Tag: Netflix

Is There a Sports TV Rights Bubble? – Part 1: Why It’s Not as Simple as A La Carte Pricing

On By Frank the TankIn Big Ten, College Basketball, College Football, Major League Baseball, NBA Basketball, NFL Football, NHL Hockey, Sports868 Comments

(Note: In case you’ve missed it, I had Q&A with Burnt Orange Nation on conference realignment with a Big 12 and Texas focus last week. Here are parts 1, 2 and 3.)

One of the major topics that has been on my list to address this summer is whether there is a sports TV rights bubble, which has turned out to be prescient with a recent blog post from Patrick Hruby at Sports on Earth and a front page article in today’s Wall Street Journal (subscription required) addressing the subject. Both pieces are well-written and informative and generally come to the conclusion that sports TV rights are heading upward in a bubble-like manner. Hruby provides a lot of background on the cable subscription model that is funneling massive amounts of revenue towards sports while pointing out the risk of that collapsing with more people “cutting the chord” to reduce costs and the rise of Internet streaming options, such as Netflix, Amazon and Hulu. Meanwhile, the Wall Street Journal looks at the sports rights fees situation from the perspective of the cable operators themselves that are dealing with the rapidly rising costs of sports networks (particularly new regional sports networks). These stories play into the broader increasing calls for a la carte pricing for cable (meaning that a subscriber would purchase only the channels that he or she wants as opposed to paying for large packages). I’ve written previously about why sports have been increasingly and disproportionately valuable compared to other types of programming since they are watched live and, as a result, viewers will watch commercials in a way that they no longer do with other types of shows that they watch on their DVRs or online streaming sites. That’s generally common knowledge at this point. However, here are a few thoughts on some items that I believe a lot of “sports rights skeptics” are glossing over:

(1) The values of sports TV rights overall have never, EVER dropped – While past returns are not a guarantee of future success, as any financial adviser in CYA mode will tell you, we’ve seen the “We’re in the middle of a sports TV rights bubble!” story on a consistent basis ever since the 1980s, yet they have never dropped overall. Deadspin had a great comparison of quotes from “bubble” articles from 1989 and 2013 and you could hardly tell when either one was written. Now, certain properties might not have enjoyed the same increase in rights as others (see the Oympics, where NBC actually is paying about the same or even less on an inflation-adjusted basis for the 2016, 2018 and 2020 games as it did for the other Games that it has broadcast during this century), but the marquee sports properties (NFL, NBA, Major League Baseball and power conference college football) have been rising in an unfettered manner for nearly four decades straight. Once again, that doesn’t mean that this will continue on in perpetuity, but on the flip side, it’s simple-minded of observers to argue that the rapidly rising sports rights fees being paid out today must indicate a bubble.

(2) Bundling is the real culprit of rising cable prices – I appreciate Hruby spending a quite a bit of time on the bundling aspect of the cable subscription model, which I believe is a larger cause of increased cable prices more than anything. A lot of sports TV rights critics love to point out that ESPN is receiving $5.00 per subscriber per month from every cable household in America, whether they watch it or not, but that isn’t necessarily an unfair deal considering how much high value sports programming that it provides. There’s a fairly substantial segment of the population that wouldn’t bother subscribing to cable at all without access to ESPN, so it behooves any cable operator to pay whatever price it takes to keep the Worldwide Leader on the air. However, when ESPN’s parent Disney uses that leverage to force cable operators to buy 10 or 20 other commonly-owned channels to have any access to ESPN at all, that’s where you truly see large scale increases on your cable bill. Turner, Fox, Viacom, Comcast (which is both a cable network owner and a cable operator) and other cable network companies take the same tact, where they will only allow operators to carry their most popular channels, such as TBS, TNT, FX, MTV and USA, if they pay for larger bundles of channels that might not otherwise survive in the marketplace on their own. To me, bundling is the real market inefficiency right now when it comes to cable pricing: cable operators are being forced to give money and channel space to a whole host of channels simply to have access to the most popular ones that have common parents. This is distinct from the individual consumer-based complaint of not being able to pick and choose individual channels on an a la carte basis, which is something that I don’t believe would ever legitimately fly. Americans definitely like the idea of a la carte pricing (after all, it’s “un-American” to have to pay for channels that you’re not watching), but their actions show that they would still rather have all-you-can-eat buffet pricing.

(3) Netflix and other streaming websites are all-you-can-eat buffets just like cable (as opposed to being a la carte) – Further to the last point, we’re seeing a rapid rise in the popularity of Netflix-style on-demand streaming. While a lot of cable detractors point to the popularity of streaming as an indicator that support for a la carte is gaining traction, it’s really the opposite. Think of what Netflix (or Amazon or Hulu) actually does for the consumer: it aggregates content from a whole slew of providers and provides an all-you-can-eat (as opposed to pay-per-view or a la carte) price to access such content. I can’t only ask and pay for the Disney shows being streamed on Netflix any more than I can try to get only the Disney-owned cable channels from DirecTV. The entire value proposition of these streaming sites is you can get an entire universe of shows from a whole variety of sources (including Netflix itself with its in-house productions like House of Cards and the resurrection of Arrested Development), which is much different than a la carte pricing (where you receive a limited set of programs from a single source). In fact, the main reason why Hulu was formed in the first place was that the major TV networks were failing to gain traction with streaming their shows on their own respective websites. Consumers ultimately wanted to go to one place online to watch all of their favorite TV shows, which is an Internet mirror of the experience of turning on the TV and flipping through the channels with a remote.

By the same token, the business model of The Asylum, which is the B-movie studio that produced last week’s Twitter-fueled SyFy sensation Sharknado!, is actually based upon producing as much inexpensive filler content as Netflix desires. Seriously – Netflix explicitly asks the studio to produce cheap and terrible movies in order to create the perception that the website has a vast library of content. From the linked Pacific Standard article (which I highly recommend reading in its entirety):

At surviving brick-and-mortar stores like H. Perry Horton’s, renters gravitate toward the big-studio releases shelved at eye level. But on Netflix, “You click through and see all the titles—new Hollywood releases mixed in with direct-to-video,” Davis says, all crammed into a grid of thumbnail posters. Filtering in low-budget films with the high-budget versions “fuels this perception that there’s a wealth of new content.” And in the endlessly filterable world of Netflix, where your preferences are sorted into hyper-specific genres, a full page of results for horror films with nightmare-vacation plotlines makes you feel like Netflix is tailoring its product just for you. “The bottom line is that it’s there, and you saw it,” [DePaul University assistant professor Blair] Davis says—even if you didn’t actually watch it.

Much like the vast number of cable channels that people are paying for but never watch, Netflix is providing a ton of movie titles that subscribers are also paying for and never watching. Sounds like basic cable, no? Netflix is simply a horse of a different color when compared to cable – the underlying buffet approach of providing lots of content that you’ll never end up watching is the same with only the delivery system (Internet instead of cable or satellite) being different. Of course, $9.99 per month for Netflix streaming is a helluva less daunting than paying $100 or more per month for cable service, so it’s easy to see why it has gotten so much traction so quickly.*

(* If you have young children like I do, Netflix streaming is right next to food, water and shelter on Maslow’s hierarchy of needs at this point. There are still a lot of limitations on the movie and TV show offerings on Netflix streaming right now, but the suite of children’s programming makes it indispensable to parents.)

So, Netflix and the like might very well encroach upon the territory of cable operators, but the point is that no one should mistake the rise of streaming with a desire for a la carte pricing. The likelihood of most Americans having the desire or tolerance to try to choose a customized lineup of channels on an a la carte basis is fairly small. Besides, the economic underpinnings of the cable industry mean that a la carte pricing would likely kill all but a handful of the most popular cable channels (i.e. only the basic cable lineup from circa 1990 would survive), which destroys the overall desirability of a la carte in the long-term. Instead, what people really want is the same type of buffet access to content at a lower price point, whether it’s via cable or the Internet.

(4) Sports streaming is inherently different than movie and TV show streaming – The rise of streaming websites is undeniable and flattening the content distribution universe. However, what I think a lot of observers miss is that the desire to stream movies and TV shows is inherently different than streaming sports. Specifically, the single biggest attraction for streaming movies and TV shows is that it’s on-demand: a viewer can watch the content whenever and wherever he or she wants.

Now, the “wherever” component still applies to streaming sports, as you can use the Internet to watch games on your tablet or smartphone. That’s huge for convenience for any sports fan that’s away from home. Yet, a key distinction is that the “whenever” advantage of streaming doesn’t apply to sports. While many people have made the connection that fans generally watch sports live, which in turn makes them attractive to TV networks since that means that such fans are much more likely to watch advertising (thereby increasing revenue all around), they seem to have a blind spot that this is a large deterrent to a mass movement to watching sports online. The typical sports fan doesn’t have a preternatural need to watch a replay of an NFL game on Tuesday where the outcome has already been determined – the entire value of sports is that there are a lot of people that want to watch the exact same event at the exact same time. That happens to be exactly what television has done (and probably will always do) better than the Internet.

In essence, the convenience of streaming sports is primarily based on mobility, whereas the value from streaming movies and TV shows is based on both mobility and time-shifting ability. While a broad sports streaming platform like ESPN3 could turn into a “Netflix of Sports” (if it hasn’t already), it isn’t clear that it could ever really be a more desirable option for the standard run-of-the-mill sitting-at-home-on-the-couch viewer compared to live television in the way that Netflix/Amazon/Hulu can very much be the preferred vehicle for such viewer simply because on-demand viewing is such a game changer for movies and TV shows compared to sports.

Of course, that’s not to say that sports entities are going to be in the clear and enjoy massive media rights profits forever. In my next piece, I’ll take a look at some factors that are dangerous to sports leagues and teams that not even the “sports rights skeptics” are paying much attention to right now and could kill the proverbial golden goose.

(Follow Frank the Tank’s Slant on Twitter @frankthetank111 and Facebook)

(Image from Apple Insider)

No Split for You! Netflix, Qwikster and the Big East

On By Frank the TankIn Big East, College Basketball, College Football, Sports681 Comments

There’s a general assumption by much of the public that the dominant force of home entertainment in the future will be video streaming.  Whether it’s viewing TV shows via the Internet instead of cable or picking out movies for the evening, streaming enables immediate access to content with video quality that is continuously improving.  Thus, many investors earlier this year were pushing Netflix to move away from its cash cow DVD plan business and instead emphasize its streaming service.  In fact, a popular view on Wall Street seemed to be that Netflix’s largest problem was that too many people were still using the DVD-by-mail service that had made the company so dominant in the first place.  So, the opening salvo was when Netflix separated its DVD and streaming plans with higher prices (with the intended effect being that subscribers would choose dropping the DVD plan).  That move was about as popular as Santa Claus at an Eagles game.  Still, Netflix pressed on by subsequently announcing that it would completely split off its DVD business into a separate company called Qwikster, which would force customers to create different accounts for each service.  The public immediately vomited all over this plan and the investors that were pushing Netflix to go full bore into streaming started crushing the company’s stock price.  Finally, Netflix ended up issuing a mea culpa yesterday and reversed its decision to split the two sides of the business.  A firm that had built one of the most loyal customer bases through word-of-mouth over the past decade effectively wiped out all of its goodwill reserves within a couple of months.

The problem with Netflix is that even though it pushed streaming as the future, its streaming content isn’t satisfactory in the present.  There’s only a fraction of the number of movies and TV shows available on the streaming service compared to the regular DVD-by-mail, particularly new releases.  As a result, consumers that once saw Netflix as a good deal started thinking that it wasn’t providing great value any longer.  At the same time, Netflix customers (including me) have generally been perplexed as to why improvements in streaming and the use of DVDs need to be mutually exclusive.  (To be sure, my 2-year twins use the Netflix app on our iPad all of the time to stream Sesame Street and the abominable Spanglish of Dora the Exploer, so there’s certainly a convenience factor for me personally.  It’s also a testament to the late Steve Jobs that he created such intuitive products that my kids were able to figure out how to use our iPad and iPhones by the time they were about 16 months old.)  Netflix gave the public a message that the DVD service was holding the streaming service back, but the reality is that one has little to do with the other.  Instead, Netflix’s issue is that the streaming content still needs a ton of improvements regardless of the state of the DVD business and, more importantly, the service faces paying skyrocketing streaming rights fees to and direct competition from the movie and TV studios themselves (such as Hulu).

The Big East is the Netflix of the college sports world.  It has a product (basketball) that completely built the conference and is still regarded across the nation as high quality.  However, the conference knows that its weaker product (football) is the revenue driver of the future.  The problem is that improving the football product isn’t that simple and really has little to do with basketball.  A lot of Big East football fans would tell you that the basketball side of the conference has been holding the football side back and that’s the reason why schools like Syracuse and Pitt ended up leaving for the ACC.  Therefore, the argument goes, the Big East would be served best by the football members splitting from the rest of the conference.  However, this is a straw man argument similar to Netflix claiming that it needed to get rid of its DVD business in order to build its streaming business.  Just because the Big East was excellent in basketball didn’t mean it caused any type of problem for its football league.  If anything, the only reason why Big East football gets any ESPN coverage at all is its ties to the basketball side.  The Big East’s football problems have been with the performance of its football programs themselves and a lack of a national brand name ever since Miami left for the ACC in 2003.  In fact, the Big East football league was born with two left feet since it never had the one school that really mattered on the East Coast: Penn State.

Ultimately, the Big East’s presidents know this, which is why they haven’t been exactly quick to add on new football schools willy-nilly even with its league under attack and aren’t even considering a split from the Catholic members.  With the Big East basketball TV contract already larger than the football TV contract (both in total amounts and on a per school basis), keeping the top basketball brand names and large markets is now more important for the whoever remains in the conference than ever (even if a lot of Big East football fans are now even more vehement in pushing for a split).

Switching to the Big 12 expansion drama for a moment (as it has a great impact on what the Big East will end up doing), I won’t believe that BYU isn’t joining the Big 12 until that league expands to 12 schools again without them.  Put me in the tin foil hat category of thinking that the reason why BYU has supposedly “fallen off the Big 12 list” according to a number of reports is that DeLoss Dodds and company is trying to put public pressure on the Provo school by getting their alums all riled up.  It appears the major sticking points are TV rights issues with BYUtv, which believe it or not actually receives more rights to broadcasts and rebroadcasts than the Longhorn Network.  However, this all seems to be resolvable by both parties.  If BYU turns down a Big 12 invite because of reruns of football games, then the LDS leaders are on LSD.  BYU makes complete sense as school #10 in the Big 12 if and when Missouri leaves for the SEC.

Therefore, let’s assume for the moment that the Big East retains all of its remaining 6 football members, including but not limited to Louisville and West Virginia.  With the news that the Big East now wants to go up to 12 football schools (although I wouldn’t be surprised at all if it stayed at 10), it obviously begs the question about who the league should add.  These seem to be the main tiers of candidates that the Big East is looking at:

(1) Service Academies (Navy, Air Force, Army) – By all accounts, Navy, Air Force and Army are the top priorities for the Big East as football members.  As I’ve mentioned previously, adding these schools would be a smart move because I believe that none of the other AQ conferences are going to remove AQ status from a league that has all 3 service academies (or even just two of them).  The academies have great brand names, traveling fan bases and political protection.  Of course, that’s also why they’re going to be hard to get and it’s not a guarantee that the Big East can add any of them.

(2) Classic BCS Buster (Boise State) – It warms my heart that my Big Country Conference dream of a football-only league combining the Big East with the top non-AQ schools from the west is starting to seem plausible with the Providence crowd looking to add Boise State.  (The schools in that original Big Country Conference post will need to change, but the concept remains the same.)  Boise State is in a bind since the Pac-12 will never accept it due to academic and cultural reasons while the Big 12 doesn’t seem to be seriously interested, either.  Meanwhile, the Big East is seeking to strengthen its AQ credentials as much as possible (even though I personally don’t believe the league’s bid is truly in danger of being taken away after 2013, which is when the current BCS cycle concludes).  Thus, the only BCS option for Boise State appears to be the Big East and the Big East’s best option to add some national cache seems to be Boise State, which looks like a horrific geographic fit on paper but really isn’t that bad if it’s a football-only membership.  Football really isn’t the killer on travel costs since it’s only a handful of trips every year – it’s the non-football schools that bear the brunt of travel issues.  Let’s say that the Big East adds Air Force as a football-only member and a couple of Texas-based schools (which will be discussed in a moment) to create a western division.  That cuts down the geographic concerns of Boise State a bit further for football and the school could look to place its other sports in the WCC or WAC.  Karl Benson, the WAC commissioner, has already stated that he’d be open to discussing a non-football arrangement for the former full member Broncos.  This seems like a long-shot for the Big East, but Boise State would be the one potential addition that would truly move the needle nationally, so John Marinatto needs to try it.

(3) Inside the Footprint (Central Florida, Temple) – Most conferences are looking for new markets when considering expansion candidates.  However, the Big East is a bit different because it’s never had an issue with markets themselves, but rather the lack of the ability to deliver such markets.  Therefore, the Big East doesn’t (or at least shouldn’t) have the same issues with potentially “double dipping” in many of its home markets since the conference may need to do so in order to even hope to deliver them.  Enter UCF and Temple, which by a number of accounts appear to be the two most likely and immediate all-sports additions to the Big East as the interest seems to be reciprocal between the schools and the league.

In the case of UCF, it’s a massive school in a football recruiting stronghold that would prevent South Florida from being a complete geographic outlier in the conference.  Personally, I see UCF’s ceiling as basically being another version of USF.  I’ll always be skeptical that either of those schools can breakthrough in one of the most competitive college football fan markets in the country with the presence of Florida and Florida State casting overwhelming shadows along with Miami (who I believe a lot of conference realignment observers seem to be mistakenly underrating in terms of long-term staying power) not too far away.  However, the Big East is going to have a tough time to find any school that’s going to be considered #1 or even #2 in any market of substantial size, anyway, so doubling down on the Florida market is a fairly reasonable approach.

For Temple, it’s a matter of location, location, location.  The Philadelphia market is obviously an attraction on paper and, maybe more importantly, it’s virtually impossible to position yourself as a Northeastern football conference without at least some presence in the state of Pennsylvania (which has gone out the door with Pitt to the ACC for the time being).  Temple has made a ton of strides with the financial support of its football program since it was ousted as a football-only member of the Big East several years ago and has a lot of basketball tradition.  At the same time, the objections that Villanova have had (and may still have) to Temple entering as an all-sports member are likely going to go be the wayside (or at least ignored by the other Big East members) when the very survival of the conference itself is in jeopardy.  I’m someone that really respects Villanova as an institution (great academics with a marquee basketball program), but the school has had chances to jump up to AQ status for football that around 60 other football programs would KILL for yet they’ve never grabbed the proverbial bull by horns.  It has always seemed that Villanova considering a move up from Division I-AA status to Division I-A was simply about protecting its basketball program as opposed to actually investing in football, so now the school is going to have to live with the long-term consequences of its slow actions by probably having to let in (or maybe more appropriately, be forced to live with) a direct competitor for all sports in its own backyard.

(4) Yellow Roses of the Big East (SMU, Houston) – If Boise State and/or Army don’t end up joining the Big East as football-only members, then I expect SMU and Houston to be next on the list as potential all-sports candidates.  I’ve really been warming up to SMU lately despite its taint of Craig James, as it’s a great academic school in a top-tier market.  If the Big East basically believes all of the C-USA candidates are effectively on the same tier of quality (and I think that’s essentially what the league is thinking), then SMU starts looking pretty attractive as an overall institution.  As a school, there are a lot of similarities there to the former Big East member that never played a Big East game TCU (albeit not with the same recent football success).  Houston doesn’t bring in great academics (which is a mark against them), but fits the urban profile of the rest of the Big East as a similar school as Louisville, Cincinnati, USF and potential member USF along with bringing in another large market and recruiting territory.  It also helps that Houston has been fairly competent on the football field lately and can point to excellent tradition in basketball.

(5) So You’re Telling Me There’s a Chance (East Carolina, Memphis) – Speaking to a lot of Big East football fans, it seems that East Carolina is a common “people’s choice” as an expansion candidate.  It makes sense on some levels as it’s a program that has fairly strong attendance and fan support for a non-AQ school as well as being unequivocal in its desire to join the Big East.  However, I get the impression that the Big East looks at East Carolina in the same manner that the SEC looks at West Virginia: despite a geographic fit and solid fan base, those factors aren’t enough to overcome what’s perceived to be a small market (unlike a national name like Nebraska or Boise State).  East Carolina is arguably the best pure football school on paper out of the Big East candidates besides Boise State, but the Pirates aren’t so far ahead of the other C-USA candidates that the Providence crowd would choose them over schools located in better markets or have stronger academics.

Meanwhile, there might not be a school in the country that has had worse timing in terms of going through its ugliest stretch of football performance (or non-performance) in its history than Memphis.  If the Memphis football program had ANY type of pulse, it would be near the top of the list of Big East expansion candidates with its strong basketball fan support (which could conceivably bleed over to football), FedEx corporate ties, a Liberty Bowl tie-in and traditional rivalries with Louisville and Cincinnati.  Instead, the Tigers are almost certainly going to be relegated to non-AQ status for quite awhile.

Call me crazy, but put me in the camp as someone that believes that the Big East will continue to survive as an AQ conference in some shape or form.  Notre Dame certainly wants the league to live (although not enough to actually join the Big East as a football member) and the other AQ conferences aren’t really that hot to either destroy the Big East completely or kick it out of the AQ club.  Continuing to grant a BCS bowl bid to the Big East champ is chump change to the rest of the AQ conferences compared to the political heat that could result from throwing out a league that has any service academies and large flagship universities in the Northeast.  It’s imperative to the Big Ten, SEC and other AQ conferences that the BCS system itself is preserved, which likely means that they need to keep the Big East in the fold.

(Follow Frank the Tank’s Slant on Twitter @frankthetank111 and Facebook)

(Image from moviefone)