. And that’s just MLB. ESPN has similar deals with the NFL, NBA, and NASCAR, among others. If ESPN’s viewership drops with a la carte programming, you have to wonder if we’ll continue to see these kinds of megadeals in the future.
Recent history with regional sports networks gives us some indication of how this might play out. RSNs have handed out billion dollar deals to the Texas Rangers, Los Angeles Angels, Houston Astros, San Diego Padres, and Los Angeles Dodgers. That’s resulted in the RSNs seeking higher carriage fees from cable and satellite operators. In Houston and San Diego, some cable and satellite companies have refused to pay the higher fees. There’s no bundle of sports programming that forces them to accept the higher rates. They simply don’t offer CSN Houston and Fox Sports San Diego, respectively. Sixty percent of cable and satellite customers in Houston, and 40% in San Diego, don’t have access to their home team’s games. It’s not a black out. CSN Houston and Fox Sports San Diego are broadcasting the games in those markets. It’s just that many fans can’t see the games because of a dispute over carriage fees.
As with all proposed legislation, Senator McCain’s bill was referred to a committee (Commerce), and will be the subject of hearings and debate. Networks will undoubtedly be lined up against it. Consumer advocates will lobby for it. The bill is unlikely to be passed in its current form, because that’s not how Washington works. However it plays out, we’ll cover the issue, so check back often for updates.