One in a series of Deadline stories that look back on 2013 and ahead to 2014.
Some of 2014’s most important sporting events won’t take place on a grassy field or an indoor court. They’ll play out in board rooms as TV execs continue their struggle to balance the diverging interests of those who love sports, and others who don’t — but still have to subsidize the programming as part of the pay TV bundle. Sports accounts for about 33% of cable and satellite company programming costs, Barclays Equity Research’s Kannan Venkat estimates. That percentage will grow: Sports prices are rising about 10% a year while other channels rise about 7%. DirecTV CEO Mike White says consumer frustration could soon begin to boil. “There’s a point where you have to stand up for the 99% who are angry about their bills.”
Will 2014 be the year when distributors make a serious effort to slow their rising sports costs? It’s possible, especially in dealings with regional sports channels — particularly in Los Angeles. Time Warner Cable is about to introduce a service for Dodgers games, SportsNetLA, following its launch last year of SportsNet and Deportes which show Lakers games. The cable company is said to want other distributors to pay $5 per subscriber per month for the Dodgers, roughly the same price MSG charges for its regional service that offers the New York Knicks and Rangers. But so far other distributors have not stepped up to the plate. DirecTV could help everyone hold out; the No. 1 satellite company has led the charge against high-priced regional sports networks. It declined to carry the Pac-12 Network which is home to two schools (UCLA and USC) in the key LA market, the University of Texas’ Longhorn Network, and Comcast-owned sports services in Portland, Philadelphia and Houston. (The Houston network filed for Chapter 11 bankruptcy protection in September.)
The satellite company’s top competitor, Dish Network, could also shine a spotlight on sports costs if it doesn’t renew its program carriage deal with Disney, which owns ESPN. (The previous contract ended in October, and the companies are still negotiating.) ESPN is already the most expensive basic cable service at about $5.54 per subscriber per month — totaling about $6.6B a year — with ESPN2 adding 70 cents, according to SNL Kagan data. ESPN’s price could grow to $7.65 per sub per month, or $9.2B a year, in 2018, Wells Fargo Securities analyst Marci Ryvicker estimates. Throw in ad sales (about $3.5B in 2013 and $5.7B in 2018), and about half of the channel’s revenues are pure profit. But Dish chairman Charlie Ergen might not want to help fatten Disney’s bottom line. He predicted in 2012 that non-sports fans would eventually rebel against the rising costs and “there will be one day an offering out there that doesn’t include sports.” Disney CEO Bob Iger says he isn’t concerned. “Nothing particularly dramatic” will change “the trajectory of growth at ESPN over the next five years or so, partially because a lot of our distribution deals are done, as are a lot of our licensing deals for sports rights.”
Cable and satellite companies have more leverage to deal with Fox which recently introduced two services: Fox Sports 1 and Fox Sports 2. The price that cable and satellite companies pay for FS1 is likely to nearly quadruple to 90 cents per sub per month by 2018, Ryvicker says. Some distributors may balk, but even those who are trying to hold down their programming outlays may consider that a small price to pay to keep ESPN from becoming too cocky.
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