Arizona Senator John McCain thinks you should be able to watch WWE Monday Night Raw on the USA Network without having to pay for the Lifetime Channel, so he has introduced the Television Consumer Freedom Act of 2013.
McCain wants to open up the process so subscribers would pay only for the channels they want and not pay for channels they have no interest in.
Sounds like a great idea - except to programmers like Disney, where ESPN and its conglomerate of channels is a rainmaker for profits. The regional networks (Big 10, Pac 12, Longhorn and soon to be SEC) are made uneasy as well, since an a la carte TV menu makes all those long-term projections of revenue a little dicey.
The bill has three main goals, all of which could affect how sports fans access their favorite channels and how much they pay for them. The bill is DOA this time around, but momentum is building for the a la carte concept and programmers ignore it at their own peril.
Unbundling the Bundle
Currently the average cable or satellite subscriber is paying for an inordinate number of channels that they have absolutely no desire to watch. That's because most programmers offer more than one channel and sell them as a "bundle" to distributors. A recent survey from the FCC shows that over the past 15 years the average price for basic service has jumped from just over $25 a month to over $54 a month today.
Disney revenue for the first quarter of 2013 was $10.55 billion, up 10% from 2012. The broadcast division of Disney produced $138 million, while the cable division - thanks to increased affiliate revenue from ESPN - rose 15% to over $1.72 billion.
ESPN is available in over 100 million homes, each of which pays over $5 per month, even if they never tune in. ESPN2 generates .67 cents per month per subscriber. Throw in other channels such as ESPNEWS and ESPNU, over $700 million per month is generated before a single ad is sold.
That double dipping is a moneymaker as well. According to the media analyst firm SNL Kagan, ESPN's ad rate is the highest in cable at $15.63 per thousand viewers. Disney uses ESPN to leverage many of the other 70 channels under its wing. ESPN in turn, is expected to leverage its popularity when negotiations begin in earnest over the SEC Network.
The SEC Network has an estimated 19 million cable or satellite homes in its home areas. The two biggies are Florida (5 million) and Texas (4.5 million). That's almost half the target audience, and it is expected that ESPN will try to get close to .80 cents per subscriber in the home states, matching the Big 10 Network.
Both states have alums from other major programs that will scream at having helped pay for an SEC network. ESPN trying to smooth the way in Texas by bundling the LHN with the SEC network is not out of the question, and wouldn't that be fun.
McCain's bill would eliminate such machinations, which is one reason why it faces heavy opposition. Even some of the distributors such as Time-Warner and Comcast have gotten into the programming side with their own regional networks and they want to keep the business model just as is.
Right now about 25% of the homes with ESPN actually tune in. Basic math says that if they went a la carte, the $5 per subscriber fee would go to $20 per month in order to generate the same revenue. No one will speculate on the trickle down effect to the regional sports channels, and that makes a lot of folks nervous.
McCain stated that his bill does not mandate distributors go to an a la carte system - but it does carry a threat. Should a cable system decide not to offer a la carte they could lose their FCC license to rebroadcast television stations.
Aereo TV - Back to the Future
According to the Convergence Consulting Group, the number of subscribers "cutting the cord" continues to grow.
Over 1 million subscribers dropped out last year, meaning 3.7 million have cut the cord since 2008. The main benefactors up to now have been Netflix, Hulu, and other online services.
That may be about to change.
Aereo, a streaming TV service company out of New York is touting itself as the low-cost alternative of the future. Aereo converts over the air broadcast signals into computer data and sends them to the various platforms of their subscribers. They also offer an internet-based DVR system so you can record a show and watch later.
Currently only offered in New York and Boston, they will open in Atlanta next month. The company has also announced plans on expanding into 22 other markets by the fall, including Austin.
The company has thousands of tiny antennas at its centers and assigns one to each subscriber. Aereo claims this makes their service similar to the old days when a customer picked up the free broadcast signals with a regular home antenna. They obviously offer far fewer channels than most cable distributors, but at a base of $8 per month it is seen as a supplement to subscribers who use Netflix or Hulu for movies or other shows.
This company scares the hell out of broadcasters such as Fox, ABC, NBC and CBS since they have come to rely heavily on the retransmission fees they charge to cable and satellite TV companies.
Several law suits have been filed against Aereo, but so far the lower courts have ruled in their favor. This will probably wind itself all the way to the Supreme Court, but until then the networks have made some not so veiled threats to go subscription only and stop free broadcasts.
Here McCain's bill also threatens to remove (and sell) any broadcast license of an over the air broadcaster who tries to take the network straight to cable.
I doubt Fox or NBC would seriously consider turning themselves into the USA Network, and any legislation trying stop it looks bogus at first glance.
It also brings up an interesting question. ESPN has already taken Monday Night Football and 95% of college football post-season games to cable, so should congress step in and demand they go back?
Blackout? What Blackout?
The third leg of the McCain bill strikes at the NFL. It would eliminate the NFL blackout rule, which prohibits local television stations from airing an NFL game that is not sold out. This would only apply to stadiums built with taxpayer support.
This provision of the bill, along with all the others, will have lobbyists lined up from the steps to the Capitol all the way to the Lincoln Memorial to fight it.
McCain's bill has as much of a chance getting through congress as Texas agreeing to be the opponent for Texas A&M when an expanded Kyle Field reopens.
The bill will generate more public discussion about giving customers a chance to pick and choose what they pay to watch. It could also give pause to all the leagues and conferences with long-term media contracts .
The money spigot for regional offerings like the Big 10, Pac 12, SEC and Longhorn Network may fulfill their promise all the way out to 2025 and beyond.
But all this talk of "unbundling" and a la carte service could make the getting there a little more interesting.