If you are a cable or satellite television subscriber (and chances are you are), you know two things: the price keeps going up and your provider gets into a contract dispute with a channel you like. (Anybody remember last fall's battle between BTN and Dish Network?) The latter is actually an effect of the former; cable television rates have nearly doubled, on average, over the last ten years. And most of that increase is due to increases in the costs cable networks are charging providers. Did you know that ESPN charges your cable company over $5 a month alone? That's a number that's only going to increase. Just look at the ESPN's deal to televise the new college football playoff. Where is that $475 million each year going to come from?
It seems like ESPN thinks the sky's the limit when it comes to rates. Maybe...maybe not. More and more people are now unplugging their cable television, and the cable industry is taking it seriously. These cord cutters are tired of paying $70-$100 a month for television, and are searching out cheaper alternatives. Services like NetFlix, DVD's, Hulu, and Apple iTunes offer movies and television series through the internet for a fraction of the cost of a cable or satellite subscription. Nearly three million homes went television free over the last five years, and the percentage of homes that subscribe to cable or satellite fell from 87.3% in 2010 to 84.7% last year.
Cutting the cord is easy for technically proficient people who are comfortable with the internet. Live events are a challenge if bandwidth isn't available. And for many sporting events, legal live streams aren't available, or are only available to customers of certain internet providers.
The increasing cost of television has caught the eye of Arizona Senator John McCain, who's proposing that the cable industry be forced to break up programming into smaller and smaller blocks of programming to allow consumers to pick - and pay for only - the channels they receive. Don't want Food Network? Don't buy it. Don't like the politics of Fox News or MSNBC? Don't buy it.
Don't like sports? Don't buy ESPN.
And that's the rub for sports fans. Industry analysts estimate that only 25% of pay television subscribers watch ESPN. How would ESPN handle the loss of 75% of their subscribers? They have multi-year, multi-million dollar contracts to broadcast sports. So what does ESPN have to do? Raise the rates even more for the customers who want those sports. If ESPN's subscriber base drops to a quarter of what it was, ESPN likely has to look at quadrupling it's rates to it's remaining customers.
Same thing with BTN. BTN charges over $1 a month for customers in the region; what would they charge per month on a subscription basis? I suspect probably $5 to $10 a month.
Would I pay that? Probably. But I'd get awfully selective on the other channels. I could not care less about the NBA, so I wouldn't pay for TNT or NBAtv. My local Fox Sports network? Probably not because I don't care about the Kansas City Royals and I doubt I'd watch enough Big XII and Pac-12 football games to justify the cost.
Of course, if too many people drop these channels, the networks will be forced to cut their rates. And that would lessen the impact of this change on sports fans. It still could be good for sports fans. They keep the channels they currently like and stop paying for the channels they don't want. Everybody wins in that situation, right?
Well, not the networks. Fewer subscribers paying less means less revenue for the networks, who still have their long-term agreements with the ACC, Pac-12, SEC, and the college football playoff. So what happens if "ala carte" starts looking to be reality when Jim Delany opens negotiations for the Big Ten's first-tier media rights deal once the current deal expires after the 2016-17 season?
The Big Ten's media deals have traditionally led college football; it took the SEC's most recent deal to create the SEC ESPN Network to finally surpass the Big Ten's current deal. Delany no doubt is expecting an even larger deal in three years, but what happens if the spigot of unlimited subscriber fees gets shut off by the federal government? Can any network afford to offer another record breaking contract without the ability to charge nearly every television viewer for it?
I suspect not, if ala carte looks to be possible in the next three years. Certainly the media lobby will continue to push back hard in Congress to derail this latest effort to reform the television marketplace. This type of titanic change in how you subscribe to television isn't going to happen overnight through an act of Congress. Neal Pilson, the former president of CBS Sports, thinks that Congress won't get serious about this issue for another five years.
But what if cord-cutting and zero-TV becomes more and more commonplace? Those market forces are much more difficult to predict. But as cable and satellite rates continue to go up, eventually consumers will reach a breaking point. And the industry will have no choice but to change.
The most interesting idea is that ala carte might be just as endangered as the traditional cable packages. Look at a network like BTN. Most of BTN's broadcast day is filled with reruns. During the season, weekday evenings and weekends have original programming, but the rest of the day is just filler material. Even ESPN struggles to fill the daytime hours with anything other than Tim Tebow debates. Some think we are actually headed to a pay-per-view model, where instead of subscribing to networks, you subscribe to programs. Do you subscribe to a single game, a team's entire season, or to a conference season? Certainly, this would not likely to be like the old days of Nebraska's $39.95 pay-per-view broadcast of a game against Louisiana-Lafayette...but there would be a charge that would be offset by a significant drop in your monthly cable bill. The biggest question with that model is what happens with channel surfing? It's easy to change channels to check in on other games or find a better game today. But what if the model requires you to pay extra to get the other game. Would SEC fans be willing to pay for Big Ten games, and vice versa?
That's probably not a model that fits today's technology. In all likelihood, the first step that cable providers will do is create more distinct packages to allow you to add and remove the types of channels you like and dislike. That probably won't save sports fans much money since it's typically the sports programming that is the most expensive. A sports package might cost $20-$30 a month and give you the ESPN, Fox, and NBC sports channels, but would reduce your basic bill to perhaps $20 a month for the service and a handful of no-cost channels.