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December 15, 2011
Paying a ‘Sports Tax,’ Even if You Don’t Watch
By BRIAN STELTER and AMY CHOZICK
Are you ready for some football?
You are paying for it regardless.
Although “sports” never shows up as a line item on a cable or satellite bill, American television subscribers pay, on average, about $100 a year for sports programming — no matter how many games they watch. A sizable portion goes to the National Football League, which dominates sports on television and which struck an extraordinary deal this week with the major networks — $27 billion over nine years — that most likely means the average cable bill will rise again soon.
Those spiraling costs are fraying the formerly tight bonds between the creators and distributors of television. Cable channels like ESPN that carry games are charging cable and satellite operators more money, and broadcast networks are now doing the same, demanding cash for their broadcast signals and using sports as leverage.
And higher fees are raising concerns across the industry that cable bills may be reaching the breaking point for some consumers who are short of money.
The N.F.L. contracts announced this week “will surely enrich N.F.L. owners and players just as much as it will impoverish all pay TV subscribers, particularly those who will never watch an N.F.L. game,” said Matthew M. Polka, the president of the American Cable Association, which represents small cable operators. His group wants government officials to step in and make it harder for channel owners to demand higher fees for carriage and drop the channels when operators disagree.
Publicly expressing the private sentiments of others, Greg Maffei, the chief executive of Liberty Media, recently called the monthly cost of the media empire ESPN a “tax on every American household.”
Patrick Flynn personifies the consumer challenge. He and his wife, who pay Comcast $170 a month for television, Internet and a home phone in Beaverton, Ore., are keenly aware that part of their bill benefits the sports leagues that charge networks ever-increasing amounts for the TV rights to games. Save for one regional sports channel, he said, none of them are worth it.
“For the two or three games a year that our Washington Huskies are on ESPN, we can arrange for someone else to host the party,” he said.
But there are also millions of viewers like Russell Tibbits, of Dallas, who says, “If you eliminate sports channels from cable packages, I literally would not own a TV.”
Television and league executives argue that the vast majority of viewers not only want sports, but are, like Mr. Tibbits, willing to pay to watch a favorite team. On Sunday night, about 25 million people watched the New York Giants play the Dallas Cowboys on NBC — by far the highest-rated show on television for the night, more than tripling NBC’s average audience. ESPN, which broadcasts “Monday Night Football” and floods its week with football programming, is typically found by surveys to be the most valuable cable channel among subscribers.
But ESPN is also far costlier than any other channel, earning about $4.69 a month for each cable and satellite household in the United States, according to the research firm SNL Kagan. Next year the firm expects ESPN to cross the $5 a month threshold for the first time (the next highest is TNT, at $1.16 this year). On Thursday, ESPN announced its latest rights deal, one that extends through 2024 with the N.C.A.A.
“Sports is hugely popular in America,” said Edwin M. Durso, an executive vice president for ESPN, “and I think the prices that we and others pay for programming clearly reflect that.” Mr. Durso noted, accurately, that ESPN does not set retail prices for its content. But together with siblings like ESPN2 and ESPN Classic, the ESPN networks take in about $6.50 per subscriber each month, according to SNL Kagan. Other sports channels like Fox Sports Net, N.F.L. Network and Versus, soon to be renamed the NBC Sports Network, account for at least an additional $1.50 or so.
In the last few years broadcasters like CBS and NBC have started to posture for monthly fees from cable and satellite providers, and indirectly, those fees pay for sports programming, too.
Eventually, subscribers feel the pinch; “if you look at the whole media food chain, the last guy on it is the consumer,” said David Bank, an equity research analyst at RBC Capital Markets.
To date the cable industry’s slight concessions toward the rising costs of sports have not amounted to much. Time Warner Cable offers a cheaper, smaller bundle of channels that lacks ESPN, but few have signed up. Both Time Warner and Cablevision have refused to carry the N.F.L.’s own network, citing the high cost — 81 cents a month, according to SNL Kagan — but they have been harshly criticized by sports fans for it.
Soon, though, there may be an Internet alternative — something that was heresy until recently. Distributors like Dish Network are talking to channel owners about creating virtual cable providers that would stream channels over the Internet instead of traditional cables. That would break up the bundle of channels that subscribers have grudgingly accepted for years and allow subscribers who don’t like sports to avoid paying for them.
“They’re aggressively looking for ways to offer a lower-cost package of channels without sports,” said the chief executive of one such channel owner, who insisted on anonymity because the talks were confidential. “There may be a market in America, whether it’s 10 or 20 million people, that would be very happy to have 50 or 60 channels but not ESPN.”
By streaming the channels online, old distributors like Dish or new ones like Google could do an end run around the contractual commitments and market dynamics that effectively force them to carry sports channels now. ESPN declined to comment directly on the possibility, but Mr. Durso said Thursday, “We’re happy to sell service to as many distributors as we can.”
Even if such online providers materialize, the leagues and the entrenched TV networks are now locked into lucrative contracts for the long term. Wednesday’s N.F.L. agreement doesn’t expire until the end of the 2022 season, which Brian Rolapp, N.F.L. Media’s chief operating officer, said was a “recognition that the world will change and we don’t know what it will look like.” But the networks are betting that, no matter what television becomes, it will include a lot of football.
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