Friday, May 11, 2012, 10:39 AM ET|Posted by Will Richmond
Here's a measure of just how all-important big-time sports have become in driving the entire TV ecosystem: in NBCU's latest court filing against Aereo (embedded here), it cites as one of the harmful consequences of Aereo's potential success that NBCU would be unable to fund its programming. But what single example of expensive programming does NBCU call out? Not its news or entertainment - staples of the traditional broadcast network program agenda - but rather its 9-year, $10 billion Sunday Night NFL rights deal.
Sports are considered so critical to broadcasters because they're primarily viewed live and therefore immune to DVR-based ad-skipping (see yesterday's DISH Network "Auto-Hop" news for more on why DVRs are so threatening). As a result, the networks have aggressively bid for sports rights, led of course by the pursuit of NFL and Olympics deals. But those deals have been partly funded by burgeoning retransmission consent fee payments negotiated from pay-TV operators. These payments give broadcasters another revenue stream beyond just advertising (and just like cable networks, as pay-TV operators pay more in retrans fees, rate increases are passed along to ALL their subscribers, whether sports fans or not).
As the complaint explains, these retrans fees would be seriously jeopardized if Aereo succeeds, because pay-TV operators would do an end-around, creating their own versions of Aereo (or partner with it) to provide broadcast service to their subscribers. NBCU is essentially asserting that a reduction in retrans fees would mean an inability to afford big-time sports on broadcast which in turn would lead to less advertising revenue, which eventually would undermine the broadcast networks' economic model.
NBCU and the other broadcasters are ultimately fighting a copyright infringement battle against Aereo, but NBCU's articulation of specific economic consequences sheds new light on just how disruptive Aereo could be to the current delicate economic balance in the TV industry. In addition to the impact on retrans fees, NBCU also states concerns about losing out on untapped value in mobile distribution as well losses that would ensue from rampant piracy.
Aereo is the latest, but certainly not the last, illustration of how digital distribution technology is colliding with analog era business models. If the courts decide that new technologies like Aereo are indeed acceptable under current law - and therefore should take priority over the TV industry's quasi-stable status quo - the future TV landscape will look very different from today's.