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Cable Providers Battle With Sports Channels: What It Means For The LHN

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Earlier this week, an FCC judge ruled in favor of the Tennis Channel against Comcast, and yes dear Longhorn fans, you actually should care about the Tennis Channel and how this ruling could eventually relate to the Longhorn Network.

Richard L. Sippel, the FCC's chief administrative law judge, ruled that Comcast, the nation's largest cable TV operator, discriminated against the Tennis Channel by having it on the premium sports tier (available to approximately 2 million viewers) and said that it must put it on the same basic digital level that Comcast’s own networks, Versus and the Golf Channel also appear on – making it available to almost 25 million customers.

The full FCC must vote on the matter before Sippel's decision becomes final.

On the face of it, this seems like a good thing for niche channels such as the LHN but there is a larger battle about to be joined over just where sports channels should be slotted on your cable bill.

Right now in New York, Time Warner Cable (TWC) and Madison Square Garden (MSG) are waging a high stakes public relations war over their contract negotiations.

MSG carries the Rangers and Knicks games and they want a 53% increase over the current $2.73 monthly subscription they are getting for TWC’s 2 million customers. TWC cable has offered a 6% increase and has said they will pull the plug on the MSG network Jan. 1st if a deal is not reached.

We will get to the LHN in a moment, but this TWC fight in New York is instructive when you look at the impasse over getting the LHN on the major cable outlets in Texas and the surrounding states. Time Warner loves sports programming (they are becoming partners with the L.A. Lakers for their own cable networks) – they just don’t like to pay the skyrocketing costs of all the sports channels out there.

The last time there was a dispute over subscription fees, TWC took the MSG channel off its cable outlets for a couple of months before it was settled.

At the heart of all of the battles is the billions being spent on sports programming, with the belief that live sports — especially football – and especially the NFL -- is programming gold.

Sports continues to deliver a dedicated audience that still watches in big numbers, often without the DVR.

Cable and Satellite providers fear that the cost of sports programming rising at such a rapid rate will soon begin to drive away consumers who have no interest in sports but are paying for the channels right now.

As far as cable operators are concerned ESPN is "Public Enemy #1."

Right now ESPN is able to command up to $4.69 monthly per-subscriber fees for the flagship channel, as well as other fees for ESPN2, ESPNU, ESPN Classic. In the past, cable executives have promoted the "one-price" for all basic services, but now the idea of some form of A La Carte pricing is making headway in the cable industry.

Time Warner Cable Chief Executive Glenn Britt said sports channels should be sold separately from the main cable-TV package of channels. Britt believes that by placing the sports channels on a higher-cost tier, cable providers could shift the costs to sports fans – and cut cable bills for non-sports fans. Entertainment outlets such as Disney (which owns ESPN) don’t like that idea one bit.

There is a debate as to whether the standard cable bill would drop that much if everyone was able to pick and choose, and obviously some networks would be driven out of business. But there is no doubt that transparency in the marketplace would be increased, and if you don’t want to pay for the "Home Shopping Network," you wouldn’t have to.

ESPN doesn’t like the idea of all of its channels on a premiere tier for obvious reasons – they are making so much money right now that they are spending like a drunken sailor for sports programming, and they like having their "bundle" of channels on the basic tier.

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In order to understand the impasse over distribution negotiations for the LHN, the first item that needs to be taken into account is just what place the LHN has in the overall process for its owner (ESPN)

Longhorn fans see the LHN as this wonderful toy, full of all sorts of bells and whistles, and just the thought of the Longhorn Nation having such a toy has already made all the other kids in the neighborhood green with envy.

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WE WANT TO OPEN OUR CHRISTMAS PRESENT NOW DAMMIT!!!!

For ESPN, the Longhorn Network is a "test tube baby," an experiment on a potential revenue source that could be expanded in the future. They are more concerned with the template being placed into action by the LHN. They want to see how it will fit into the "TV Everywhere" concept that is coming (when you will get such channels via any mobile device you have) -- they are also more concerned about establishing placement and price point for the LHN and other such individual channels in the future.

The fact that we can hear our nicely wrapped toy whirring and moving under the shiny wrapping paper – but we can’t see it or touch it just yet – isn’t a real concern for ESPN right now.

But, you say, "What about their $300 Million investment?"

Now I must admit that $300 Million over 20 years sounds like some serious jack to me.

To ESPN? Not so much.

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Right now when ESPN needs to pay UT for the Longhorn Network, they just reach into their "Mad Money" jar.

As long as they have the dual revenue streams pumping in money at the level they are right now, they are more than willing to sit at the poker table and play Texas Hold ‘Em. with the LHN.

Time Warner vs. ESPN (and just about any other programmer)

The reports are that ESPN is asking for at least 40 cents per subscriber per month AND placement on the basic digital package for the Longhorn Network in the Dominant Market Area (DMA), which in this case would be Texas and (supposedly) other states with Big 12 programs. Since TWC is the big dog cable provider in Texas, just about every other company is waiting to have them set the bar for the standard cost and placement of the LHN.

As mentioned before, TWC likes a fight, and they are very stubborn. Time Warner Cable is the only one of the top eight distributors that has still has not signed a deal to carry NFL Network. It has been holding out on regional sports networks in North Carolina for years. It held out for more than a year on the Big 10 Network before finally reaching an agreement.

ESPN likes a fight just as much as TWC, and I expect both sides to glare at each other well into 2012.

There is a lot at stake for both sides, and right now, the Longhorn Network is simply a minor battle in the war for the hearts, minds – and wallets – of future cable sports fans everywhere.