Even If the Sports Cable Bubble Bursts, You Probably Won't Save Money
Disney's reported $1 billion planned investment into BAM Tech, MLB's streaming-video company, is one of many reasons to believe that even in the era of cable cord-cutting, fans will still pay premium prices for sport broadcasts.
Bob Donnan-USA TODAY Sports
On Friday, Bloomberg News issued a report—still officially unconfirmed, but rumored to have been in the works for months earlier—that Disney, owners of ESPN and ABC and finders of Dory, had agreed to buy a one-third stake of BAM Tech, the company being spun off by MLB Advanced Media to own its streaming-video technology. (Disney is also an investor in VICE Media.) The reported sale price: just over $1 billion.
Aside from being an indication that it's a very good time to be a Major League Baseball owner—it must be nice to wake up and find that you're suddenly more than $30 million richer, all thanks to the sale of something you were probably only dimly aware that you even owned—the report raises some other, bigger questions about what it means for the sports media landscape. In short: How are fans going to watch live sports in the future, and will we ever seen an end to the constant tithing of ever-increasing shares of our bank accounts just so we can keep up with every last sporting event on the planet?
The short answers are "very differently" and "probably not anytime soon." The long answers are long, but worth understanding if you're a sports fan who has ever wished to cut the cable cord.
Talk of the cable sports bubble and its impending popping goes back several years now, and it goes something like this: Over the past couple of decades, sports leagues have discovered that they wield an awesome power: sports fans like to watch sports on TV. That means that if you're ESPN—or, I dunno, Flick: The Badminton Channel—you can demand pretty much anything from cable companies in return for carrying your channel, since viewers will scream bloody murder if it's time for the World Series of Elephant Polo and none of their 900 channels is airing it.
That "anything" has only soared in value in recent years, thanks to another development in the TV world: people are increasingly losing interest in paying cable prices for non-sports TV, in part because they know if they just wait a bit, they can find other ways, legal or otherwise, to watch. If it doesn't show up on YouTube the next day to grab social-media shares (thanks, John Oliver, for making it unnecessary for me ever to subscribe to HBO), you can almost always binge-watch it on Netflix or iTunes or Amazon Prime a few months later, for no added cost if you already subscribe to one of those services. And that's without even getting into illegal downloads, which remain a popular method for watching TV shows no matter how much cable channels attempt to crack down. After all, they're free, and often easier to navigate than figuring out how to watch the shows by legit means without cable.
Live sports, though, don't work like that. Because they're live. Binge-watching the Olympics isn't nearly as much fun as doing so with The Walking Dead, if only because it's harder to avoid spoilers. (You can pirate streaming feeds of sporting events, but if you've ever tried it, you'll know that these are 1) often fairly crappy, with unreliable connections and poor video quality, and 2) not easy to navigate at all, at least at this stage of the game.) So cable companies have been willing to cough up higher and higher fees for sports content, even taking a loss on it if necessary, knowing that it's the only thing keeping many viewers from walking away from cable entirely.
"Sports is one of the main backstops for the cable companies at this point," says Courtney Brunious, associate director of USC's Sports Business Institute, which last month held a two-day symposium on the future of sports broadcasting. "A number of surveys have been done about why people haven't cut the cord yet, and one of the top answers is 'I won't be able to watch X, Y, and Z sport if I cut the cable."
The result is the world that we live in, where a seemingly inexhaustible flow of money goes from our pockets to the cable companies, from there to the sports channels, and finally to the sports leagues. (If you're a non-sports fan who's somehow stumbled into this article, your pockets are not safe. If you have cable, you pay about $8 a month for ESPN whether you watch it or not.) And, ultimately, this money goes to the players—a process that was pointed out in dramatic fashion this week, when the NBA's new $24 billion cable deal with ESPN and Turner Sports kicked in, the league's salary cap exploded, and suddenly Mike Conley became the highest-paid NBA player in history.
If you're someone pouring money into the wide end of that funnel, the idea of a future world where we can cut out the cable companies and just watch sports on our computers and phones sounds like a cord-cutting, cost-cutting nirvana. No more paying for CNN and Bravo just to watch ESPN! Except that, as the Disney–MLBAM deal makes clear, the sports and media industries know that we're thinking this, and they're one step ahead.
Right now, it's actually not that hard to watch streaming content. Sports leagues know that for the kids of today, "screen" means "phone"; asking them to watch sports on a television set is like asking them to get the news by having a man in a suit read it to you. The catch is that you can't access said streaming content without a cable or satellite subscription (for our purposes, think of DirecTV as just another cable company, one whose cables are made of air). NFL Sunday Ticket has become a bit of an exception, if only because it's DirecTV–exclusive and not everyone can get DirecTV, but the rule remains: if you want to watch sports on your phone, you first need to type in your password to prove that you've paid to subscribe to watch on a TV, regardless of whether you actually own one.
That's not going to change in the immediate future, if only because of the massive sums of money that the cable and satellite providers are paying to the sports channels to ensure that it remains so. ESPN president John Skipper promised back in February, when the MLBAM deal was first rumored, that letting people watch ESPN on a standalone service without a cable signup was "not what we're going to do"—and you could almost hear the audible sighs of relief from ESPN's cable partners in the background. Rather, ESPN very likely plans on using its new MLB-provided tech to improve its own streaming services, which you'll still have to sign up for cable to access.
At some point, though, either the sports channels or the leagues themselves are going to decide that they can make more money by selling their services directly to viewers than by extorting the cable companies for the biggest payoffs. When that happens, things will change dramatically. Think of it as the Netflixization of sports: instead of writing one check to Comcast or DirecTV every month for a package that includes everything from NBA TV to Cloo: The Mystery Channel That Is Spelled This Way So Hasbro Doesn't Sue Us, you'll be able to pick and choose which channels to subscribe to à la carte.
If this sounds like it will lighten the hit on your pocketbook, you haven't been paying much attention to the post-Netflix media landscape, or the first half of this article. Let's take as example an imaginary streaming media consumer named, um, Neil deSchmause. Right now I—I mean, he subscribes to Amazon Prime because it comes with free shipping on all the crap he now has to buy from Amazon because it drove all the actual brick-and-mortar stores out of business. He also subscribes to Netflix on and off depending on which Marvel series is airing at the time, and to MLB.tv because sometimes you just need to see the Cincinnati Reds' incredibly self-immolating pitching staff with your own eyes. That's only the tip of the future iceberg, though. Next year, he will have to contend with the decision on whether to sign up for CBS's new streaming service just to see the new Star Trek series without pirating it (spoiler: yes). Eventually, this list will probably grow to include half a dozen other channels as every network decides that, if the Netflix model is the future, they might as well start their own Netflixen to cut out the middleman.
The cost of all those channels is going to start to add up, something that will be even more noticeable for sports fans facing separate offerings from every league they follow.
"If you're just an NBA fan or just an NFL fan and all you want to do is pay for that type of content, you're probably going to save a lot of money by not paying for all the extraneous content that you don't really care about," USC's Brunious says. "But if you're an overall sports fan, adding up all those à la carte options in order to get the same sort of package of sports that you're used to watching, it may actually end up costing you a little bit more."
Stanford sports economist Roger Noll agrees for the most part, though he does hold up some hope that the introduction of 5G wireless networking—coming early next decade, according to current plans—will at least create competition among internet providers, since anyone with a transmitter will be able to beam signals through the air. "When that happens," Noll says, "then there won't be this big gatekeeper price that can be charged like the cable companies and satellite companies currently charge."
Still, that won't change the monopoly power of leagues to charge up the wazoo for their sports programming."The sports leagues will still get enormous revenue," Noll says, "but they won't have to share it with anybody." If anything, it will just create a brief price war among wireless internet companies to stream it to you.
The coming switch away from wired TV will likely change the way that sports leagues share money within their organizations, however. In MLB, for example, streaming revenue through MLB.tv is currently shared across all teams, but that's a relatively small piece of the pie compared to the local cable deals that have turned teams like the New York Yankees, the Boston Red Sox, and the Chicago Cubs into financial juggernauts. Right now, aside from the NFL (which controls all TV rights league-wide), you can't watch your local team via streaming services like MLB.tv or NBA League Pass because those rights are controlled by the teams. If streaming were suddenly the whole pie, baseball would become more like the NFL, where virtually all the money is pooled and distributed equally. The issue of who controls local streaming rights will undoubtedly become a major issue in future revenue-sharing battles, and in future collective bargaining talks with player unions.
In the end, though, all of that is more about how the boodle is split up—leagues vs. cable operators, big-market team owners vs. small ones—than about how much you're going to have to pay to watch sports. Of course, somebody could come up with a way to reliably share streaming sports events without getting sued out of existence. That would be a game changer—the Napsterization of sports, let's call it. Only don't count on it. If the Disney–MLBAM deal proves anything, it's that the sports industry has learned the lessons of the music industry's past, and it is determined not to repeat them.
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