The Soaring Cost Of Sports Programming Is Simply Not Sustainable

from the something-has-to-give dept

One of the biggest reasons for soaring cable rates is the bloated and soaring cost of sports programming. Similarly, one of the biggest causes for the unprecedented rise in cord cutting (ditching cable and going with a streaming alternative) is the cost of sports programming. Surveys have shown that 56% of ESPN viewers would dump the channel just to save the $8 per month it costs each subscriber. Once streaming alternatives emerged for the sports-bloated traditional cable bundles that let them do just that, users began flooding to the exits at a historic rate.

The reality is millions upon millions of customers don't give a shit about sports, yet are forced to pay $120 or more per month for cable bundles filled with content they don't watch, and didn't want. And when some cable companies initially tried to offer "skinny bundles" without ESPN or other sports networks, they were sued by ESPN for trying to give consumers what they wanted. And while that has slowly started to change with the rise of live TV streaming alternatives, for traditional cable providers something in this cycle of dysfunction needs to change. Quickly.

Case in point: Axios points to Magna's latest Media Sports Report that highlights how cable companies are now paying significantly more money for sports programming than they make off advertising during the games. For example, cable operators now pay the NBA $2.6 billion annually in licensing fees, but "only" make $1.3 billion from the ads run during sports events. The associated graphic highlights how it's the same for most leagues:

Of course cable companies make up for the difference by not only imposing endless cable TV rate hikes, but via the bevy of misleading fees they've long used to jack up the advertised rate of service post sale. But their ability to do this has been dramatically compromised by the mass exodus of users fleeing traditional cable. And the problem is notably worse for broadcast networks:

This (sic) economics are especially problematic for broadcast networks that carry live sports games, because they don't have access to subscription revenues to subsidize the high cost of programming, like cable networks do. Broadcasters rely on ratings, driven by viewership — which is getting increasingly older and aging out of the coveted 25-54 marketing demographic, as well as retransmission fees. As a result, more sports distribution rights have migrated to cable networks — think TNT and TBS carrying the NBA and MLB, respectively. But there are problems there, too. Cable channels are losing subscribers to digital streaming options at the fastest rate ever. It's worth noting that both cable and broadcast networks make a substantial amount of money from retransmission fees (charging cable and satellite providers to carry their content), but collectively it's still not enough to completely offset the rate of increases to programming costs.

The report proceeds to state the obvious by proclaiming that analysts "don't see the ever-increasing gap between ad revenues and rights fees as sustainable in the long term," something cable subscribers could have told them years ago. Wall Street analysts have similarly been discussing how retransmission fee hikes and the soaring cost of programming simply isn't sustainable for the better part of the last decade, not that it appears to have changed the landscape -- or the executive quest to milk the traditional cable TV cash cow to death -- in any meaningful fashion.

This will likely most harm small cable TV operators, who have said they may just stop selling cable TV as margins get tighter. Don't feel too badly for larger cable providers like Comcast, however. As their TV margins get squeezed, they are simply using their monopoly over broadband to jack up the cost of broadband via unnecessary and confusing caps or overage fees. The end result: cable companies get their pound of flesh one way or the other, as users are punished for fleeing the cable and broadcast sectors' walled gardens and the seemingly endless TV rate hikes therein.

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Filed Under: cable rates, sports, sports programming, tv