The Uncertain Timetable for Cord-Cutting in Baseball’s Future

Major League Baseball has taken a number of small steps designed to make it easier for consumers to watch baseball, even for consumers in local markets. MLB.TV has been around for years, but for fans wanting to watch local games on mobile devices or through non-cable set-top boxes and devices like Apple TV, Roku, or Chromecast, there had been few advancements. This offseason, however, MLB announced that the Fox-owned Regional Sports Networks (RSNs) would finally provide local games on something other than cable to cable subscribers.

This small step was accompanied by a somewhat forced step in the Garber settlement to offer out-of-town fans the opportunity to purchase single-team packages at a reduced rate. A lesser publicized part of the settlement prevents MLB.TV from raising prices (capped at 3% per year) unless the non-Fox RSNs also offer streaming for local games by the 2017 season, which Commissioner Rob Manfred expects to happen.

These steps, along with burgeoning MLBAM technology and reports that ESPN is losing billions to cord-cutting viewers, have begun to raise more questions about when the sports right bubble might finally burst — when the current cable model might finally be unsustainable — and MLB fans will finally be able to purchase directly the rights to see the games of their local team (or in Iowa and Las Vegas, their six local teams) free from cable and the onerous blackout rules that accompany it. Unfortunately, nobody has an answer.

The incremental changes made by MLB, and the advancements in technology which have accompanied them, indicate MLB is technically ready to satiate consumers, but cable and satellite providers are not ready, and they will do whatever they can to ensure the current cable model remains strong. That includes paying networks like ESPN and the RSNs incredibly high fees to ignore the technological advances which could make traditional cable obsolete.

For now, MLB likes the cable model as it is, because it brings in tons of money to teams and the game as a whole; however, Commissioner Rob Manfred, in an interview with Yahoo’s Jeff Passaan, discussed the power of the current cable model:

The cable model has served this industry really well. Anything that interrupts that model is something we have to worry about. Having said that, I do think our over-the-top capacity at BAM (MLB Advanced Media) and BAM Tech gives us downside protection that is a little more robust than other businesses.

The Commissioner also discussed this problem, albeit from a different angle, with Jerry Crasnick at ESPN.

You have to let people consume the game the way they want to consume the game. It’s not a baseball change. It’s a media landscape change. People are consuming content — sports and other content — very differently than they did 10 years ago. One of the biggest challenges for us going forward is to make sure we can find ways to distribute our games not only in ways that are attuned with the desires of our older, avid fan base, but also attuned to the needs of younger people.

Manfred understands the problems are twofold, with competing interests. Cable pays, but as it loses strength, there are long-term risks associated with staying tied to an industry losing its appeal to the next generation of fans. Manfred and MLB are ready, or at least prepared, for the solution.

We have a very robust and effective distribution platform. We think if, in addition to becoming a distribution platform, we can become an aggregator of content maybe with the right partner it could be a really fantastic business development for us.

But that leads to the question driving most fans: when? The answer is not a satisfactory one.

Once again, Manfred on the subject:

Cord-cutting is a concern for us. The biggest concern with it is we don’t know exactly – nobody knows – how big and persistent this phenomenon is going to be.

Asked on Twitter the other night about the same subject, Maury Brown, who has been covering sports business for years, provided an understandably vague answer.

The most recent discussions about a sports-rights bubble surfaced three years ago when the Los Angeles Dodgers signed their $8 billion television deal with Time Warner. While those in the industry had been hearing about a bubble for two decades and dismissed its existence, recent developments have provided ammunition for both sides. The Dodgers deal has proved to be a disaster up to this point, but teams like the Arizona Diamondbacks, Philadelphia Phillies, and St. Louis Cardinals have all signed billion-dollar deals of their own to broadcast games on cable locally. While cord-cutting might be “costing” ESPN billions in potential revenue, the company is still as profitable as ever due to higher pricing that make up for fewer subscribers. The concerns around ESPN deal with stagnant growth when it comes to profits, not with the actual profits, which are still enormous.

In discussing the fantastic television ratings for baseball a year ago, I wrote about the current dynamic between MLB and cable, and for the most part, this dynamic remains.

While cord-cutting is occurring across the country, it has not been widespread enough to cause a change of course in the current cable model. The recently discussed merger of Time Warner and Comcast that eventually fell apart would have actually further strengthened the current system. That cable companies also provide internet service, a much more necessary service than cable, only helps them keep subscribers. Change is inevitable, however, and better technology (including services provided by baseball’s own MLBAM) and internet service will eventually cause the current model to fall apart, as those with content will eventually be able to provide that content to their entire audience without the assistance of a cable provider.

If you are looking for a rooting interest when it comes to having the ability to pay directly for your local team’s broadcast, do not root for advances in technology. They’re already present. Don’t root for MLB to step in and provide your local team’s broadcast through MLB.TV. They don’t currently have an incentive to do so. Don’t root for your local RSN to start providing a stand-alone streaming service, because they are being paid by providers way too much not to. You might want to root for Congress or the FCC to eliminate bundling practiced by both providers and broadcasters. Ultimately, though, if you want to get your local team’s broadcasts at home without paying for cable, you need to root for cable to fail. As it stands, cable providers are big, they are strong, and they are counting on inertia. How long they remain so is anybody’s guess, but it is just that: a guess.



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Craig Edwards can be found on twitter @craigjedwards. His writing also appears regularly at VivaElBirdos.com where he is an Editor.


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williamnyy
Member
3 months 21 days ago

The idea of a rights bubble bursting is complicated by the fact that most teams have very long-term deals with RSNs (some as long as 30 years), so, unless cable companies go belly up, MLB will be tied to the cable model for much longer than 5 years. Also, if Congress steps in to compel unbundling, that won’t free up MLB broadcasts…it would likely make them more captive and more expensive. That last point is important for MLB fans to remember. Right now, sports fans are heavily subsidized by the current cable model. The overwhelming majority of cable subscribers who could care less about sports are paying for it on near equal terms. If that subsidy was removed, the cost of consuming sports would become much more expensive. So, be careful what you wish for. Being able to stream games in-market without a cable subscription might be convenient, but it probably won’t be cheaper.

HappyFunBall
Member
HappyFunBall
3 months 21 days ago

Also, pro sports owners are awfully used to being the beneficiary of said subsidy. If unbundled sports subscriptions are too pricey and don’t sell, you might end up seeing some organizations forced to tighten their belts.

0bsessions
Member
0bsessions
3 months 21 days ago

Yeah, I hate to admit it, but I’m pretty pessimistic about ever being able to fully cord cut. So many of these teams are currently getting massive new revenue streams from big, fat new cable deals and barring the cable companies offering their own form of cord cutting (Which seems entirely unlikely, and even if they do, it won’t be apt to be a better option than cable).

I could maybe see some of the big individual networks breaking off for their own streaming. YES and NESN are both massive entities in their own rights and are, to my knowledge, owned by the Yankees and Red Sox respectively, and both are nationwide fanbases. It could conceivably see them developing their own streaming services for the teams (Although I could also see the MLB causing a stink about it as it might be an unwelcome revenue stream advantage).

williamnyy
Member
3 months 21 days ago

Yes is now 80%-owned by FOX, but NESN is majority owned by Fenway Sports Group. Whatever the future of MLB distribution holds, one thing that almost seems certain is it will be done collectively.

d_i
Member
Member
d_i
3 months 21 days ago

Right now, sports fans are heavily subsidized by the current cable model. The overwhelming majority of cable subscribers who could care less about sports are paying for it on near equal terms.

Not sure I agree with the first part. Because the sports channels make up a large percentage of the costs for the cable providers, they drive much of the price. Thus most of the people that subscribe to cable are sports viewers. It’s why basic cable (no ESPN etc) is so much cheaper than a package that includes it.

williamnyy
Member
3 months 21 days ago

As you stated, sports make up a disproportionate cost, but all but the most basic subs are forced to pay equally.

Ask yourself this: what percentage of cable subscribers who get more than basic do so for the sports? It’s not a majority. That’s why RSNs are always fighting to get on lower tiers. They realize that the number of people who actually want their programming is a relatively small percentage. The way to maximize carriage fees is by forcing distribution as broadly as possible.

doc ellis
Member
doc ellis
3 months 21 days ago

This was my first thought as well.

Craig, a follow-up article working through what the disengagement from the cable companies might look like from MLB’s perspective would be interesting. Would there be team-by-team buy-outs? A global buy-out by MLB to re-acquire broadcast rights? Does the answer depend on contract details we don’t have access to?

Very curious how folks within the industry see the logistics of this playing out.

rlwhite
Member
rlwhite
3 months 21 days ago

Is it even plausible outside of bankruptcies? I’m afraid we have to wait for RSNs and/or cable providers to go bankrupt, and then teams to hit bankruptcies when they can’t find the TV/streaming deals necessary to fund the large player contracts that they’re doling out based on the TV bubble.

Josh G
Member
Josh G
3 months 21 days ago

What about cost reduction as a market adjustment?

Fireball Fred
Member
Fireball Fred
3 months 21 days ago

There’s a saying that a little monopoly goes a long way. The cable companies, in many areas, have two (near-) monopolies: broadband internet and local sports. Competition in broadband, based on new technology, is likely to destabilize the industry over the next decade. But that will mean baseball doesn’t need the cable companies anymore; unwinding the long-term contracts may be bumpy, but MLB is likely to have thw whip hand there.

fjtorres
Member
fjtorres
3 months 21 days ago

Precisely this.
The thing to root for is exactly a newer, better broadband tech that can break the cableco broadband monopoly.
Failing that, Congressional action forcing them to split the pipes from the content, probably as a way to force net neutrality.

The latter is less likely so rooting for the techies is what we must.

mike sixel
Member
mike sixel
3 months 21 days ago

I’ve just quit watching sports, and more and more of my friends are also. It’s not that hard. I watch almost no baseball, and pretty much only watch the NFL now, but only some of the time. We didn’t even watch the whole Super Bowl this year. Really, I think that’s a possible future for sports, it will all become like boxing, only the hard core will be paying for it and watching it. Not necessarily likely, but possible.

TKDC
Member
Member
TKDC
3 months 21 days ago

It’s generally unwise to just take your own existence and believe that maybe the entire universe will follow suit.

mike sixel
Member
mike sixel
3 months 21 days ago

Uh, where did I do that? Wow.ESPN is hemorrhaging viewers as less and less people have cable. Sports is not likely to save cable long term. that’s not how the world is trending. Still, where did I ever in that comment say anything like what you imply?

AJS
Member
AJS
3 months 21 days ago

Is ESPN hemorrhaging viewers or just subscribers? I’m not certain that viewership is actually down dramatically — and that’s the problem: People who never/rarely watched ESPN are getting rid of cable, which means they no longer subsidize ESPN.

rosen380
Member
rosen380
3 months 21 days ago

AJS- also, the $2B seems to be based on the trajectory from subscriber growth 2006-2009.

If this analysis was done a couple of years ago, the subscriber growth from 2000 to 2006 projected forward would suggest that ESPN made extra money 2009-2013, with the last fwe years looking more like a correction.

jiveballer
Member
jiveballer
3 months 21 days ago

As a cord-cutter, I definitely watch fewer sports and I don’t miss the glut of uninteresting, over-hyped events and hot-taking talking heads. I now tend to only make time for games that I really want to see and avoid the tabloid style ESPN reporting as much as possible. Most cable subscribing sports fans fail to realize how little ESPN actually provides to the moderate sports fan – they broadcast probably a half dozen games per year that the average fan cares about – and the talk shows are just repetitive obnoxiousness.

Otter
Member
Member
Otter
3 months 21 days ago

I think this depends on where you live. In the large urban, 4 sport cities, ESPN matters less because you’re watching the RSN and the NBA/NHL/MLB team more. But if you live outside of a large city, I can see ESPN being more important.

ESPN is also big for those who are into college sports still. And college isn’t as tuned into the RSN, they have conference stations.

Westside guy
Member
Member
Westside guy
3 months 21 days ago

Baseball also works really well as a radio game – and radio is free.

Johnston
Member
Member
Johnston
3 months 21 days ago

As someone who listened to baseball on radio as a small boy: no, no and no. And then no.

sp13
Member
sp13
3 months 21 days ago

If congress is our best hope, we’re really up the creek. It’s interesting that “cord cutting” is still the chosen terminology. I know it’s a recent national phenomenon, but many of us cord cutters have never been subscribed to cable in the first place. Are we the “cordless”? The cable business model is worthy of it’s recent decline. And as a cordless Iowan, I can’t wait to see it go down.

Chickensoup
Member
Member
Chickensoup
3 months 21 days ago

It has always been weird to me that MLB set up an entire network of stuff to stream games over the internet only to make it so you can’t use it most of the time. Most people are fans of their local team (or in the case of Iowa, apparently any team within a 500 mile radius……)

Don’t get me wrong I’m thankful that it’s there, but I’m surprised they spent the time and money on something that can’t make much money for them. The only people I know who are using the service moved to the area from a different state so are free to watch most games. Either that or they do a workaround. Seems odd that that’s the MLBs marketplace for their streaming service….

I personally don’t get to watch my Brewers games even though i live in Illinois because the viewing area overlaps, despite me not being able to obtain the games in any fashion via cable. Seems like an odd way to do business to me. I’d think MLBs first order of business should be to clean up the areas in a way that makes sense. State lines are not always the best way (Southern Illinois is basically all Cardinals) but in many cases it is (Wisconsin/Illinois border, not many Brewers fans in Illinois). If there is no way to obtain the games via Cable, you should be able to get them via MLB.tv. In this case I cant even see how the Cable providers would even care that much, they are not gaining revenue from a service they can’t provide for a profit anyways. It’s the exact kind of deal they should be making to ensure they can stick around for longer

williamnyy
Member
3 months 21 days ago

Why do you think they can’t make much money from MLB.TV? With over 2.5mn subs paying over $100, that equates to $250mn in revenue from user fees alone. In addition to fans of teams in other markers, MLB.TV also caters to diehards (like me) who want to watch as many other teams as possible.

Also, you need to remember there is a very important link between RSNs and MLB.TV…the services are not independent. If interested in more detail on that, check this out: http://www.captainsblog.info/2015/02/04/shedding-light-on-blackouts-nothing-wrong-with-mlbs-territorial-rights/22492/

jiveballer
Member
jiveballer
3 months 21 days ago

Wow that article is the worst. It assumes that all broadcast revenue would have to be replaced by a static, old number of MLB.tv subscriptions. Just short sighted and intellectually dishonest.

williamnyy
Member
3 months 21 days ago

I guess you missed the part about that part of the larger article being “hypothetical”, but complex financial concepts can be difficult to understand.

jiveballer
Member
jiveballer
3 months 21 days ago

complex like “the sky is falling?” lol

Joser
Member
Joser
3 months 21 days ago

MLBAM isn’t just used by MLB. They’re the platform the NHL uses to stream out-of-market NHL games (NHL GameCenter LIVE and NHL Center Ice subscriptions), for example. That deal alone is $100 million a year for 6 years ($600 million total), and it has nothing to do with baseball. MLBAM is no longer entirely (now) or even primarily (soon) a service of Major League Baseball; it is one of the big players in Streaming Media, full stop. It likely will be spun out under another name, but it would be amusing if it kept its acronym, so that years from now it’ll be an incongruous bit of trivia in much the same way “Sprint” originally stood for “Southern Pacific Railroad Internal Networking Telephony.”

sp13
Member
sp13
3 months 21 days ago

The MLB spent so much money on MLBAM because they also license their streaming technology to other companies. I have seen several sites that use it.

rosen380
Member
rosen380
3 months 21 days ago

Using the listed revenue by year and at least an approximation for the subscribers [since not all data points list the number], I get:
2010: $49/sub
2011: $56
2012: $60
2013: $66
2014: $73
2015: $79

Per subscriber, they are seeing an average of a 9.2% increase in revenue… that seems like a pretty good consolation prize for losing subscribers [and mostly the sort that don’t care for live sports anyways].

Slacker George
Member
Member
Slacker George
3 months 21 days ago

Will MLB ever go to market-based pricing? You subscribe to X units for the season, with the ability to buy additional units. Individual games are priced based on demand, with descending cost after the game starts. There’s a game timer that allows peek-ins without charging. In-market games are upcharged. What could go wrong?

Paul22
Member
Paul22
3 months 21 days ago

Sounds like monopoly based pricing to me, MLB.tv current pricing is incredibly consumer friendly, as most competitive free market pricing is (despite the fact its a monopoly, but they had so many bugs early on they had no choice, things will change when they sell of MLBAM).

Problem is in this country we have few things that are priced in a competitive free market, as most things are priced by defacto cartels where 5 or fewer companies control 80% of the industries market, or even monopolies like banks who own the Fed that regulates them and set the interest rates (basically self regulating). So we don’t recognize a good deal when we see one.

Piecemeal pricing is almost always more expensive to the consumer since it drives up the price for the full package which will have fewer subscribers. Also, the unit price minimum (one team) is based on affordability and not a strict supply-demand price curve, since demand is relatively inelastic and supply is not limited, plus there is not enough competition. What an rabid MLB fan can afford is often much more than its worth to achieve a modest profit, resulting in much greater profits.

With the current single pricing format, MLB has to take supply-demand price curve into account for the package of all games because most fans follow only 1 team. Demand for the package is dependent on price, as opposed to demand for a single team which is not. The price can be low because every mlb.tv subscriber has the same plan, yet its high enough to be profitable since the cost of providing all 30 teams games and only 1 teams game is basically the same.

Once mlb.tv and MLBAM get sold off, the investors will want to recover the cost of the capital at a healthy return. They will need to increase revenue and will have a virtual monopoly, and will adopt the piecemeal pricing you desire, which will not be a good thing for consumers.

Joser
Member
Joser
3 months 21 days ago

The teams would hate that, in that there’s so little predictability to the revenue that would result. I mean, over time you’d have some aggregate statistical model for how much you’d get, but you’d still have some wild swings from year to year. And it would be especially bad for the small teams that don’t have so many die-hards who watch everything year in and year out. The Cubs and Yankees would be fine; the Rays and Rockies, not so much.

Robert Fiore
Member
Robert Fiore
3 months 21 days ago

I’m one of those people in Los Angeles who are in the odd position of saying, “Luckily, my cable company is Time Warner.” For everyone else, I’m beginning to wonder if the only solution to this absurd stalemate is for Time Warner to get a best offer from the other services and for the Dodgers to voluntarily accept a haircut in line with it.

bawfuls
Member
bawfuls
3 months 21 days ago

“Cord-cutting is a concern for us. The biggest concern with it is we don’t know exactly – nobody knows – how big and persistent this phenomenon is going to be.”

The standout word in this quote is “persistent,” implying that Manfred and MLB seem to think there’s a chance that cord cutting is just a fad that will die out. This seems phenomenally out of touch to me.

Johnston
Member
Member
Johnston
3 months 21 days ago

The current cable model is unsustainable. People resent having to pay for channels that they don’t care for and would never watch.

rosen380
Member
rosen380
3 months 20 days ago

But without that you’d have basically no channels at all.

Lets say ESPN makes $7.3B with 92M subscribers [numbers from he linked article]; that is $6.61 per month per subscriber including carriage fees and commercials.

If they went a la cart for ~$5-6 per month, how many subscribers would they have? Less than 92M almost for sure, right? I think 30M would be generous. Now they are making more like $2-3B.

Are they going to be happy losing most of their revenue? Probably not, so have to up the monthly fees. At $10 per month, they get fewer subscribers, maybe 20M? Still in the $2-3B range. How about $20 per month? Maybe 15M subscribers, so revenue still way down.

Is there any monthly rate where you’d suspect ESPN doesn’t take a bath by going a la cart?

Paul22
Member
Paul22
3 months 21 days ago

Cord cutting is only an issue because basic Cable costs are about 3 times more expensive than the rest of the world and real wages are actually declining although the CPI has been manipulated with various adjustments to mask this to some degree.

mlb.tv is a fairly good deal, for now, and gives cord cutting fans in markets with teams that don’t bother to compete an alternative. Just choose an out of market team to follow, preferably one that wants to win.

Johnston
Member
Member
Johnston
3 months 21 days ago

Choose two in different leagues. :)

couthcommander
Member
couthcommander
3 months 21 days ago

step one: Move to Nashville – Google Fiber is on the way and your “local” blackouts are the Reds and Braves. They’ll figure out this cord-cutting business long before those two are relevant again.

Johnston
Member
Member
Johnston
3 months 21 days ago

I cut the cord and am not going back. With MLB.TV, Sling TV (check it out!) for ESPN and an RSN, Netflix, Hulu Premium and Amazon Prime (and I can watch five network channels OTA if I want), I don’t miss a game. AND I NEVER HAVE TO WATCH ANY DAMNED COMMERCIALS!

spycake
Member
spycake
3 months 21 days ago

What RSN is on Sling TV?

Johnston
Member
Member
Johnston
3 months 21 days ago

In my part of the country, it’s the SEC Network, which carries some fine baseball teams.

Rancho
Member
3 months 21 days ago

“Borrowed” passwords are awesome. And they have a tough time tracking it. Surely you guys have a buddy who pays full freight for HD cable — he has access to tons of premium content online (ESPN, HBO, etc) … And, of course, an HD antenna gets me all the network stuff I want. I pay only of Netflix ($8) and broadband ($60) and I have more content now than I did with the best cable package I had ($185). … And no, I don’t feel bad about borrowing passwords. I’m just getting them back for years of being screwed by crappy cable. The game was always rigged, why should I unilaterally disarm?

bravos4evr
Member
bravos4evr
3 months 21 days ago

If fox sports south would allow me to pay $100 a year to watch all the Braves games on my Roku box, I would do it. I think most baseball fans who have cut the cord would do it. But , since I cannot (because tho they are 6 hours away I am in their “local area”)I have resorted to streaming it online at secret sites. The comments made by the Commish sound hopelessly out of touch with the real world. Mass cord cutting is coming, and unless the networks start offering ala-carte programming soon on the access boxes, they are going to be left playing catchup to the ones who do.

Johnston
Member
Member
Johnston
3 months 21 days ago

You are quite correct, blackouts have to go. And soon.

London Yank
Member
London Yank
3 months 21 days ago

As a UK resident, MLB.tv gives me every game with no blackouts for £100 a year. It is fantastic. US users should just purchase MLB.tv and then use a proxy server to obtain a UK IP address. Problem solved.

podcaf
Member
podcaf
3 months 20 days ago

No because they track discrepancies in your credit card billing address and your IP address. You used to be able to use a VPN and be fine (hello Winnipeg!) but no more.

maqman
Member
Member
maqman
3 months 20 days ago

While living in the UK gets me access to every game the 8 hour time differential with the west coast means Mariners games starting at 7:10 PM come on at 3:10 AM here and I do enjoy sleeping so I have to pass on them. I pretty much only get Mariners’ day games, maybe 5 to 7 a month. Luckily for me my wife is a fan too so we watch 4 to 6 games a week. If we could buy a Mariners only internet package for something like 50% of MLB-TV’s all games stream I’d probably still want all game access. Cable TV here is only available in major cities, we use the Sky (Fox) satellite system for TV (basic, without sports (no baseball) or movies, broadband and telephone for a little over $100 a month. We can live without most of the content but there are a few special interest channels that keep us connected. I could see us unplugging as more of the content we watch becomes available to stream.

podcaf
Member
podcaf
3 months 20 days ago

The real issue is that cable sucks so bad. If cable didn’t suck so bad, then a la carte services wouldn’t immediately lead to people abandoning cable like the Titanic that it is. But cable companies know how shitty their services are, so they can’t really afford to do anything but double down on their strangleholds. I guarantee you someone looked at the eminently logical solution of cable and MLBAM sharing revenue, since how could it possibly be bad to capture all those missing customers while keeping the ones you have? But the numbers said that if people were free to abandon cable for these non-insane options, the medium would be dead in six months.

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