"Here is a little old lady who wants to watch CNN," said Ralph Morrow, owner of Catalina Cable TV Co. in Avalon, Calif., a 1,200-subscriber system. "But I can't give it to her without $21 a month in sports."
Threatened by Internet streaming services and a fragmenting TV audience, Comcast/NBC, ESPN, Fox Sports, Turner, and CBS have agreed over the last 20 months to spend $72 billion for the TV rights to professional, Olympic, and college sports well into the next decade.
Billions of additional dollars will be paid for sports rights on about 50 regional cable networks, such as Comcast SportsNet Philadelphia, and college championship bowl games.
The total in national and regional sports rights could reach $100 billion over the next dozen years.
Some TV rights have doubled or tripled in the latest round of negotiations, disregarding the weak economy and high unemployment, as the drama of live games has eclipsed Hollywood-scripted shows, comedies, news, and movies as the most sought-after entertainment on TV.
Robert Thompson, professor of television and popular culture at Syracuse University, calls sports "a great metaphor for American life," with good guys and bad guys, winners and losers, in each game.
"You think sooner or later we will hit a saturation point, but I'm starting to think there is no saturation point," Thompson said. "People will pay for sports in their cable bill, and they will pay extra for sports."
The deals seem certain to accelerate the commercialization of college athletics - universities have been frantically realigning their conference affiliations to access new TV money - and continue to swell the salaries of pro players and enrich team owners.
$2,000 TV bill
Some TV insiders warn that the costs of television, driven by sports, will make pay TV prohibitively expensive for many consumers.
"There is no value/price relationship on sports channels," Colleen Abdoulah, chairwoman of the American Cable Association, said in a phone interview. "Shouldn't there be? As a consumer, I think that's fair."
In testimony before a Senate hearing in July, Abdoulah described the fees being paid for sports as "crazy, astronomical" and called for consumer protections.
Because of the high cost of sports channels as compared with other entertainment channels, Abdoulah believes they should be sold as premiums, like movies or HBO.
Abdoulah said programming conglomerates combine entertainment, news, and sports channels into one take-it-all bundle for TV distributors, forcing sports costs into the TV package for sports and non-sports viewers.
Dish Network's Charles Ergen, chairman of the nation's third-largest pay-TV company, spoke in August during an analysts call of the possibility of a $2,000-a-year TV bill during a conversation on higher sports costs.
Craig Moffett of Sanford C. Bernstein & Co. analyzed average per-channel costs in the TV bill and said in a September 2011 e-mail to investors that "sports easily accounts for more than half of the cost of a pay-TV subscription." Moffett used widely accepted SNL Kagan data in his analysis.
In some TV markets, Abdoulah said, sports channels account for 60 percent of the overall programming costs in the cable-TV bill because of fees for regional sports networks.
The research firm NPD Group estimated in April the national average for TV bills could soar to $200 a month by 2020 from the current $86 a month, based on all costs.
Cable channels finance sports-rights acquisitions through per-channel fees assessed on pay-TV distributors that are passed to subscribers.
Historically, the broadcast-TV networks ABC, NBC, Fox, and CBS distributed their channels free on cable- and satellite-TV systems and have been solely dependent on advertising for revenue. Now broadcast networks have gotten into the fee game, too, and are assessing pay-TV distributors per-channel fees under provisions in a 1992 federal cable law.
These "retransmission fees" are expected to amount to several billion dollars within a few years and help pay for sports and other programming, industry executives say.
Ken Solomon, chief executive officer of the independent Tennis Channel, which has battled Comcast Corp. for broader distribution on its cable-TV system, said the problem is that the sports-media business is controlled by a few big companies that own distribution systems or a portfolio of entertainment channels, or both. The companies have the leverage to force sports channels into the TV package and access subscriber fees.
The largest sports-media companies are Comcast, Disney, and Fox.
Comcast owns the nation's largest cable-TV system and controls about a dozen regional sports networks, NBC broadcast TV, and two national sports cable channels: NBC Sports Network and Golf.
"If this were an actual sporting league," Solomon said, "you would get a big fine because it's fixed and the loser is the consumer. There is no room for independents, which means there is no room for competition."
The TV business is about attracting eyeballs, and media executives say no entertainment genre does that more effectively than sports.
More than 200 million Americans watched this summer's London Olympics, and NBC's Sunday Night Football is the top-rated prime-time show this fall TV season.
Networks and cable channels can charge advertisers a premium of 15 percent to 20 percent because of the audience that watches sports, executives say.
Dozens of regional and national sports channels have been added to the general TV package over the last 15 years. The NFL, NBA, and Major League Baseball have their own channels. There are national soccer, golf, and racing channels. There are regional channels for the Yankees and Mets in New York.
The most expensive cable channel in the pay-TV bundle is ESPN, whose fees soared, on an after-inflation basis, 440 percent between 1989 and 2012, according to data from SNL Kagan. ESPN's current cost to TV distributors is $5.13 a month per home. In recent years, ESPN has leveraged its popularity so there are now multiple ESPN channels in the typical TV package, each with its own fees.
Data provided by the company showed ESPN ranked fourth among all cable channels in time people spent viewing its programs in 2011, behind Fox News, USA, and TNT.
Sean R.H. Bratches, executive vice president for sales and marketing at ESPN, said sports and other cable channels were good values in the per-hour cost of entertainment.
"We are very cognizant of the economic climate in the United States, and we hope that it improves," Bratches said, "but we continue to contend that cable is a value. . . . We believe we need to focus more on the value of the cable package rather than price."
Bratches and cable executives say consumers would pay more and receive fewer channels if channels were sold separately in the TV package.
What kind of grip do televised games have on the public? More people prefer watching sports on TV than going to a live event - by a count of 51.6 percent to 42.4 percent, according to this year's ESPN Sports Poll. Six percent were undecided.
In September, ESPN reportedly agreed to spend $15 billion for the rights to Monday Night Football through 2021. The cost to televise Monday Night Football has soared from $550 million a year between 1998 and 2005, when it was broadcast on ABC, to $1.1 billion a year between 2006 and 2013 on ESPN, to $1.9 billion a year between 2014 and 2021.
Cable- and satellite-TV companies could refuse to distribute ESPN, Bratches said. "It is a fair and open-market negotiation," he said. "There are no laws that say they have to take our product. . . . ESPN does not set cable rates."
But pay-TV companies fear the loss of subscribers if they drop ESPN - a fundamental reason, say industry executives, that ESPN can demand its level of subscriber fees and multiple channels in the TV package.
Barton Crockett, a director with Lazard Capital Markets, estimated in a 24-page research report in July that one-third of the subscribers on a TV service would switch to a new service if they lost ESPN.
Fear of Netflix, YouTube, and other new entertainment-distribution services also has helped propel sports-rights bidding among the traditional media companies, say industry insiders.
Chuck Neinas, recent interim commissioner with the Big Twelve Conference, which signed a $2.6 billion sports-rights deal over the summer with Fox and ESPN, said: "It's a live product, and it has good demographics, and they're doing these long deals because they are uncertain where technology will go next. What will Google do? They want live product in the bank."
Neil Smit, president of Comcast's cable division, said the fees for national and regional sports channels had increased 16 percent annually since 2002, based on industry averages. Comcast has sought to limit those increases on its customers, he said.
Comcast's average national customer rate increases ranged between 2.8 percent and 4.3 percent in the last two years, Smit said.
"We are clearly not passing it all to consumers," Smit said. "There is an appetite for sports and a healthy appetite for sports. Ultimately, the consumer will decide when enough is enough."
Stretching the model
Even though most of the marquee sports rights - NFL, Major League Baseball, and the Olympics - are now locked up for years, the sports-media industry is looking to grow by acquiring second-tier rights, such as European soccer and racing and the Arena Football League, and regional channels.
A partnership that includes basketball great Magic Johnson and Mark Walter of Guggenheim Partners paid a record $2.1 billion in March for the Los Angeles Dodgers baseball team in a Delaware bankruptcy auction and is reportedly considering a Dodgers-based regional sports network for Los Angeles.
A Bloomberg News story in late September said the confidential agreement between Major League Baseball and the Dodgers' new owners limited the amount of money a Dodgers channel would have to share with smaller-market MLB teams and may have elevated the value of the Dodgers franchise in the auction.
Other new networks this year include regional channels with Pacific Twelve college football games and English- and Spanish-language Lakers channels in Los Angeles.
Comcast launched a new regional channel in Houston after negotiating the rights to the Houston Rockets and Astros.
"So long as sports drives new business and as long as sports is premier programming for the American public," said Neal Pilson, former head of CBS Sports and now a consultant, "and so long as Americans continue to support it by watching it, buying the products of its sponsors, and continuing to pay their cable bills, then this escalation will continue.
"What we have here is competition unlike anything we have seen before in the sports marketplace."
Contact Bob Fernandez
at 215-854-5897, bob.fernandez@phillynews.
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