Bidding war between networks, sports leagues will increase price of cable TV

Bidding war between networks, sports leagues will increase price of cable TV

By Cecilia Kang January 23 at 8:38 PM 

Cable TV is about to get more expensive for millions of consumers because of a bidding war between networks and the country’s most powerful sports leagues.

Time Warner Cable, Cablevision and scores of rural cable providers are tacking on sports surcharges each month, the direct result of higher fees they are paying to ESPN and other sports networks to carry their channels. Beginning Feb. 5, DirecTV will raise fees by 5.7 percent.

The rise in cable prices is likely to test the patience of customers, who may already be tempted to cut their cords in exchange for streaming options that will soon be available to them. For providers and customers, the creeping prices amount to a test — at what point will viewers decide it isn’t worth paying for cable anymore?

A flood of new options for watching TV are about to arrive this year, from HBO’s standalone service, set to launch this spring, to SlingTV, the new streaming option that will include ESPN, CNN and other popular channels.

The catalyst for the price increases is a slew of dealmaking between ESPN and the biggest professional sports leagues. Based on a recent deal, ESPN is estimated to pay $1.9 billion each year just for National Football League games. ESPN and TNT have signed a new $2.6 billion annual contract to carry National Basketball Association games. Analysts say these costs will get passed on to customers — slowly and steadily over the next decade.

“How far will consumers go with how much they are willing to pay for sports on cable, even if wildly popular?” said Matt Polka, president of the small cable trade group the American Cable Association. He noted that cable and satellite firms have long seen a decline in subscribers, down 150,000 subscribers in the last quarter alone.

“In a weird way, the sports programmers are going to harm themselves if they keep going this way,” Polka said.

The monthly increase is small — from $2 to $5 a month for customers of Time Warner Cable, Cablevision and other smaller providers. But analysts say the trend will last for years.

The most powerful force behind the price changes is ESPN, which is by far the most popular and expensive network in cable. Cable subscribers are paying about $6 per month out of their total cable bills to watch ESPN, the most of any non-premium cable channel because of its massive reach into audiences only the big broadcast networks enjoy.

“ESPN is hugely popular and delivers the most value of any programming network in America,” said Katina Arnold, a spokeswoman for ESPN.

It drew the biggest audiences ever for cable television with the college football championship game between Oregon and Ohio State this month. Its multibillion deals with the NFL and NBA keep viewers subscribing to cable, even if sports fans watch only a few other channels on TV. And ESPN’s dominance is set to last for years.

“ESPN has locked down an extraordinary portfolio of sports rights well into the next decade,” said Disney chief executive Bob Iger in the company’s latest earnings call.

Other networks such as CBS and Fox have also paid sky-high rights for sports broadcast deals, which they then pass on to cable operators in the form of massive retransmission fees.

The audiences for broadcast networks are also enormous. Saturday’s NFC championship game between the Seattle Seahawks and the Green Bay Packers drew 55.9 million viewers in the United States. Sports have so reliably delivered huge advertising revenues and retransmission fees, CBS last week renewed its contract for NFL games on Thursday night for $300 million.

But by driving prices higher for all cable customers, ESPN and other networks could be undermining their main profit engine.

Cable operators are openly airing their frustration with sports networks and unveiling details of negotiations that are normally undisclosed in private deals. Time Warner Cable has a “sports programming surcharge” on customer bills for the first time. “We introduced the sports programming surcharge to make it even more clear to customers what exactly is driving the cost of TV higher,” said Rich Ruggiero, a Time Warner Cable spokesman.

He said the cost of carrying broadcast networks such as ABC, CBS, NBC and Fox has increased 60 percent. Ruggiero said that the amount of money Time Warner Cable must pay to continue running sports programming has increased 91 percent since 2008.

“It’s not just one sports network, it’s the overall increase of sports programming that’s been happening for some time now,” Ruggiero said.

Indeed, one of the factors driving up prices is the growing number of sports channels all bidding for the right to air popular events.

“There have been an increasing number of bidders in recent years for large sports rights deals as cable networks have become more and more profitable,” SNL Kagan analysts Derek Baine and John Fletcher wrote in a report this week. “With FOX Sports 1 and FOX Sports 2, NBC Sports and the Turner Networks now in the market bidding on sports rights along with ESPN and the broadcast networks, the market has gotten fiercer than ever.”

Small cable operators are venting in blog posts and in letters to consumers that sports programming fees at ESPN are out of control. They’ve complained that the sports network forces them to take all-or-nothing bundles of ESPN channels, even if their customers aren’t interested in them.

In Northern Iowa, CLTel was required to carry the ESPN’s SEC Network, which covers college football’s Southeastern Conference.

“We don’t have those teams here, and maybe some of customers care, but we are required to carry SEC in order to get ESPN and it all adds up,” said Tom Lovell, general manager of CLTel.

Hargray Communications, which serves about 40,000 customers in Hilton Head, S.C., paid a much higher contract fee in its deal with Disney last summer. It broke out in consumer bills a “broadcast TV surcharge” that Hargray explained to customers was mainly because of higher sports programming fees, said Gerrit Delbert, vice president of sales at Hargray.

Two years ago, Hargray pulled Fox Sports because the network was demanding too much money for a channel few of its customers were watching.

Hargray is preparing for even higher demands when it renegotiates in a few years for a new contract with ESPN.

“Costs have exploded in the past four years, and we share the view of others in the industry that those costs are only going to go higher,” Delbert said.

Disney, which owns ESPN, has defended its lavish spending on exclusive sports contracts as key to ESPN’s future. The network has touted its ability to bring new customers online and continue to grow its cable audience. Later this month, ESPN and ESPN2 will be available to online customers through Dish Network’s SlingTV — a service that doesn’t require a cable subscription.

It’s a high-stakes bet that ESPN’s online service won’t lure too many of its cable customers away from the TV bundle.

Indeed, ESPN has put some limits to how many subscribers it will take for Dish’s Sling TV service, but the sports network is putting great faith in the survival of the cable model.



Comments

  1. Costs are going up and always will. Be there in person. Hope you lile my post.

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