Media Business Strategies

The Blog of David Polakoff

Archive for January, 2012

Occupy Cable Television

Posted by David Polakoff on January 3, 2012

The Windmills of My Immediate Mind

Media Business Strategies – David Polakoff

“Occupy Cable Television”

The Sport of Television Sports Economics is Ripe for Consumer Protest

While consumers just successfully pulled an Occupy Verizon Wireless, forcing Verizon Wireless to retreat from a plan to charge certain customers $2 to pay bills over the phone (similar to how consumers forced Netflix to retreat from splitting into separate streaming and DVD businesses; or Bank of America from charging a $5 monthly debit card fee), it is inconceivable to me why there are not Occupy Time Warner Cable and Occupy MSG Network movements.  But if ever there was a Berlin Wall, Arab Spring, Occupy Wall Street moment for cable, this is it.

As invaluable as sports programming is to its stakeholders, there is a point where value and economic consequence travels out of bounds.  To the non-sports stakeholder especially, being saddled with sports programming costs is financially intolerant and also an inhibiting factor to alternative spending on preferred media consumption and even on the demands of ordinary living.  Through the evolution of technology and consumer habits and by the design of marketers, media consumers are increasingly active, except when it comes to challenging the rising costs of cable content, driven largely by sports content.  The tipping point is really now.

The Occupy Wall Street movement, and its outgrowths, highlights the power of new personal communication tools and a reminder that people demand a voice in every aspect which impacts their living.  Burdens on everyday living have outstretched peoples’ patience and inertia.  Combining new tools and the (old as civilization) power of the voice of the people enables consumers with amazing opportunities while raising game changing challenges to the corporate ears they reach.  Unlike passively watching a cablecast tennis match, the latest cable provider vs. cable programmer feud (Time Warner Cable and the MSG Sports Network) begs for consumers to rise up and initiate an Occupy Cable Television movement.

Most of what I learned about economic theory is out of bounds when it comes to the sporting world.  While there are many factors that put sports on its own economic playing field, the television contracts element is the current focus.  The NFL just signed a nine year contract extension with ABC, CBS, and Fox, which reportedly calls for 7% annual increases in already exorbitant rights fees.  Now, MSG, covering the New York area (the NBA’s New York Knicks and WNBA’s Liberty; the NHL’s New York Rangers and Islanders, New Jersey Devils and Buffalo Sabres; and MLS’ Red Bulls), reportedly wants a 53% increase in carriage fees.  Time Warner Cable is reportedly willing to grant a much more modest increase and as a result in the impasse, pulled the service at the end of 2011.

Sports and non-sports fans ultimately underwrite sports via their patronage of corporate sponsors and advertisers across multi-platforms.  The impact on an individual consumer, though, is scaled across many customers of banks, athletic shoes, and beverages, and is thus modestly or negligibly a concern.  Cable (euphemistic for cable, satellite and telco providers) customers, though are disproportionately burdened by the total impact of sports programming within all of: general entertainment channels (broadcast networks’ retransmission fees; Spike, TBS and TNT, USA Network, etc.) regional networks (in New York:  MSG, SNY, YES, etc.) national sports networks (CBS Sports Network, ESPN, Fox Sports Net, and NBC Sports Network [fka., Versus], Speed, etc.), and to some extent, the league owned channels.  The regional and national sports networks (and league networks) charge cable providers per subscriber, monthly fees that well exceed most other (non-premium) channels.  Consumers have really no choice but to have these channels included in their programming packages in order to receive other, more ubiquitous channels.  While cable providers have been less willing to bear sports related price increases, because they know the impact to consumers, the real/perceived popularity of these channels puts them over a barrel in negotiations.  I have previously cheered the cable providers in these efforts to fight on the consumers’ behalf (see Cable Knit).

While cable providers and cable channels desperately hang on to their traditional business models and while sports teams and leagues march down the field with great arrogance and disdain for the wallets of their fans,  it is time for the fan and the non-fan consumer “ cable hostages” to speak up and truly become  interactive television participants.  Cable consumers need to raise voices to cable providers, the programmers, the teams, and the leagues and indicate that there are no more fouls to give; it is time for rational economics to bear force.  If consumers were to demand that sports programming be set as à la carte services (like premium movie channels), the sports channels subscriber base would decrease, the cost per channel would increase, and advertisers reaching fewer eyeballs would demand lower ad rates – The impact would put the sports business in a more realistic and sustainable business model (translation – athletes’ salaries drop from the stratosphere).  Consumers would see welcome traditional media economic relief to fuel their new media consumption demands and options.  New consumer, media company, and sports team/league opportunities would arise from the changed business model, just as has been the experience for other transformed traditional media formats.

With some irony, the lack of cable television access to MSG has been a laboratory experiment for me, as I’ve sought alternative media offerings to satisfy the MSG void.  In essence, the test case of cord cutting (see also Cut the Cake…I Mean Cord) has been facilitated by MSG Network and Time Warner Cable; and so far, so good.

The cable television model is holding back a flood of media consumption change nicely and hopes to do so long enough until it can replicate its hearty existing cash flow models via the next wave of technology and means of consumer payments for content.  The ball can be more in the consumers’ court, and should be. Now that it’s cold outside, the Occupy Wall Street style of consumer advocacy should be seizing a day to not be in the court, but be on the court.

                                                                                                                                                                          

Media Business Strategies is the blog/website of David Polakoff, a New York based, Media & Entertainment Industry Financial Executive.

David Polakoff’s media/entertainment industry experience and expertise results from his tenures in senior financial and development roles with Ernst & Young, HBO/Time Warner, Granada America/itv plc, and independent consulting.  Currently, David provides financial, operational, and strategic services to media/entertainment companies.  Read more in About.

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