Analyst says unbundling would lead to lost cable revenue

ESPN's Mike Greenberg and Mike Golic. Experts say nonsports viewers subsidize sports channels. Getty Images, file
ESPN's Mike Greenberg and Mike Golic. Experts say nonsports viewers subsidize sports channels. Getty Images, file
Posted: July 17, 2013

ESPN would cost vastly more for sports fans, about $30 a month, if it was unbundled from the pay-TV package and sold separately only to those who wanted to watch it.

This would be five times the $6 a month that ESPN, already the most expensive cable channel, now costs as part of the big TV bundles offered by cablecasters such as Comcast. Many general-entertainment channels cost a few cents to 25 cents a month.

Those fans who would choose ESPN at the elevated price would be unlikely to purchase non-sports entertainment channels, leading to billions of dollars in lost revenue in the pay-TV industry.

That is the view of senior industry analyst Laura Martin, who released her Future of TV report on Monday.

Martin's report is the latest contribution to the public debate in Washington and within the TV industry on skyrocketing TV sports costs and what to do about them. The expense of the sports channels is driving the overall cost of monthly cable TV for customers.

In early May, Arizona Sen. John McCain proposed federal legislation that would allow TV consumers to separately purchase channels instead of big bundles of channels, in part because of sports costs. Buying separate channels, or slimmer bundles of channels, is popularly known as "a la carte." Cable pioneer John Malone also has spoken of the harmful effects of sports costs on TV subscribers.

Experts say that non-sports TV viewers are subsidizing national and regional sports channels and financing the explosion of TV sports rights fees. These fees benefit athletes, sports-team owners, and entertainment companies - though, critics say, not consumers.

The Inquirer reported earlier this year that media companies have committed themselves to paying more than $110 billion to televise sports well into the next decade, most of which will be financed through cable- and satellite-TV bills.

While sports fans would pay more to watch ESPN if it were sold separately, the price of the TV packages without sports channels should theoretically decline.

"The report underscores what economic studies have said time and time again - that the cable package presents an undeniable value and the consumer would pay more and get less with a la carte," ESPN spokeswoman Amy Phillips said.

Martin, senior analyst with Needham & Co. L.L.C. in Boston, warned of the dangers to Comcast and other pay-TV operators of unbundling ESPN.

Twenty-million pay-TV subscribers, or one in five, would choose to purchase ESPN if they had the option, Martin said. This falls below the 25 million subscribers that many national advertisers seek on pay-TV systems, so ESPN would lose substantial ad revenue.

Martin estimated that unbundling ESPN could result in $13 billion in lost revenue - of total pay-TV industry revenue of $150 billion a year - because of a cascading effect of lost advertising revenue and ESPN fans not selecting to purchase non-sports channels.

"This has to be solved, and these negotiators have to figure out how to keep [sports cable channels] in the bundle," Martin said in an interview, or the consequences will be unpleasant for the cablecasters. She admitted it was a difficult assignment.

Despite her concerns over the sports offerings, Martin's report on TV's future was rosy overall.

Pay-TV distributors such as Comcast, Time Warner Cable, and DirecTV "are fighting for their life" to maintain the TV platform, which is their core business, Martin said.

Online or search-engine companies, such as Google, view video as one of several revenue streams and do not devote the same attention and financial resources to it, she said.


Contact Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com or follow on Twitter @bobfernandez1.

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