• Here's The REAL Problem DOJ Should Be Focusing On In Its New Cable Probe

    The WSJ has broken a big story this morning that the Department of Justice is apparently pursuing an antitrust investigation into whether cable TV companies are taking steps to limit the rise of online video usage. The DOJ is primarily looking into the role of data caps, the use of private networks for delivery of certain programming to connected devices, the use of TV Everywhere authentication, and even the model of most-favored nations clauses between cable TV networks and pay-TV distributors.

    While it's generally a good thing for the government to keep an eye on how business is conducted (the recent financial crisis demonstrates what happens when it doesn't), to my mind none of these issues are really hurting consumers, yet anyway. Rather, if the government truly wanted to focus on an immediate, huge, and worsening consumer problem in the pay-TV business, it should be focused squarely on sports, and more specifically the multi-billion dollar annual subsidy that non-sports fans are required to pay due to current cable network bundling practices.

    VideoNuze readers know I've been hammering away at this issue since early last year (here, here, here, here), and I continue to be amazed that the government has not taken notice of the situation and stepped in to offer consumers relief, particularly given the financial challenges so many American households currently face.

    The simple reality is that the financials of the entire sports ecosystem - including skyrocketing broadcast and cable rights, player salaries and franchise values - are being carried disproportionately on the backs of tens of millions of non-fans. Sanford Bernstein analyst Craig Moffett has estimated that 50% of all programming expenses borne by pay-TV operators are now sports-related, even though sports only accounts for 20% of TV viewing hours. To get a sense of how relatively narrow sports viewing is in reality, last Saturday night's Game 7 of the thrilling Celtics-Heat NBA playoff series drew 13.3 million viewers, which is less than 15% of total pay-TV homes in the U.S. - and it was the highest-rated NBA game on cable ever.

    In the LA market, Moffett believes the wholesale cost of sports (what pay-TV operators pay to carry these networks) will be in the $15-$20/mo range by the time new networks carrying the Lakers, Dodgers and Pac-12 are in place, extending the troubling trend of Regional Sports Networks (RSNs) moving into the basic lineup, to be paid for by all subscribers, fans or not. Talk to any pay-TV operator and they'll immediately cite sports as one of their top concerns, as its driving up subscriber fees, pressuring their own margins and limiting their ability to offer more flexible programming packages.

    As if things weren't bad enough with expensive cable sports networks, the problem is now extending to broadcast networks as well as they slowly morph themselves into cable networks. In NBC's recent complaint against Aereo, it specifically highlighted that it would be unable to pay for expensive sports programming if Aereo succeeded and retransmission consent fees were undermined. Protective of its retrans fees and pay-TV relationships, NBC is requiring authentication for viewers to access online coverage of the upcoming Olympics.  

    With more TV coverage of sports than ever, a best-of-worlds/worst-of-worlds situation has been created. Hard-core sports fans are benefiting tremendously - getting better experiences with bells and whistles like HD, multi-camera angles, online delivery, interactive tools, etc. But meanwhile non-fans are paying for much of this because sports networks are bundled with entertainment networks in most basic lineups.

    This is the dirty little secret of the sports and pay-TV business today. While the DOJ is spending time looking into problems that don't yet really exist, it's completely missing the big problems that actually do.