Wednesday, December 19, 2012

Half-baked musings on broadcasting revenues

With moves such as the signing of Zach Greinke, the
Los Angeles Dodgers have passed the New York Yankees
in player payroll.
It happens pretty much every offseason, and it's happening now: The free agent contracts being signed seem absurd.

  • Zach Greinke, six years, $147 million (with bonuses that could make it $158 million)
  • Josh Hamilton, five years, $125 million
  • Anibal Sanchez, six years, $80 million
  • B.J. Upton, five years, $75.25 million

OK, that's cherry picking the top deals, but still ... I don't think any of these guys are on a Hall-of-Fame trajectory, and I say that as one who loves watching Greinke pitch.

The current burst of spending is, for the most part, being fueled by a boom in local cable money, and that's a highly uneven phenomenon. The Twins get a reported $29 million a year for their TV rights (my source for that figure doesn't give when the contract expires); the Los Angeles Dodgers get a reported $240 million a year, or will when their new deal kicks in.

That's a pretty stark gap, and while there are myriad complexities involving revenue sharing, equity rights in the broadcasters and sweetheart provisions mandated by the bankruptcy court that oversaw the sale of the Dodgers, the blunt-force truth is: The Dodgers (and other major-market teams) have access to broadcast revenue streams that the Twins (and Royals and Brewers and other smaller markets) will never have -- revenue streams that far outweigh the money that comes in through game attendance.

Why are teams getting such giant TV deals? Again, to perhaps oversimplify: Because sports, at least so far, has been largely impervious to "time shifting" by viewers. The advent of DVR and Tivo has badly shaken the broadcasting business model, which has been based on the idea that somebody who wanted to watch "Seinfeld" or "I Love Lucy" -- or the Twins game -- also had to watch the commericals. Now we don't. Now people can record the show, watch it later and skip the ads.

Sports broadcasts have been different. The percentage of viewers who time shift the games is far lower. We want to see it live, not later. Which is why the networks keep bidding up league contracts in football, baseball and basketball, why NBC and CBS and Fox are all trying to horn in on ABC/ESPN's cable turf and why there's been a rash of billion-dollar local cable deals in baseball.

But I wonder how sustainable this is. The Los Angeles Times, in the wake of the Dodgers' cable deal, reported earlier this month that about half a $90-a-month cable or satellite bill goes to sports channels:

Over the next three years, monthly cable and satellite bills are expected to rise an average of nearly 40%, to $125, according to the market research company NPD Group.
So far, people seem willing to pay. But the escalating costs are triggering worries that, at some point, consumers will begin ditching their cable and satellite subscriptions.

I have long wanted a truly a la carte system for cable: set the prices for the individual channels and let the consumers pick what they want. That notion probably scares the daylights out of everybody in the broadcasting business, whether they run a cable system, a network, an ad agency or a niche channel, so that will probably never happen.

But something's going to give. The current model is going to break, because it relies far too heavily on non-sports watchers paying heavily for the sports channels. 

And when it breaks, I wonder if the teams feeding so greedily at the trough have a backup plan.


  1. Apparently people are not time shifting as much as we've been led to believe:

    The Remarkable Dominance Of Live TV

    If/when networks catch on, these huge deals may indeed dry up.


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