Tom Umstead

Baseball’s Risky Squeeze Play
March 9, 2007

Major League Baseball threw a curve at the cable industry Thursday by giving cable operators one last opportunity to play ball with the league’s Extra Innings out-of-market package.

My bet is that cable will not take a swing at the proposal.

The league and DirecTV Thursday finally consummated their seven-year, $700 million Extra Innings deal, giving the satellite provider carriage of the $179 service -- as well as distribution rights to MLB’s new Baseball Channel when it launches in 2009.

But it left the back door open for cable to again secure the package. MLB execs said operators have two weeks to retain the Extra Innings package for their subscribers -- if they agree to the same terms as DirecTV. Otherwise, DirecTV gets the package exclusively through 2014.

But dissatisfaction with baseball’s deal was never about the cost of the Extra Innings deal: Cable executives say they are willing to match DirecTV’s price for the package dollar for dollar.

It also wasn’t about DirecTV’s promise to offer more technical bells and whistles to the package: Cable executives have said the industry is willing to offer a Strike Zone channel with live cut-ins to other games, as well as real-time scores and statistics, just like DirecTV.

Let’s be clear: This whole dustup between baseball and cable boils down to the same simple issue that has plagued negotiations between content distributors and cable operators since the first cable lines were rolled out into the home more than two decades ago. Baseball wants to secure distribution on the basic analog tier for its soon-to-be-launched 24-hour channel.

And cable operators said no.

DirecTV purchased a minority interest in the Baseball Channel -- which is expected to offer vintage games, as well as live games -- and will put that network on a tier that reaches all of its 15 million subscribers. Cable has already countered by saying that it would guarantee that the baseball network would be in front of at least 15 million subscribers via $5-per-month sports tiers.

But baseball wants basic carriage from cable. The industry said it would not open an analog slot for The Baseball Channel.

In doing so, the industry is sending a very loud message to baseball, as well as any other sports league, college conference or start-up track-and-field network thinking about aggressively pushing for analog or basic cable distribution: You’ll strike out before you even get up to bat.

Cable said that same thing to ESPN several years ago before caving into fears of a subscriber revolt if it moved the very expensive sports juggernaut to a sports tier.

But times are different now. Cable operators have very limited analog bandwidth, and they’d rather allocate it to new technologies such as high-definition channels or video-on-demand programming to help sell digital subscriptions.

Operators also can’t continue to absorb pricey sports network licensing fees that range from 75 cents to $2 per subscriber, per month within its basic-cable tier. License-fee and distribution wars with ESPN left cable operators battle-weary but resolute in their desire not to lose such costly battles again with up-and-coming contenders.

Last year, much of the industry, led by Time Warner Cable and Comcast, stood firm against NFL Network when it tried to leverage an eight-game package of live football telecasts into distribution on the basic analog tier, with a 75-cent-per-subscriber fee, to boot.

Comcast instead decided to place the network on a digital-cable tier, while Time Warner and Cablevision refused to carry the network at all.

While those games generated strong ratings and a bevy of complaints from unhappy fans unable to view the games, subscribers didn’t storm Time Warner or Comcast’s offices.

It remains to be seen if the operators will stick to their guns this fall when NFL Network comes knocking again, but it sure seems like the industry is now willing to fight tooth and nail for what it believes is right for its business.

That’s not to say that new sports networks will forever be regulated to sports tiers. Regionally based sports networks such as Fox Sports’ upstart Big Ten Channel will rely on the popularity of Indiana, Ohio State and Michigan Universities to undoubtedly gain significant distribution in those states.

But networks like NFL Network and the Baseball Channel, wanting access to every household, automatically, across the country will find it much tougher going. The cable industry is saying a national sports network -- even if it’s a ratings home run with its fans -- no longer is guaranteed nationwide distribution.

Posted by Tom Umstead on March 9, 2007 | Comments (4)