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Could the Dodgers’ giant TV deal be the beginning of the end for giant TV deals?

Jan 23, 2013, 12:52 PM EDT

old TV

We talk a lot about the skyrocketing TV deals baseball teams are getting from cable operators these days. One wonders, though, whether or not we’re witnessing a bubble that’s going to soon burst. If it does, we may look at the Dodgers’ new TV deal as the beginning of the end.

The Dodgers TV deal with Time Warner is reported to be upwards of $8 billion. To pay for that, Time Warner is going to charge other carriers (Direct TV, Dish Network, other cable systems) $4 or $5 per subscriber for the right to carry the new Los Angeles Dodgers network they’re operating, with those costs passed on to the other carriers’ customers. This is how all sports TV rights deals go. It’s just way bigger with the Dodgers and Time Warner.

Many — probably most — of the customers who are seeing their cable bill go up are not Dodgers fans. They just want to watch Nick Jr. or History Channel or BBC America or any number of other channels. But, because you can’t (for the most part anyway) pick and choose which channels you get, the non-sports watchers are helping subsidize the sports watchers. Again, this is how it always works, but this time the rate hikes in question are going to be quite large.

Joe Flint and Bill Shaikin of the L.A. Times write about this today, and they talk to one former TV executive who thinks that such a pattern is unsustainable:

But non-sports fans and pay TV companies are increasingly frustrated at having to pick up the tab for big sports deals. There have been calls to sell sports channels “a la carte,” or separately from other programming.

The Dodger agreement with Time Warner Cable may be a tipping point.

“That is the solution everyone should be looking at seriously,” said Derek Chang, a former senior executive at satellite broadcaster DirecTV. Such a move, he added, may be the only way to lower the cost of TV sports. “Ultimately the market for fees would then reset.”

All it takes is a political groundswell — and someone talking about how we should think of the children who just want to watch “Spongebob” is a great way to get that going — for Congress to wade in and either begin legislating or begin threatening to legislate with respect to cable TV in such a way that a la carte pricing becomes available.  If it does, companies in Time Warner’s position won’t be able to demand across-the-board rights fees like they are now and, in turn, they won’t be able to offer sports teams like the Dodgers the billions of dollars in rights fees like they’re currently doing.

If that bubble bursts, down with it comes the TV money. Then down go the franchise values, which are escalating due to the TV money sports teams are attracting. If team values go down, team payrolls will eventually come down too.  No aspect of baseball finances would be untouched by it.

Will it happen? I don’t know. And if it does, I don’t know when. But I also know that no bubble in history has ever failed to burst, and that when they do burst, the bubbles tend to take down just about everyone.

  1. danaking - Jan 23, 2013 at 1:00 PM

    Assuming for the moment Craig is correct–not unlikely, considering there has to be a ceiling in what people are willing to pay for things they don’t watch–this could become good news for teams like the Pirates, Brewers, Braves, etc., that don’t have big markets, as it could level the playing field. (No pun intended.)

  2. b453841l - Jan 23, 2013 at 1:01 PM

    mlb.tv + VPN

    • Cris E - Jan 23, 2013 at 2:15 PM

      As cable costs continue to climb, and as folks continue to become more connected and sophisticated, there’s going to be a point where Hulu and Netflix and Amazon plus Extra Innings and Season Ticket plus a Roku-like device are substantially cheaper and not particularly worse looking than Comcast. It’s going to take a real sales job to sustain the cable companies, particularly if the wireless phone is the new internet tether.

      The flip side of this is that those players named above have to have the discipline to hold their costs low enough to force the issue.

      • smoochytherhino - Jan 23, 2013 at 2:32 PM

        Cris E – I couldn’t agree more. I have recently canceled my cable subscription and I’ll never go back. A terribly overpriced product where I pay for everything and only want about 5% of what I have, not to mention the equipment is garbage and breaks down every other week.

        Over the air TV + MLB and NBA packages + Netflix and Hulu = less than half of my monthly cable bill

  3. heyblueyoustink - Jan 23, 2013 at 1:06 PM

    Normally i’m against government involvement in many things. But after AMC ran their scare campaign with my cable provider recently because they were seeking more sheckles for a handfull of shows, and now things like this, i’d be all for mandatory ala carte cable options.

    The folks in the business of entertainment, and their associates, get away with things other organizations in this country would/do get roasted at the stake or on a daily basis.

    • kirkvanhouten - Jan 23, 2013 at 1:15 PM

      “Normally i’m against government involvement in many things. But after AMC ran their scare campaign with my cable provider recently because they were seeking more sheckles for a handfull of shows, and now things like this, i’d be all for mandatory ala carte cable options.”

      Sorry, but in other words:

      “Normally I’m against government involvement in things. But in this scenario, I see the value and support. In some place, I am ignorant of the value and show my ignorance by calling government the problem”.

      • heyblueyoustink - Jan 23, 2013 at 1:47 PM

        You confuse my ignorance with lack of confidence in a politicians ability to make honest decisions because of the lobby industry, of which the entertainment industry is second to none.

        But thanks for thinking me some kind of uneducated neanderthal, I always appreciate ignorance and arrogance speaking on such things as ignorance with a dose of arrogance!

      • heyblueyoustink - Jan 23, 2013 at 2:07 PM

        And now that I think about it, if I’m under the rule o the government, why the hell wouldn’t I want them to do something that supports me personally. Are they supposed to just be there to take money from me without some kind of benefit. Wouldn’t that be more like a fiefdom?

      • smoochytherhino - Jan 23, 2013 at 2:35 PM

        Government involvement isn’t necessary in that way. There is probably some antitrust involvement that would be appropriate seeing as the cable companies have just carved up the country and stayed out of each other’s markets.

        In any event the availability of content over the internet will force cable companies to respond to quality and cost issues or it will destroy them. I can’t wait.

  4. samgod13 - Jan 23, 2013 at 1:06 PM

    I thought the reason behind this bubble was that sports programming is the only programming where people still watch commercials?

  5. historiophiliac - Jan 23, 2013 at 1:07 PM

    I don’t know if a popular outcry for not screwing families could really beat the cable lobby. I think the shift to online viewing & alternative sources would more likely lead to putting the brakes on rising costs.

    • heyblueyoustink - Jan 23, 2013 at 1:50 PM

      It’s like the petroleum lobby, we’re addicted as Americans, and they know it. Que Cera.

  6. stex52 - Jan 23, 2013 at 1:10 PM

    The local providers are balking at the extremely lucrative Astros/Rockets deal in the Houston area. Estimated charge to the providers is about $3.50 per household. Right now the providers are pushing back and Rockets games are not being broadcast.

    This will probably get resolved in some fashion, but I read it as a sign of things to come. Some teams with deals now may have to adjust. I expect teams with deals more than a year or two down the road may lose out to a more negative broadcast environment.

    • stex52 - Jan 23, 2013 at 1:13 PM

      Correction. The Rockets are bieng broadcast, but market coverage is very limited at the moment with many big providers not picking up the Comcast package. RIght now I see no signs that my provider is going to.

  7. hep3 - Jan 23, 2013 at 1:17 PM

    Having Congress involved? That is NEVER a good idea.

    With the technology today shouldn’t cable and satellite subscribers be able to pick they channels they want and pay for them only? If they can do pay per view and on demand sports and movies, why not a menu of just channels a person wants.

    • teamobijuan - Jan 23, 2013 at 1:38 PM

      Of course it is possible. It is not happening because Money.

  8. hojo20 - Jan 23, 2013 at 1:20 PM

    I could live with ESPNs and the regional sports networks off my cable bill.

    • royalsfaninfargo - Jan 23, 2013 at 1:51 PM

      Amen to that.

  9. JB (the original) - Jan 23, 2013 at 1:26 PM

    Granted, the Twin Cities aren’t LA, but the Twins thought they’d be smart and start up their own network a few years ago. http://en.wikipedia.org/wiki/Victory_Sports_One Never got off the ground as none of the providers would pay up at the rates they wanted, and it quietly went away. They (the Pohlads) more recently bought a local radio station and the rights to air the Twins’ broadcasts this upcoming season. So, you just never know what’s going to happen…..

  10. flosox - Jan 23, 2013 at 1:27 PM

    The old adage goes: “when the guy shining your shoes is giving you stock tips, its time to get out of the market.”

    Henceforth, keep a close eye on whether the Marlins score a multibillion dollar deal! That would be the day to sell.

  11. jarathen - Jan 23, 2013 at 1:29 PM

    The business model of cable TV as it stands now is unsustainable. I cut the cord about a year ago and it took maybe three days to get used to it. The problem with TV and cable providers is that people want to pay for content, but only the content they want. This is an opportunity for those companies to get ahead of the curve and make this an option instead of hoarding ever-shrinking shares of gold.

    This whole discussion ties into the draconian MLB blackout policy nicely, too. Living in Iowa, a state with no top-tier professional sports whatsoever, means I could be blacked out of 40% of games on a fully scheduled night because of the cable packages that want me to fork over $100 for the privilege.

    The end of all this garbage is nigh.

  12. normcash - Jan 23, 2013 at 1:33 PM

    Ultimately, the solution will probably come from technical advancements that undermine the hold on
    customers that local cable franchises currently exploit. There’s no reason why local authorities couldn’t insist that cable operators offer al a carte pricing as a condition for the franchise, other than
    political. But as more and more offerings become available over the net, customers’ resistance
    to being frog-marched to pay for channels they don’t want and never watch will grow. The FCC has almost no legal authority in this realm. I have DirecTV and never watch 95% of the channels my package offers. But I pay a ton extra to get MLB ExtraInnings, NFL Sunday Ticket and NHL Center Ice. There is no question that at some point a business model based on extracting money from
    unwilling buyers will break down. Many of these new mega deals are 10-year propositions. I’ll bet
    that some of these rights holders will come to regret them in the out years—in the same way the Yankees now regret A-Rod’s contract.

  13. echech88 - Jan 23, 2013 at 1:48 PM

    I give it 3 years before Apple TV serves as an on-demand, a la carte pioneer in cable television.

    Pay a small fee to watch Monday Night Football per viewing, or if you’re a huge fan pay a package to get it all season.

    Likewise for baseball. I have no intent of watching a single Dodgers game this year and could do without paying for the full slate.

    Of course the cable providers and sports leagues would lose their minds at the thought. Imagine the Dodgers owners clinging to that money as they watch their $2B investment depreciate canceled subscription by canceled subscription.

    • koufaxmitzvah - Jan 23, 2013 at 3:43 PM

      I like how Time Warner is exonerated and that your wrath hits the Dodgers. Sorry, but the value of the TV deal is what it is: $8 billion. Nothing will change that. And the Dodgers didn’t put a gun to Time Warner’s head with the demand of $8 billion or else.

      That you’re not mad at ESPN or The Cartoon Network or any of these other broadcasters who DO hold a gun to the cable company’s head says a lot about your perspective.

  14. mrfloydpink - Jan 23, 2013 at 1:53 PM

    I agree entirely with the other commenters here.

    I tend to like old game shows, so I recently contacted my cable provider about the package that includes GSN. That “package”–for an extra $10 a month–got me GSN, plus the Golf Channel, Lifetime Movie Network, TagalogTV, MTV3, Universal, a home shopping channel of some sort, some really obscure version of CSPAN like CSPAN 6, and a few others. If the package was logical, I might have paid the $10 and gotten the added channels. But who on Earth watches GSN, Golf, LMN, and TagalogTV? Filipina golfers with a thing for Alex Trebek? Not only do I not want to pay for those extra channels, I don’t even want them for FREE. Already, I get four or five new channels added to my lineup every month, and all they do is clutter up the listings.

    Even for the channels I AM interested in, there’s a limit to what they are worth to me. For example, it’s nice to have ESPN for a few things. But I can’t stand SportsCenter or the talking heads shows, and the things I do watch—-occasional Sunday baseball, MNF–are not worth more than a few bucks a month to me.

    I already have friends who fulfill their entertainment needs with a combination of streaming stuff from the web (Hulu, mostly) and their Netflix subscription. Surely they are just the advance guard…

    • sportsdrenched - Jan 23, 2013 at 2:20 PM

      and more and more people are doing it. I cut the Dish in July, and went with Netflix and MLB Extra Innings. (now NHL Center Ice). Since then there has only been TWO times in six months I made arrangements to watch a game on ESPN at someone elses house. Two times in 6 months that I felt I NEEDED ESPN. Nope, not worth paying for it….

      unless I can go al-a-carte.

  15. jm91rs - Jan 23, 2013 at 2:01 PM

    If every subscriber has to pay $4 or $5 to cover the $8 billion, imagine how high that price will be if they let non sports watchers opt out of the channel. It would have at least double, probably more. That’s a lot of money per month to most people.

    • stex52 - Jan 23, 2013 at 2:19 PM

      That’s where the bubble bursts. People won’t pay for it. The broadcast networks won’t be able to deliver the cash to the sports team. They either renegotiate the package or the broadcaster declares bankruptcy. The team loses value. Owners have less money to pile into players’ salaries and are stuck with some long term obligations they will have to lose money to honor. Some owners conceivably bankrupt their organizations or have to put in money from other businesses.

      We have lived through this with other businesses. It just looks like sports could be next.

    • cardinalcrazy - Jan 23, 2013 at 2:30 PM

      @jm91rs – I think this is the point, with the prices being too high, you would see less subscriptions, and therefore the cable networks wouldn’t agree to foolish contracts totaling 8 billion dollars. Therefore, they would offer much less than the 8 billion dollars, which would be less for each subscriber, and the teams would make less money, and ultimately have less revenue to pay player salaries.

  16. jkcalhoun - Jan 23, 2013 at 2:26 PM

    Satellite radio subscribers know that mandated a la carte pricing does not necessarily drive prices down. In that case, a la carte options were introduced at costly slightly lower than the prior cost of the full package, and the cost of the full package, by means both direct and indirect, was significantly increased.

    So be careful of what you wish for.

  17. vallewho - Jan 23, 2013 at 2:27 PM

    hear that sound???…that’s people “dropping” their cable/satellite service.

  18. jrbdmb - Jan 23, 2013 at 2:27 PM

    Note that the providers can also say “enough!” For instance, Dish Network has not picked up the new lakers-only RSN, and I understand that many providers are taking a pass on the new PAC12 Network.

  19. mattj425 - Jan 23, 2013 at 2:33 PM

    This might be a stupid question — does the cost of the Dodgers contract get spread solely over their market, or does it get passed on to the entire nation that has Time Warner or the dish companies?

  20. buffalomafia - Jan 23, 2013 at 2:41 PM

    Dodgers won’t make playoffs anyway!

  21. sdelmonte - Jan 23, 2013 at 2:43 PM

    I wish I could find the link, but I read an article recently stating that there is little likelihood of a la carte options from any cable or satellite outlet. Apparently, to some degree the industry really does need both subscriber fees and ad revenue to produce anything more expensive than Duck Dynasty. This would no doubt include the costs of 81 road games a season.

    Which isn’t to say there isn’t also a lot of greed at play. But it’s not such a simple thing to say “prices are too high.” And I think that for the most part, people are either willing to absorb the body blows or to cut the cord entirely and either go for Netflix, etc, or illegal streaming and download options.

    • jarathen - Jan 23, 2013 at 3:20 PM

      I have read about the position these companies are in and the way in which they are hopelessly intertwined into a heck of a knot, and this is why Apple has been unable to really bust out with an Apple TV or more powerful box than the current little puck they sell (and I do own one). Someone has to completely change the game, and these conglomerates have too many fingers in too many pies to just yank them all out and start over.

      Instead, they’ll all come crashing down in a cacaphony of mixed metaphors.

  22. giantssb42champs - Jan 23, 2013 at 2:47 PM

    Sure glad I have Comcast I guess.

  23. craggt - Jan 23, 2013 at 3:00 PM

    The problem with this kind of analysis is that it is incomplete. Yes non sports fans subsidize sports channels, but I also subsidize people with kids by paying for Cartoon network and Nick etc. Everyone is subsidizing everyone else, thats how group contracts work.

  24. ctony1216 - Jan 23, 2013 at 3:09 PM

    Can anyone tell me if it’s possible for someone in the NY market to get Yankees/Mets games without subscribing to cable? MLB.TV blacks out those games in the NY viewing area.

  25. bigsexy2288 - Jan 23, 2013 at 3:11 PM

    Huge Dodger fan but if they are going to raise my subcription price then screw em I don’t want to watch them that bad. Sheesh it cost an arm for gas, another on taxes at the store, a leg for parking at the stadium, another leg for a descent game ticket and now they want my head for cable. Screw that they shouldn’t have made such a massive deal. Oh we’ll looks like I will need to get me a nice pair of bunny ears.

    • koufaxmitzvah - Jan 23, 2013 at 3:22 PM

      How is this the Dodgers fault? Blame Time Warner. They’re the geniuses that peddled the station to the Dodgers. The Dodgers just took the money. I get being upset, but I think the focus is off-base. The Dodgers didn’t approach Time Warner and say $8 billion or else.

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