• Expensive Regional Sports Networks Are Becoming Pay-TV's Achilles Heel

    An article in the NY Times over the weekend, "Regional Sports Networks Show the Money," highlighted the mega-profitable and symbiotic relationship between marquee sports teams/conferences and the regional sports networks (RSNs) they have spawned. RSNs aren't new, but as the article pointed out, teams and conferences are getting increasingly creative and aggressive about their TV rights, in turn driving up the fees pay-TV operators and ultimately subscribers are required to pay. All of this suggests that RSNs are becoming pay-TV's Achilles Heel especially when it comes to non-sports fans.

    This is a topic I covered back in January, in "Not a Sports Fan? Then You're Getting Sacked For At Least $2 Billion Per Year" and subsequently in "Time Warner Cable-LA Lakers Deal Is More Bad News For Pay-TV's Non-Sports Fans," in each case noting that as sports programming fees drive pay-TV rates ever higher, some portion of non-sports fans will eventually defect for lower-cost entertainment-centric options (e.g. Netflix, Hulu, over-the-air/ antenna reception, etc.).

    Following Q2, in which the pay-TV industry suffered its worst-ever subscriber losses, cost of service - and therefore the role of expensive RSNs - must be a heightening consideration for pay-TV operators. In fact, going back to last fall, Sanford Bernstein analyst Craig Moffett has been saying that reduced discretionary consumer spending is pinching pay-TV operators. Coincidentally, an article this weekend in the Boston Globe about the plight of a single mom making $18K/year working at McDonald's noted that both cable TV and phone service are now unaffordable luxuries, a stark reminder of how razor-thin budgets are in many American homes.

    Nonetheless, regional sports networks appear to be humming right along. Whereas there's ample competition on the TV dial for all genres of programming, when it comes to watching a favorite team games, RSNs have a monopoly and are exercising their leverage accordingly. For instance, looking at the LA market's dynamics in particular, things could even get worse. There Time Warner Cable has lured the Lakers away for a new RSN in 2012 that will no doubt carry sky-high carriage fees, and the beleaguered Dodgers may be able to put their rights out to the highest RSN bidder. All of this will further pressure pay-TV rates.

    In short there's a huge disconnect between expensive RSNs and the economic realities of many American households. Especially for non-sports fans with many low-cost online entertainment options, price will surely become an even bigger factor in their decision of whether to subscribe.