WHAT IF SPORTS RIGHTS are getting so expensive that they blow up the traditional affordable bundle of TV channels?
Every sport is demanding more cash from broadcasters, who willingly pay and who then pass those costs along to the cable/satellite/IPTV carriers, who then must pass it on to their customers, those TV-watching sports fans who just have to get their Leafs/Canucks/ManU/golf/curling/darts/skiing fix, no matter the cost.
And those costs have been leaping of late. The wholesale fees charged by TSN to Canadian carriers, for example, have more than doubled in two years (to $2.21/subscriber/month if carried on basic, according to sources, $3.04 if on a tier) and will again double by 2015. The cost to carry Rogers Sportsnet (its wholesale basic rate is $1.78, up over $1 since its regulated days), while not as high as TSN, is growing at a fast rate as well. So, some are beginning to ask, what if one day soon, consumers start to say to themselves: “Look, I don’t really watch sports all that much so why do I have to divert such a large chunk of my subscription TV bill to those channels when I really like movies, news and cooking shows? Why can’t I buy a basic TV package without all the oh-so-expensive channels shelling out mega-millions for the NHL/NBA/MLB which I don’t watch anyway?”
That day, is rapidly approaching, acknowledge many in the industry. “I believe customers will always pay for what they want and pretty soon – only what they want,” said a non-vertically integrated Canadian cable operator on the condition of anonymity, “and because of this, you will see unbundling and a huge disconnect from linear packaging… we are already seeing this with the availability of HBO series selling on iTunes at a much higher cost when compared to the cost of a traditional monthly subscription. It only makes sense that sports move in this direction as well.”
When asked to respond to that quote, Rogers Communications senior vice-president of content, David Purdy, was unfazed. “You’d find people within our building who would say the same thing,” he told Cartt.ca in an interview. While insisting his company believes there is a hard-core, as well as a broader, base of fans who will always pay for the sports content they want (which is the reason Rogers owns the Toronto Blue Jays, the Grand Slam of Curling, the Sportsnets, (and soon The Score), and part-owns the Toronto Maple Leafs, Raptors and FC and recently signed a 10-year agreement with the Vancouver Canucks for broadcast rights) Purdy added he does see a day approaching, and soon, where Canadians will be able to enjoy more choice and flexibility in their TV package choices. Our online, on demand, Netflixed and DVR’d world will see to it.
“Will (sports) be unbundled? I think you’ll see packages made available in the marketplace that appeal to economy customers, i.e. the skinny basic. I think you’ll see packages in the marketplace that appeal to older people,” explained Purdy. “Will 10 to 20% of our customers start to buy skinnier basic packages that don’t include sports? Possibly, but that will be reflected in the pricing.” Which means those who really wants sports television will have to pay more as we’re getting to the end of the era where the non-fan is made to pay to subsidize channels or content they don’t like, but are attached to a certain big package.
“There’s no doubt that one of the thrusts that is going to continue is skinnier packages and more segmented or targeted packages. You’ll continue to see that evolve,” added Purdy. Then again, “when the Jays go to the World Series and you can only get those games on Sportsnet, how many people in Toronto are really going to want to be without those games?”
As for our anonymous, non-vertically integrated cable guy, he says: “The increase in costs is unjustified given the consolidation of TSN and Rogers. They should be able to keep cost increases to a minimum given the economies afforded by VI. Having said that, it is true that content fees and licensing are outrageously expensive. If there is going to be a finger pointing session to blame either the customer for demanding it or the broadcaster/licensor for charging so much. The fees will always increase and the demands on penetration similarly.”
During Rogers Cable’s 2012 London market trial of more flexible cable packaging, one of the things the company was trying to determine was how many people wanted to dump their sports channels in exchange for cutting their bills. “The answer is not that many,” added Purdy.
However, while the TV industry doesn’t want to change things too much (cable as it exists is still a business reliably bringing in tens of billions of dollars), Rogers will soon – perhaps sometime within 12-24 months – begin to offer more flexible package options to customers, says Purdy – and even create new packages which might skip offering a traditional cable TV subscription altogether.
While “the value pack is always going to be from the traditional provider,” there are many in the younger age brackets who want content, including sports content, but who don’t want a cable set top box (because they may not have a TV). “Could we create packages that appeal to low income households or seniors, etc., and strip out some of their costs? That’s what (the London trial) was all about,” explains Purdy. “A university student package may be all broadband and mobile and have no digital (cable) or home phone (but) obviously we’ve got to negotiate with the rights holders in order to get the flexibility required to bring those to market.
“Rogers would like to have more pricing and packaging flexibility for its customers to create packages that are perhaps more targeted at specific segments of our base, “ he added.
But, when it comes to the negotiations, all content owners look to protect themselves, Purdy explained. “If you own a financial news network that is in 70% of households in Canada… do 70% of households want a financial news service? So, you’re going to do whatever you can to make sure you protect yourself on the downside risks associated with packaging flexibility. Those are the types of ongoing discussions we’re having now.”
Even our anonymous cable executive recognizes how the game is played. “The terms of the carriage, etc., are so far out of our hands it’s almost like they are running our business,” he says, “As much as I resent it, they are keeping their shareholders happy. You’ve got to respect their plays.”
Whether or not consumers will respect that for much longer is anyone’s guess.
