OPS GOT NEXT NBA Considers Cable For Out-Of -Market Game Package

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In the midst of its first-ever labor dispute, the NationalBasketball Association last week became the first professional league to offer itsout-of-market package to cable operators.

Sources familiar with the plan said the NBA contacted atleast two East Coast operators last week with the proposed subscription package of up to40 weekly regular-season games -- which, thus far, has been exclusively offered todirect-broadcast satellite services.

The unexpected move marks a major step forward for cable inits battle against DBS, although few operators have the channel capacity to take advantageof the offer.

Sources said the two unidentified systems have the optionto offer the $159 package only on a subscription basis during the 1998-99 season. Further,the league will not allow to cherry-pick contests, nor will it allow subscribers topurchase games on a game-by-game pay-per-view basis.

It is unclear whether the systems will distribute thepackage with the scheduled start of the season in November. That date, however, is injeopardy anyway: The league's owners locked out the players in July as part of theleague's ongoing labor dispute, which shows no sign of ending.

Ed Desser, president of NBA Television, said the league hasno cable deals in place, but he would not rule out the possibility of cable operatorsoffering the package soon -- maybe as early as this season. He also admitted that theleague has held discussions with MSOs about their rollout plans for digital cable, but hewould not provide further details.

"I can't predict what the timetable will be -- thatwill be as much up to the cable industry as anybody -- but clearly, there's been moreactivity by operators in rolling out [PPV channels] in various places," Desser said."We're probably closer to the time then we've been before."

Desser said cable has always been part of the league's"ongoing business strategy" to look at new technologies and "anticipatewhen they will transform themselves into commercial opportunities." The leaguestudied DBS for five years before deciding to offer its 1,000-game package to thatindustry in 1994.

"The reality is that we've been in discussions withMSOs on a periodic basis about their rollout plans for digital cable ... I don't know ifthere's a major departure from that," Desser said.

But industry observers believe that the league's ongoinglabor dispute has provided added incentive for the NBA to find alternative revenuestreams.

"They know that they'll most likely be taken to thecleaners as far as future salaries go, so they're looking for untapped revenueopportunities," one top 10 MSO executive said.

NBA League Pass is not nearly as popular or profitable asthe National Football League's out-of-market package, NFL Sunday Ticket, which generatesabout a 10 percent buy-rate. Desser would not reveal specific NBA League Pass buy-rates,but he said the league is satisfied with the results thus far.

"We view it as a niche product that's designed toappeal to a group of very hard-core fans," he said. "We're pleased with thepenetration that we receive, but we recognize that it's not for everybody."

The NBA package does have its followers, however, andDirecTv has used it as a successful marketing tool against cable. That's why the abilityto offer the package would give cable an opportunity to compete more effectively with DBSfor sports viewers.

But few operators have the channel capacity to exploit theNBA's multitude of games. With as many as eight games to distribute on a given night,operators would have to carry at least 10 to 12 PPV channels to maintain some semblance ofa movie business.

Economically, it might make sense for cable operators topre-empt some movie channels if DBS buy-rate figures for NBA League Pass were to hold upon cable -- a big "if," considering how DBS homes are predisposed to making suchpurchases.

DBS consultancy The Carmel Group estimated that the packagedraws a 5 percent buy-rate, earning $51 million in gross revenue.

The typical movie averages about a 1 percent to 2 percentmonthly buy-rate and, at $3.95 per buy, it would fall far short of NBA League Pass'revenues -- even if cable only generates slightly more than one-half of DBS' buy-rates.

"If the technological costs of delivering theprogramming aren't outrageous, I would certainly offer the games and maybe take a smallhit on my movie product," one cable PPV executive said. "We're rolling digitaltechnology out to provide more choices for consumers, and the NBA package would fit inperfectly."

But some operators said the package may not be economicallyviable enough to justify clearing so many channels. One top 10 cable operator who was notfamiliar with the NBA proposal said the splits would have to be favorable to the operatorsif it the package was to merit consideration.

"I would love to carry out-of-market games, but if Ican make more money offering NVOD [near-video-on-demand] movies or high-speed Internetservices, I would have to consider those options," the operator said.

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