How the NFL Blitzes in Business, Part 3

Continued from How the NFL Blitzes in Business, Part II

I suppose your next intelligent question is: “Sure it’ll be more expensive, but since the cable company is going to past the cost on to the subscriber, why don’t they just give in to the NFL Network?” Actually, the NFL Network is just the latest form of an old problem for cable companies. Cable operators have been wrestling with big TV sports money issues for years: Should they put sports channels on sports tiers–making only the interested portion of their subscribers pay extra fees for it, or should they foot the cost and make all subscribers pay? The problem is that sports are way more expensive–especially the NFL. In addition, under the terms that the NFL is offering the cost would not be borne only by those watching the games, but by the majority of cable subscribers.

One way to phrase the issue is: “Why do those sports subscribers, mostly men, have to pay for channels like E!, HGTV or the Food Network, which for the most part they’ll never see?” The answer isn’t that the cable companies won’t let you buy the channels you want to watch. They would but the content providers don't allow that. Large media companies, like Disney, force cable providers to accept predetermined packages to get the best channels. Allow me to demonstrate. ESPN is one of the more popular channels offered on cable television, it is also owned by the Disney corporation. Disney, recognizing their leverage, doesn’t allow the cable companies to just offer ESPN, instead the cable company must also force Disney’s other channels onto subscribers, channels like ABC Family, the Disney Channel, and for those who didn’t want ESPN in the first place, ESPN2. FOX uses similar channel packages, including the FOX Sports Network, FX, etc., as does TNT and Viacom.

There are pluses and minuses to this system. One important plus is that cable providers can negotiate lower overall rates for these channel packages, then bundle the programming together so that people are able to get the most popular channels at a reduced cost. The NFL Network doesn’t have any other channels to offer that could be included to help defray some of the costs included with providing their channel to the masses. This means that cable providers have to absorb the full cost of the NFL Network’s programming. Unfortunately, the price for the eight live games is just too great for the cable providers and their concern is that this is only the beginning. If they passed the cost of these eight games on to the subscribers, it would only encourage the NFL and the NFL Network to continue offering games but an additional fee basis. Look at the success of boxing and with their pay-per-view model, which eventually destroyed the popularity of their sport. Now, Brian Roberts, chairman of Comcast Corp., is so perplexed by the situation he wants to organize an industry summit to hash out differences. Roberts is also worried other sports leagues/groups will take a similar tack. For example, the U.S. Olympic Committee is considering its own 24-hour network. Even then, Olympics sports would conceivably be priced more reasonably than the NFL. The ability to generate additional pay for premier events is the kind of leverage all sports leagues would like to have–especially when it comes to getting paid from cable operators.

The NFL Network is currently available in about 40 million of the 111 million homes with TVs, not bad for a three year old network. In comparison, ESPN, which airs Monday night games, is available in 92 million. It would seem that the cable companies should offer the NFL Network as a stand-alone option, not part of an expensive, take-it-or-leave-it package. However the cable operators feel they have largely lost their football audience due to the NFL's decision to give exclusive viewing rights of its NFL Sunday Ticket to DirecTV, which allows the company to air up to 14 out-of-market regular season games every Sunday. As such, they don't feel overly inclined to add the NFL network to their basic programming at a premium price.

With the NFL having grand ambitions with its own network, could NFL Sunday Ticket become a bargaining chip with its service providers? That's clearly conjecture at this point, but opening up Sunday Ticket, once the DirecTV contract expires in 2010, to all providers in exchange for having the NFL Network widely available across all providers on a basic tier could be advantageous to both cable operators and the NFL.

Before the broadcast of the first game, the NFL was trying to urge cable networks to pick up the channel. The big issue, however, is cost and tier placement. The NFL wants the network available to the widest available audience, while charging cable companies a hefty price per household. Cable operators, meanwhile, want to offer the channel on one of their premium tiers. So far no resolution has been reached.