Partnership predicated on notion that the market for sports channels isn't saturated
By partnering to launch a new regional cable network in an overflowing market rather than making a straightforward rights deal, the Los Angeles Dodgers and Time Warner Cable have doubled down on their belief that skyrocketing revenues in the sports TV world are anything but a bubble.
The Dodgers could have simply sold their post-2013 cable rights to Time Warner Cable Sports Net’s English and Spanish components — joining a pair of networks that only launched less than four months ago — or to current host Fox Sports Net. Either way, the Dodgers could have counted on getting $6 billion or more over the next 20-25 years (triple the price that Guggenheim Partners paid for the entire team in March), with no need to worry about the future health of sports TV revenue.
For its part, Time Warner Cable could have said that two new networks were enough and held fast against launching any more into a market that some believe has plenty, thank you.
Instead, according to sources commenting on a deal that has yet to be officially announced, the Dodgers will draw a still healthy commitment from Time Warner Cable that comes with the heightened risk/reward scenario of an ownership stake.
Ratings, after all, on the existing RSNs aren’t particularly high in Los Angeles. The Dodgers averaged a 1.94 household rating on Fox Sports Prime Ticket last year, which translates to barely 100,000 homes per game. (The Lakers perform better even amid the current losing season.)
Can live games stave off erosion?
Nevertheless, live sports have become an attractive lifeboat in a smallscreen world whose viewers are increasingly DVR users who fast-forward through commercials, as well as the threat of cord-cutting (though there’s great debate of its severity). The Dodgers-Time Warner Cable Sports deal is the latest in a series of “Can you top this?” local and national rights deals demonstrating the industry’s willingness to bet that live sports will remain attractive.
An unrelated factor in the Dodgers’ decision to co-own rather than sell is the unceremonious exit of previous Dodger owner Frank McCourt via a settlement that gives federal bankruptcy court control over how the franchise’s TV revenue is distributed to Major League Baseball.
MLB and the Dodgers agreed that the team’s annual TV rights would be valued initially at $84 million (with 4% increases each year), approximately a third of which the Dodgers would have to contribute to MLB’s revenue-sharing program, according to the Los Angeles Times. With the Dodgers taking on the risk of ownership, MLB would allow the team to reduce its revenue-sharing portion.
Nevertheless, the long-term financial success of the new venture would still depend upon a continued increase in the value of the Dodgers on TV.
Content distributors and their consumers will aim to have their say about that. Time Warner Cable Sports Net launched roughly 20 months after the deal with the Lakers was made in February 2011, a timetable that will be accelerated to get the new Dodger network ready in time for the 2014 baseball season. Negotiations for carriage deals figure to go to the last minute — if not past the last minute.
DirecTV, the leading provider in the local market aside from TW Cable, made its deal to carry Time Warner Cable Sports Net days before the first regular-season broadcast on the network and still has not contracted to carry the Pac-12 Networks that launched last summer. Dish Network hasn’t signed to carry Time Warner Cable Sports Net.
Digital means every day is game day
Another looming issue for sports networks and the teams they broadcast will be the availability of live online telecasts of MLB games, which currently are blocked in the local market. While teams have control of their local cable TV rights, digital broadcast revenue is centralized with Major League Baseball Advanced Media.
In the coming years, demand will rise for a TV Everywhere-like approach to baseball broadcasts that allows viewers to see games in the medium they prefer. How that will affect revenue — and the distribution of that revenue — remains to be seen.
As for Fox Sports, it will press on with its two Los Angeles-based RSNs, which in rapid succession have lost the Lakers, the bulk of Pacific 12 Conference sports and, effective in October, the Dodgers. Initially, speculation was that Fox would consolidate its remaining showcases — the Clippers and Ducks (Prime Ticket) and Angels and Kings (Fox Sports West) — onto a single network, but in another testament to the faith in televised sports, Fox’s belief is that the current offerings are enough to sustain dual networks.
An analogy can be made with the Madison Square Garden nets in New York, which have the NBA’s Knicks and three NHL teams but no baseball yet still pull reported $5-plus subscription fees. Fees in Los Angeles aren’t as high but figure to remain significant, even assuming carriers push back against costs amid the reduced content.
Fox also retains an ample involvement in baseball from its national TV contract (extended in September through 2021) and its various pieces of the RSN pie across the country. In November, Fox parent News Corp. acquired a 49% stake in YES, which features the New York Yankees and the NBA’s Brooklyn Nets, with an option to bring its ownership stake to 80% after three years.