Two years after signing a new local television contract with Fox Sports San Diego, the Padres will have their games carried by all the major cable and satellite operators in the team’s viewing area. The same cannot be said for the new Dodgers network called SportsNetLA, or for the year-old Comcast SportsNet Houston, which broadcasts Astros games.
In their inaugural season with FSSD in 2012, Padres games were broadcast only on Cox Cable and DirecTV. Last season, DISH Network and AT&T U-verse came onboard, which still left Time Warner Cable customers — more than 180,000 households or approximately 40% of the market — without access to the Padres on TV. TWC finally cut a deal with FSSD last month. Come Opening Day, anyone in San Diego or Hawaii with service from Cox, DirecTV, DISH, AT&T U-verse or TWC will be able to watch Padres games.
FSSD’s slow rollout reflects the economic realities of sports on TV. Advertisers love live, DVR-proof programming that’s watched by 18-to-45-year-old men, and they spend wildly on commercials during those programs. Sports networks — regional and national — see the money the advertising generates and bid obscence amounts for the broadcast rights. But the ad money isn’t nearly enough to cover the fees paid to the leagues and teams, and still turn a profit. For that, the networks turn to the cable and satellite operators that would like to offer the sports programming to their customers. The two sides negotiate the carriage fee — the price the cable and satellite operators will pay, per customer, in order to “carry” network as part of its sports programming packages.
The Padres-FSSD contract is valued in the range of $1.2 billion to $1.5 billion, putting average annual payments to the Padres in the $50 million to $75 million range. It’s thought the initial payment for 2012 was closer to $30 million. Before the 2012 season, Cox and DirecTV reportedly agreed to pay FSSD $5 per subscriber, but TWC, AT&T and DISH balked at that fee, leading to the impasse. It is not clear whether the holdouts eventually came around to a $5 per subscriber fee or if FSSD agreed to a lower fee to get those cable and satellite operators to join on.
The battle over carriage fees isn’t limited to regional sports networks, as I explained in this post last July. But when it comes to local sports programming, cable and satellite operators are digging deep — beyond the ratings reported by Nielsen — to understand who watches the local sports teams, when and for how long. Based on that information, many pay-TV providers simply have decided that paying carriage fees in the range of $5 per subscriber doesn’t make financial sense for them or for their customers.
SportsNet LA launched in February with around-the-clock Dodgers programming, but only customers with TWC or Bright House can view the network in their homes. Every other cable and satellite operator in the Los Angeles market has balked at the network’s carriage fee demand. And TWC hardly counts as an arms-length agreement, as it is the Dodgers’ broadcast partner in SportsNet LA. Indeed, TWC will essentially pay itself the carriage fee for SportsNet LA, and then pay the Dodgers their monthly rights fee as part of the 25-year, $8.3 billion megadeal. TWC CEO Rob Marcus apparently isn’t worried. He recently told a media conference that Opening Day has a way of making these deals shake out.
But according to the Wall Street Journal, DirecTV is pushing for an a la carte pay structure with SportsNet LA; that is, DirecTV will pay the carriage fee only for those customers who specifically subscribe to the network. The Dodgers have rejected that proposal, and for good reason. The economics of their deal don’t make sense if customers can pick and choose whether to pay for the network.
Bad economics are precisely what unfolded in Houston, where the Astros are embroiled in several lawsuits and a bankruptcy proceeding involving CSN Houston and the Astros’ broadcast rights. I explained what led to the legal mess in this post from last November. In short, CSN Houston couldn’t reach carriage fee deals with any cable or satellite provider other than Comcast. Disputes arose between and among Comcast, the Astros and the Houston Rockets — which collectively own CSN Houston — over how to negotiate the carriage fee deals and at what price. Comcast forced the parties into bankruptcy court. The Astros sued former owner Drayton McLane, claiming he misled new owner Jim Crane on the financial viability of the new network. Four months later, nothing’s been resolved.
There is a glimmer of hope for Astros fans, though. The Houston Chronicle reported this week the Astros are hoping to make their games available in the Houston area through the MLB Extra Innings Package. Typically, local games are blacked out on Extra Innings or MLB.tv, as a way of protecting the regional sports networks’ economic interests (often called their monopoly). It’s difficult to imagine a scenario in which CSN Houston willingly allows games to be broadcast on Extra Innings, as that would further undercut the little leverage the network has in trying to reach carriage deals and work its way out of bankruptcy.
At some point, you’d think sports networks would stop dolling out huge rights fee deals.
Print This Post