News this past week that Disney/ESPN appears to be in a stand-off over carriage fees with Altice, the European telecom company which purchased Cablevision in June 2016, is not surprising. Multichannel video programming distributors (MVPDs) such as Altice (the nation’s sixth largest MVPD), Comcast, and DIRECTV regularly engage in very public negotiations with content producers over the carriage, or subscriber, fees they charge to individual end users. The talking points in these “battles” are always the same.
MVPDs are in the business of keeping subscribers in a growing climate of cord-cutters and cord-shavers. They say they want to keep costs low and that programmers, such as Disney, are forcing them to raise rates. Consider this quote from an Altice statement this week: “We are always working hard to keep these costs as low as possible for consumers by negotiating carriage agreements that are reasonable and in the best interest of all our customers.”
Programmers will argue that MVPDs, many of whom have traditionally enjoyed a monopoly in a given local market, want to deprive consumers of valuable programming. Often, sports is used to illustrate the programming consumers will not be able to access. MVPDs will say not all consumers watch sports (which is true). Programmers will say sports commands the largest live audience (which is true). And so, MVPDs and programmers play a game of chicken with consumers in the middle.
Individuals who study the structure of U.S. sports media from a political economy of media standpoint will point out that consolidation affords a handful of large media conglomerates (e.g., Fox, Comcast, Disney, AT&T) the ability to shape and direct which sports content reaches the consumer.
Historically, the value in this transaction, and thus the power, rested with the content producer, but that power may be shifting to the distributor. In his book The Political Economy of Communication, Vincent Mosco suggests distributors “are often critical to the production process because they can guarantee the financing and marketing necessary to carry on with production.” In other words, for our purposes, if a television network cannot gain broad distribution, its long-term viability (financing) is threatened. Companies such as Comcast and AT&T which own both the content and the distribution are uniquely positioned to dictate what content they carry, and at what price.
Consider the plight of the independent Tennis Channel. I have a paper coming out later this fall in the Journal of Sports Media which examines in detail the six-year fight the Tennis Channel waged against the Federal Communications Commission (FCC) and Comcast to receive broad distribution on Comcast systems, rather than be relegated to a sports tier.
The Tennis Channel centered its complaint to the FCC on an anti-discrimination statute included in Section 616(a)(3) of the 1992 Cable Act which permitted MVPDs to own programming networks as long as they do not discriminate against independent programmers while protecting their own networks. The Tennis Channel argued Comcast distributed the single-sport network Golf Channel, a network wholly owned by Comcast, on a broad tier while relegating the Tennis Channel to a less popular sports tier. This, it alleged, constituted discrimination.
A back and forth in the legal and administrative branches ensued for six years ending in July 2016 when the D.C. Circuit denied Tennis Channel’s petition for review, affirming a lower court ruling which stated Comcast had discriminated. Simultaneous to the Court’s decision, the Tennis Channel agreed to be purchased by Sinclair Broadcast Group for $350 million, ending the “independent” nature of the network. At the time of the announcement, Sinclair disclosed it already secured carriage agreements to increase the Tennis Channel from 30 million to 50 million homes.
The Tennis Channel case is instructive when considering the power media oligopolies like Comcast possess, and the difficulties independent networks encounter when seeking broad carriage on MVPDs. The ability to bundle a family of networks together is extremely effective in negotiating carriage deals. It represents a primary reason why the Big Ten Network partnered with Fox and the SEC Network partnered with ESPN at launch. Just ask the folks at the Pac-12 Network how going independent has worked for their carriage deals. And I’m certain individuals who were involved with the Big Ten Network launch in 2008 recall the challenges associated with carriage on Comcast. Similar carriage fights were encountered by the NFL Network, MASN, and, presently, Spectrum SportsNet LA.
However, competition in the market is beginning to shift the power from MVPDs or programmers to consumer who have increasingly more options. The rise of over-the-top (OTT) platforms (or “virtual” MVPDs) give consumers a choice about their television options – a choice they have historically never had. Don’t like Comcast raising your prices? Join the growing number of cord-cutters (22 million by end of 2017) or switch to one of those “virtual” MVPDs such as Playstation Vue, Directv Now, Hulu or Sling. If you are a huge sports fan, give fuboTV a try as it carries nearly every non-ESPN sports channel.
Watching local over-the-air (OTA) networks is an easy-to-overcome challenge for cord cutters. Simply buy a digital antenna, place it in a window, plug it into your TV and, boom, content. Here in Northwest Arkansas, I pull in 34 channels with a digital antenna. Admittedly, most are channels I had never heard of, but I do receive Stadium (more on that later) and Buzzr, which I recommend for all fans of 1970s and 1980s game shows. But I digress.
As the number of MVPDs rises, so too are the number of content producers increasing. This is especially true in the sports network space as we witness increasing numbers of conference-specific and team-specific sports networks. Including the suite of ESPN and Fox outlets, more than 100 sport-specific networks, by my count, provide content each day. That is a lot of sports, and it is not unreasonable to think not all consumers will want to pay for each channel.
A recent entry into the space is Stadium, which is both a linear OTA network and online network, streaming its signal on its website, its app, Twitter, and select games on Facebook. Stadium is a national channel with rights agreements with the Patriot League, Mountain West, and West Coast Conference.
When it officially launched on August 21, 2017, assuming the space previously held by the American Sports Network, Stadium was available on Sinclair-owned stations in 57 markets. For now, Stadium employs an ad-supported model (like any other OTA network) and provides the vast majority of its content for free.
I talked with Stadium’s Director of Revenue Jonathan Riskin about the play to bring rightsholders in the equity structure. “We wanted to empower the conferences to create the broadcast on their own. We view it as a partnership and collaboration.” Riskin noted Stadium does seek to provide consistent graphics on its telecasts.
The Patriot League’s Senior Associate Commissioner for External Relations Richard Wanninger sees tremendous upside to this arrangement as the revenue share allows conference sponsors the opportunity to buy in on nationwide telecasts. Additionally, it permits the conference to “get people we will never reach. Because of the types of student-athletes our schools recruit, it is important for us to be national – to gain visibility,” Wanninger said.
Broadcasts on Stadium this fall have included football, soccer, field hockey, and volleyball, and Wanninger said the plan is for the Patriot League to have a heavy presence of men’s and women’s lacrosse broadcasts in the spring.
For the general college sports fan, Stadium presents an affordable way to enjoy intercollegiate athletics either online or in traditional linear format. I tuned in, via my antenna, to part of Howard University’s upset of UNLV earlier this season.
Should the proposed Sinclair-Tribune Media merger be approved by regulators (hardly a sure thing), Stadium’s distribution could spread to nearly 100 markets. Tribune owns more than 40 broadcast networks, including stations in large DMAs not currently served by Stadium such as New York, Philadelphia, Denver, and Washington, D.C.
The model Stadium employs is one not dependent on negotiating carriage deals as the network does not require a MVPD for distribution. Riskin said the approach they used was, “What would ESPN do if it was starting out today?”
That’s a fair question, and it brings us back to the Altice USA-Disney carriage battle. Perhaps no MVPD enjoys as much market dominance as Altice does in New York City. Three million households subscribe to Altice in New York, more than competitors Verizon, DIRECTV, and Dish combined. A loss of three million households in the nation’s largest DMA would be a huge hit for ESPN, both financially and in terms of fueling the narrative that ESPN is dying. ESPN reportedly receives, on average, $7.54 per month per subscriber. If three million Altice subscribers did not subscribe to ESPN for one month, that would represent a loss of $22.6 million in revenue.
ESPN’s attempt to force the SEC Network and ACC Network on Altice may backfire. You can imagine New Yorkers have little to no interest in Louisiana Tech-South Carolina football on SECN on an early fall Saturday afternoon. And, really, outside of Monday Night Football, what programming does ESPN hold that the New York market must see in October?
ESPN has placed its marquee college football games on ABC, making them available to OTA subscribers (unless Disney sells ABC as I allude to below). The NFL mandates MNF games be carried on an OTA network in their home markets, so New Yorkers would not have missed the Lions-Giants game on Sept. 18 (even if they wanted to miss it).
Since the Altice contract expires on September 30, it is possible ESPN is using the Yankees as a pawn in negotiation. Right now, the Yankees are scheduled to play in the American League Wild Card game on October 3 in a game televised by ESPN. Should ESPN go dark on days before, it is possible three million New York households would miss the Wild Card game. However, since the rest of the MLB playoffs are on Fox and Turner, there is not a huge risk of New Yorkers missing the rest of the Yankees this fall (assuming they win the Wild Card game), something they have previously experienced. Let’s not forget the entire 2002 Yankees season was inaccessible to many New Yorkers when Cablevision refused to carry the new YES Network. Eventually the New York state government brokered a deal to get Cablevision to carry YES.
Additionally, Disney, it appears is also asking for double-digit per subscriber increases for ESPN/ESPN2, Disney and ABC, in addition to the forced carriage of SECN and ACCN. ESPN put its best corporate foot forward this past Saturday on GameDay, dressing Lee Corso as the Statue of Liberty and having him declare NYC as a “great college football town.” (His opening statement, it should be noted however, “from the west side to the east side” is a direct lyric from Randy Newman’s “I Love L.A.”)
Perhaps Disney perceives it has additional leverage in that it can also pull ABC from Altice at a time when its primetime shows are beginning their season debuts, although the network would still be available via OTA antenna. An additional provision in the 1992 Cable Act requires MVPDs to seek “retransmission consent” from OTA networks when they transmit a network’s signal through their cable or satellite system. Often, that consent is in the form of compensation. However, some analysts speculate Disney is better off selling ABC and focusing on direct-to-consumer with its big properties, ESPN and Disney. Such a move would significantly alter how college football fans watch primetime football as games broadcast on ABC are routinely the highest rated of the week. One can wonder whether this season’s opener between Alabama and Florida State would draw 12 million viewers (as it did on ABC) if the game were not available on a traditional OTA network.
With ESPN set to launch an OTT platform in early 2018, it is possible carriage fights will begin to die off. However, the public announcement of this platform may be harming ESPN’s leverage. What incentive is there for Altice, or any other MVPD, to agree to a long-term rate hike for all its customers, when it is entirely possible that current subscribers only interested in sports may opt to ditch Altice altogether in March when the ESPN OTT platform comes online?
The future of sports media consumption, and television consumption in general, certainly seems destined to be controlled from a consumer’s tablet or phone, rather than a set top box. My iPad has apps for ESPN, Big Ten Network, Stadium, MLB At Bat, NBC, Fox, CBS, and more. All allow me to stream sports content. And all can be “cast” to my television allowing me to watch the content on a normal screen. Sure, I have to authenticate a subscription for some (such as ESPN and BTN), and pay a fee to others (MLB), but if the future is direct-to-consumer services, authentication won’t be necessary. Instead we will have monthly sports bills, just like our water, gas, and other utilities. “Honey, did we remember to pay the ESPN bill this month?”