Sports Costs Not Only Reason for Burgeoning Bills: Kagan

Analyst Baine Says Retrans Boosts Also Taking Toll on Cable Bottom Line
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On the same day that the Time Warner Cable/Dodgers deal became official -- the operator is reportedly is paying several hundred million dollars a year for the rights to deliver Dodgers games to its subs -- SNL Kagan analyst Derek Baine argued that sports costs are not the only reason for rising cable bills.

Baine predicts that by 2018, retrans payments cable ops pay to carry local TV stations will have ballooned to almost $5 per sub per month, or about what they pay now for ESPN, the poster-channel for escalating sports rights costs.

Baine says that, in addition, operators have been adding channels, which also adds to the cost. "The bottom line is that there are a lot more moving pieces to the typical cable bill," he noted.

The average cost of a sports channel over the last decade has increased at a compound annual growth rate (CAGR)of 3.5%, according to Baine, compared to 2.9% for all channels. CAGR is actually smaller than the average over the past five years, however, due to the launch of lower-priced nets like the NHL Network.

But he says that there is no doubt costs are growing and becoming a growing concern for cable operators. "Given the fact that we think retrans payments will double from about $2 per sub in 2012 to more than $4 per sub by 2016, there are tough times ahead," he said.