Cable, satellite warns of disaster in NFL's 60% carriage fee hike

Michelle Clancy ©RapidTVNews | 07-12-2011

US cable and satellite operators are warning that plans by the National Football League (NFL) to snag a big increase in fees from the broadcasters would be disastrous for their pay-TV economics.

In the NFL's recent renegotiation with ESPN, the sports network agreed to pay $15.2 billion over eight years for the rights to Monday Night Football (as well as online and mobile extensions). That amounts to about 73% more than the expiring contract is worth. The NFL hopes to find similar success with its other network partners, to the tune of at least 60% more in fees, according to the Sports Business Journal, for a total of $24 billion over the next eight years.
"We think what ESPN paid is an indication of the strength of our product," said Brian Rolapp, COO of NFL Media, speaking at the Reuters Global Media Summit in New York.
NBC, CBS and FOX will have the first right of refusal for the carriage rights for the 2014 season and beyond, but the field will open up to other networks should they fail to come to a deal with the NFL within the projected yearlong negotiation period.
Pay-TV and networks are traditionally willing to invest more for live sports programming, because it garners the highest ratings and advertising dollars, and offers lucrative ancillary extensions online and via mobile. The problem, say pay-TV executives, is that those staggering carriage fee increases will be passed on to them. And there's no guarantee that advertising or multiplatform strategies will be enough to recoup the additional content licensing costs. Also, passing the costs on to the consumer in the form of higher subscription costs is highly risky in today's churn-riddled, cord-cutting, overly competitive marketplace.
As an example of the scope of the issue, ESPN, the most expensive network for pay-TV operators to carry, costs operators $4.69 a month per subscriber, according to SNL Kagan. The new deal would raise that premium to as much as $8.50 per subscriber per month.
Despite the risk of losing customers, at least one media head raised the implication of consumer rate hikes: Liberty Media chief Greg Maffei, speaking at a UBS media conference, called the $8.50 a "tax on every American household."
Time Warner Cable’s CFO Irene Esteves said that her cableco is looking for ways out of the bind, notably by purchasing media rights directly from teams themselves. TWC is already negotiating with the LA Lakers and the LA Galaxy soccer team to do just that, in an effort to "take out the middleman," she said.
It's not just pay-TV operators that are disgruntled. Viacom’s CEO Philippe Dauman at the UBS conference pointed out that the result is a lesser share of wallet left over to buy everything else. That places other networks at a disadvantage, particularly fledgling entrants. "ESPN alone as a network in many systems is double the cost of all our [other] networks combined," Dauman noted.
The pay-TV industry, already beset by SeaChange on the consumption and OTT front, will be loath to confront this latest challenge. But confront it, it must. "[Pay-TV] has been the golden goose and what does it take to choke it? It’s a scary proposition," Maffei said.