À la Carte Menu Threatens Sports on TV

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The New York Sun

If there is one thing major league sports owners and big time college operators worry about, its congressional reregulation of the cable television industry.


Why? Cable TV money is one of sport’s major revenue sources. The Yankees get more than $50 million in annual rights fees from the YES network, the Mets figure to make more than $40 million from SportsNet New York next year. ESPN is paying Major League Baseball $2.4 billion over the next eight years and has agreed to pay $8.8 billion for the rights to NFL Monday night games between 2006 and 2013.


Most of the money that flows to teams and leagues comes from basic cable subscribers, with advertisers picking up the rest. Those subscribers, in fact, are footing the bill for every basic cable channel, and most of them have no idea they are paying ESPN nearly $3 a month or CNN about a quarter a month, to name two networks. Bills aren’t itemized, and consumers who want the “basic” package have to take what the cable operator gives them.


But now,a congressional reregulation provision that could allow cable TV consumers to buy the cable channels they want on an a la carte basis rather than the conventional basic expanded tier might be on the way. That means sports channels – which are watched by no more than 5% of cable viewers, according to cable TV ratings – stand to lose more than 90% of their subscribers and the monthly fees that support the cable networks.


The Senate Commerce Committee, led by Chairman Ted Stevens, a Republican of Alaska, held hearings this week on cable TV – specifically regarding something called “unregulated indecent programming in expanded basic” – to address issues raised by groups concerned about coarse language and other racy content on cable TV. Basically, people have finally realized they shouldn’t have to pay for Spike TV if all they want is the Discovery Channel, and the Federal Communication Commission appears to be in agreement. A number of cable companies, including those who own sports franchises like Comcast and Time Warner, have reacted by announcing the development of a “family tier,” which they’ll have on the air by April 1.


But no one, including the FCC, knows exactly what cable operators are planning to include as part of that tier, which is being developed less to protect sensitive viewers from naughty programming than to prevent Congress from reregulating the cable TV industry.


Until a few weeks ago, sports operators had nothing to worry about. There was no push to give consumers a choice in what they could purchase from cable TV or satellite companies. But that may be changing in 2006, and for team and regional cable sports network owners like the Yankees’ George Steinbrenner, the Mets’ Fred Wilpon, MSG’s Charles Dolan, and many others, the fact that FCC Chairman Kevin Martin thinks cable systems should sell programming by the channel in a menu of a la carte choices could be devastating. Huge revenue sources may dry up if people decide they don’t need multiple sports channels.


Martin has an uphill battle on his hands. In October 2003, the General Accounting Office released a report stating consumers benefited from having channels “bundled” and that the costs of reregulating the cable sector would far outweigh the benefits.


The reregulation versus a la carte issue came up before Congress in the spring of 2004. In the end, cable operators, sports franchises, and cablenews networks scored a huge victory when Rep. Nathan Deal, a Republican of Georgia, conceded he did not have the support of fellow House and Senate members to introduce legislation calling for the reregulation of cable television and giving cable customers a choice in what channels they wanted to purchase.


He did, however, have the support of organizations like the Concerned Women for America, the Parents Television Council, the Consumers Union, and the Consumer Federation of America, who petitioned Congress that spring to argue pro-choice when it comes to cable television options. The groups threw their collective weight behind the Video Programming Choice and Decency Act of 2004, which would give all cable subscribers the right to pick and choose what programming they want on their televisions.


But on November 18, 2004, the FCC handed a report to the House Energy and Commerce Committee on cabletelevision pricing which stated that a la carte and tiered pricing models, such as a family tier, would result in higher cable prices.


It’s nearly the same argument cable that companies have been peddling for years. But almost a year after the FCC issued its 2004 report, Martin, a Republican, is contradicting former FCC Chairman Michael Powell’s conclusion and siding with fellow FCC Commissioner Michael Copps, a Democrat, who indicated in 2004 that he was ready to give basic cable subscribers a choice.


“It obviously sounds attractive. It gives consumers options. That’s always something we ought to be looking at,” Copps said in the spring of 2004.”Obviously, consumers don’t like to pay for something they don’t watch or don’t really want.”


On Tuesday, Copps, in his testimony before Stevens’s committee, asked for answers from cable operators about the “family tier.”


“We’ve got to define what a family tier is,” he said. “We’ve got to figure to out how much it’s going to cost.”


Cable network owners are dead-set against any kind of reregulation, claiming that some networks would have to charge subscribers more money for their favorite channel and that other channels, which are bundled into one price group, would suddenly die from a lack of viewership. In short, cable-TV socialism over cable-TV capitalism.


Virtually every one of cable’s more than 76 million subscribers gets ESPN, but if ESPN were offered only on an a la carte menu, how many people would subscribe? Maybe a tenth? Maybe less? It’s an answer the parent Walt Disney Company would prefer not to know. How many people would pay a premium for the Fox News Channel, CNN, or MSNBC? How many would want the Travel Channel or the Cartoon Network? Indeed, it is a question that no one in the cable industry wants answered.


The Concerned Women of America just wanted the ability to control what it considers indecent programming. But it may have put into motion a change in how major league and big-time college sports are financed by virtually every cable TV subscriber in this country.


That must have been a chilling thought in cable, news, and sports executive boardrooms across the country. But Wall Street analysts shrugged at the FCC report, and sports owners like Wilpon – along with his partners, Comcast and Time Warner – are going ahead with their plans to start a Mets-based regional sports network. They’re willing to gamble that Congress will keep its eye solely on the bottom line and continue to let cable TV police itself. It won’t be long before that gamble either pays off or drags them down.


The New York Sun

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