Baseball Moves Closer to Cutting the Cord – Bloomberg View
Next season, Major League Baseball will take its biggest step toward cord-cutting to date. Commissioner Rob Manfred has announced a three-year deal with Fox that will bring streaming of all games, including home games to the local market, for 15 teams, good for half the league. The immediate impact of the deal might be largely symbolic — you’ll still need a cable subscription — but it’s still a big step toward the eventual end of traditional cable.
Here’s how it’ll work: If you’re a fan of one of the 15 teams that have a Fox affiliate as their regional sports network, and your cable subscription includes that channel, you can authenticate your existing subscription and log into Fox Sports Go, where you can stream games from your computer or mobile device. The 15 teams include the World Series champion Kansas City Royals, St. Louis Cardinals and New York Yankees. (You can see a full list of the teams here.) This is different than MLB.TV, a standalone service with an annual subscription charge that lets fans stream all games except those broadcast in their home market.
The next step will be to see how other regional sports networks respond to this big move by Fox. Comcast, for example, is the next-largest owner of regional sports networks, with eight networks serving fans in nine markets, including fans of the Chicago Cubs, New York Mets and San Francisco Giants. Comcast could feel pressure from the Fox deal to follow suit, and with five of their networks co-owned by teams, would likely feel that pressure from the inside as well as out.
An interesting dilemma arises when you consider not Comcast the sports-network owner, but Comcast the cable provider, which is currently embroiled in a bitter dispute over carriage fees with the YES Network, the home of the Yankees. Fox acquired a majority stake in YES back in March. Comcast is currently blacking out YES and has implied that the Yankees and their viewership aren’t worth their high fees. (Of course, it’s telling that Comcast waited until baseball’s offseason to make their move; it definitely can afford doing without Nets games, which had the lowest viewership of any NBA team last season.) Comcast’s dual roles allow it to assess the cost of rights fees to regional networks airing baseball against the cost of carriage fees to providers featuring the networks in their subscription packages.
As more viewers move from cable to streaming, and as existing over-the-top subscribers who aren’t sports fans continue to resent the higher subscription fees they must pay for sports channels they don’t watch, there’s been speculation that Comcast is looking to move YES and other regional sports networks from its basic cable package to a higher tier with sports channels. As the New York Daily News’ Bob Raissman notes, that would drastically reduce revenue to the regional networks, which currently get paid based on Comcast’s entire subscription base of 900,000 people. Under a tiered model, the networks would receive fees based on the number of people subscribing to those networks alone.
Comcast is likely also looking for digital rights in these negotiations. Several YES shows already stream through Fox Sports Go, and MLB’s new deal with Fox will add Yankees games to that docket. YES also maintains the rights to stream Nets games, having struck a new, five-year, $40 million deal back in October — double the previous fee despite a 29 percent drop in ratings last season. With all Comcast’s rhetoric about the majority of subscribers not tuning into Yankees games, it seems the right to carry them might still warrant a high price.
It all comes down to the fees feeding off each other: YES is asking for a 33 percent increase in carriage fees from Comcast as the network faces exploding rights fees for Yankees and Nets games. Any increase in carriage fees will likely be passed onto consumers, who will continue to flee cable for digital, a la carte offerings that are cheaper and better tailored to their needs. Digital rights then become more and more valuable, inserting themselves into traditional cable negotiations and forcing the leagues that derive most of their revenue from television deals to adapt to the new streaming world.
The industry will continue to eat its own tail until the traditional cable model finally explodes, and then, it seems it will still be the leagues that win out. SportsBusiness Journal estimates that thanks to its in-market streaming deal with Fox, MLB will see a four percent increase in revenue of each team’s overall media deal, costing the regional networks “in the mid-to-high seven figures per team.” Guess who will be on the hook for that expense?
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