Rising bills not just attributable to sports, says SNL Kagan

Editor | 29-01-2013

Multi-channel homes have for some time been accustomed to steep inclines in prices for services as operators garland rights owners, especially sports teams with cash, but, says a SNL Kagan research note, there's a bigger picture to bigger bills.
In his analysis of the market, SNL Kagan senior analyst Derek Baine says that even though it is unquestionable that rising sports costs are very much part of the pay-TV dynamic, the fact that operators seem inclined to broaden bouquets substantially is also making an unwelcome contribution to customers' fees.
Moreover, and perhaps more significantly as this element is very much were the operators get squeezed between end user demand and content owner sales strategies, he argues that retransmission fees are much higher than many operators had hoped. Indeed, Baine revealed that SNL Kagan estimates that by 2018 retrans will be costing cable operators $4.90 per sub per month wholesale, let alone the price that consumers will be paying. Baine offers the comparison of ESPN's licence fee of $5.13 in 2012.
Baines warns that fundamentally costs are a growing concern and calculates that the average cost of a sports channel has grown at a CAGR of 3.5% over the past decade, compared with a 2.9% CAGR for all channels. Yet he feels that the issue won't be resolved any time soon. "Will it get better? We think not, which is why Time Warner Cable Inc and others are looking at dropping channels," he argued. "Given the fact that we think retrans payments will double from about $2 per sub in 2012 to more than $4 per sub by 2016, there are tough times ahead. Our forecasts call for video margins to fall another ten points in the next four years if something dramatic isn't done."
That dramatic move may be a reversal of recent trends where operators actually convert sports networks into an entertainment channel. Baine pointed to reports that in the US News Corp may turn its FOX Soccer channel into a general entertainment network, a sister network to FX Network.