The Atlantic Wire's Rebecca Greenfield wrote glowingly on Monday about two cable providers in the Gulf Coast region who "refuse" to carry CSN Houston because it's so expensive. CSN Houston is asking for $3.40 per subscriber. (Greenfield's piece is spurred by a Wall Street Journal piece with the not-at-all naive headline "Cable Providers Revolt Over Sports Costs." So cute.) Greenfield:
Both DirectTV and AT&T have refused to carry CSN Houston -- the exclusive network of the Astros and Rockets -- because they say $3.40 a month per subscriber doesn't match the demand of its subscriber base. "We'd like to make the channel available to our customers, but the proposed cost is not fair to pass to all of our customers across Texas, Oklahoma, Louisiana and Arkansas, especially based upon our subscribers' historical lack of viewership of Rockets and Astros games," AT&T said in a statement.
Already, that's a huge step toward a more affordable future in cableland. Demand for live sports has kept cable bills high and bundled because sports is the most reliable source of viewers. At least that's the theory the likes of ESPN have peddled while charging the egregious prices that cable networks force on their customers.
"A huge step toward a more affordable future in cableland," or a naked, oft-used negotiating tactic designed primarily to get AT&T and DirectTV subscribers to plead with Comcast SportsNet to drop its price so they don't miss a single minute of the Dwight Howard era? You decide!
These battles are becoming legion in cableland, with the Disney (ESPN, ABC, etc.) vs. Time Warner Cable war of 2010 standing out as particularly shrill. In all cases, you have massive, profitable companies negotiating in public, using the emotions of the sports-lovin' viewer as a chip. It's pretty gross. Broadcasters like ESPN and CSN Houston can try to pad the price of subscriptions because they know fans will scream without their sports, and may even switch providers to a company who will pay the $3.40 a pop. Cable providers know that turning customers against the money-hungry sports broadcaster will probably result in a deal for a smaller subscriber fee. (If AT&T and DirecTV can knock 20 cents off CSN Houston's price, this whole ordeal will have been a monetary success.) This is very public, very self-interested negotiating, not some altruistic stand against rising prices by companies who would love nothing more than to take more money from customers.
Why do the cable companies want to keep subscriber costs down? Because many customers are locked into rates for multiple years, so any increase in the cost of providing service will be born for the provider in those cases. For untethered customers, the provider faces having to increase rates to pay for the more costly subscriptions without taking all that profit for itself. (If you raise rates $10 but you have to give $8 of that to the broadcasters, that's worse than raising rates $10 and giving up only $4.) Profit is the driver.
AT&T and DirectTV refused to release the actual numbers (quelle surprise -- TZ), but Nielsen data says the TV audience for sports makes up 4 percent or less of households. And, local sports do even worse, with less than 3 percent of TV owning households tuning in to watch their home teams play. All of this despite making up around 20 percent of the entire cable bill. It's no wonder neither of these pay TV providers wants it.
Also, sports is one of the final relics of appointment television. A Disney executive said last year that 99.4 percent of broadcasted sporting events are watched live. That figure is 71 percent for all of television, according to a recent study by Motorola. So advertisers can spend their money on a spot that 29 percent of viewers will have the opportunity to fast-forward through, or they can spend their money on a spot that 0.6 percent of viewers can zip through. Tough choice.
That reality and the speed at which traditional TV viewing is changing while sports TV viewing stays remarkably the same in terms of time-shift creates a situation where sports broadcasts are far more valuable than their viewer share lets on. You could argue that the money earned by sports broadcasts subsidizes the rest of the networks on your cable bill. That's basically how it works for Disney: ESPN is by far the most profitable, highest-revenue network in the company's diverse, massive stable.
Sports leagues aren't stupid, and NBA teams in particular have been vigilant about capitalizing on the new TV reality as deals come up for negotiation. Comcast has been wildly successful carrying live sports on regional sports networks, so it's willing to pay high prices to get teams' local rights. Advertising off those games will provide a healthy margin. The company has decided that in and around Houston, charging subscribers $3.40 for access to live broadcasts of the games is what it will ask. If AT&T, DirecTV and any other providers refuse to pass that cost on, well Comcast has a solution for that: its own cable service. And I bet Comcast will be willing to tell Rockets fans all about that option when Dwight Howard's debut approaches.
This isn't about protecting customers from higher bills, as Greenfield argues. It's a fight over who gets to pocket what share of Rockets fans' money.
Cable providers and broadcasters engage like this for the same exact reason sports league and players' unions battle in the public eye: to get better negotiating positions. The best thing we can do as fans is dispassionately assess the cases, and not panic, and push for a la carte TV or team-based broadcast subscription options.
Disclosure: Comcast is an investor in SB Nation through its parent company, Vox Media. Comcast SportsNet and SB Nation also have a content-sharing relationship. No one from Comcast was consulted for or involved in the production of this piece, and the author has no direct relationship with anyone from Comcast SportsNet. All companies mentioned in this story have been Vox Media sponsors. The author is a hermit and didn't consult with them, either. The opinions are solely those of the author.