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TV’s luxury box

Rising fees for sports rights 'indispensable' and 'unsustainable'

Other than holiday specials and network bench-clearing of stray development, sports will dominate TV through the end of the calendar year. If this relationship is traditional, it’s also appropriate, given the inordinate control sports currently wields over TV’s ecosystem.

Two words get bandied about in the context of escalating TV rights for major sports properties: “Indispensable,” as in, “We absolutely must have that, no matter the cost”; and “Unsustainable,” as in, “If we keep paying those kinds of crazy increases, eventually this whole house of cards is going to collapse.”

At first blush, one would have to agree with the “unsustainable” camp, which includes Liberty Media’s John Malone, who told the Los Angeles Times soaring rights are “essentially a high tax on a lot of households that don’t have a lot of interest in sports.” He added that “the only way it is going to change in the short run is for government to intervene.”

Those sentiments and concerns were echoed by former Federal Communications Commission chairman Michael Powell, now the CEO of the National Cable & Telecommunications Assn., who said in a C-SPAN interview that the more than 70% hike scored by the NFL in its latest round of rights negotiations is “astonishingly insane.”

The insanity, however, is hardly limited to the NFL, even if it represents the most extreme example. Other leagues have scored massive gains when their renewal windows opened, including college football and hockey.

In addition, kerfuffles over sports fees have included skirmishes between multivideo program distributors (or MVPDs) in Los Angeles and Time Warner Cable, which is demanding rich fees for regional sports networks built around the Los Angeles Lakers. Similarly, DirecTV has been at an impasse with the Pac-12 conference over a channel dedicated to its teams.

The logic behind “unsustainable” is pretty clear. At a certain point, distributors won’t be willing or able to absorb stratospheric costs. They’ll have to pass the expense along to consumers, which could hasten the phenomenon of “cord-cutting,” where people dump their current distributor for cheaper Web connections. Some might even howl to legislators for relief, which could include seeking a la carte pricing.

Efforts to shift the burden directly to subscribers who want the extra channels might be fairer, but won’t alleviate the problem — and risk tampering with the existing model, which relies on dispersing the freight charge via contributions from all subscribers.

As for deals between networks, leagues and individual franchises, increases such as the anticipated multibillion-dollar windfall coming to the Los Angeles Dodgers could leave networks — negotiating defensively to prevent rivals from gaining a toehold — awash in red ink. Somewhere, something’s got to give.

Still, there’s also a pretty strong case to be made for “indispensable,” an argument articulated by high-powered entertainment attorney Ken Ziffren at a recent industry forum.

Simply put, sports ratings not only remain robust in the face of declining tune-in for almost everything else, but they are one of the few commodities TV viewers insist on watching live, which removes (or seriously diminishes) the impact of delayed DVR viewing.

In other words, the very forces bedeviling broadcasters right now as they scuffle with advertisers, trying to get credit for potentially zapped-through commercials, explain why televised sports enjoy such overwhelming leverage.

Finger-pointing notwithstanding, Ziffren sees the prospect of government intervention as highly unlikely, and notes networks have generally spread the hefty rights bumps over longterm deals that run into the 2020s.

Besides, as Ziffren said in an interview, “For roughly 40 years, network ratings have decreased, and CPMs (the cost advertisers pay per thousand viewers) have increased. … I’m kind of looking at sports in the same framework as the real world.”

So while the balloon might be overinflated, there’s simply nothing on the immediate horizon sharp enough to pop it any time soon.

This much appears certain: TV needs sports programming desperately, which has given team owners an enormous cushion to cover up their mistakes, greed and occasional flat-out stupidity. And for networks, the clear calculation regarding sports is that even an onerous deal is better than none at all.

For now, then, what could become unsustainable is indispensable. And until the leagues’ luck runs out, one more term applies: Enviable.

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