The rising cost of sports programming is out of control, some would argue. The numbers can get mind boggling. Consider that ESPN recently agreed to pay the NFL $15.2 billion for Monday Night Football rights, which was a whopping 73% more than the previous rights agreement. Recent deals for professional basketball and baseball rights in Los Angeles broke records too. Those deals in particular may have contributed to DirecTV instituting what may be the first of its kind – a $3 per month sports surcharge for subscribers who receive multiple regional sports networks.
DirecTV is making the charge mandatory for all new subscribers in markets where multiple regional sports networks (RSNs) exist. Los Angeles has four RSNs. New York has several. Washington DC has two. All new subscribers who choose a programming package that includes multiple RSNs will get the $3 fee added to their bill (although it’s not entirely clear in which markets this DirecTV surcharge will apply). If they object to the fee, customers will need to select a different programming package that does not include the RSNs.
Sports Tier for a Sports Bubble
The approach has opened many eyes, because in some ways, it’s creating a sports tier, something all sports teams and leagues oppose. The issue at hand is how to deal with these rising sports programming costs. Video service providers (VSPs) cringe at this high cost programming that only appeals to a subset of their subscribers, yet most of their subscribers are paying for it. High cost sports programming squeezes (or outright erases) any profit margin for programming, or even for video services as a whole for many VSPs. Sports channels like ESPN and sports leagues like the NFL are seizing on a ‘gravy train’ of sorts and like the rules just as they are.
But something will have to give. We’re in the middle of a sports ‘bubble,’ I would argue. Like all bubbles, this one will burst at some point, unless something changes and quickly. These escalating costs, which get pushed down the line to subscribers, are unsustainable.
It looks like DirecTV may be pushing the issue into the forefront. By adding $3 to a monthly subscriber bill, they are opening the door to a sports tier argument, where customers who want sports programming pay a premium for it, and those who don’t want it do not. That throws a monkey wrench into the current sports business model.
As a result, I suspect we will see some spirited debate on this issue over the next few weeks. By taking the lead, DirecTV will get pressure from both sides – customers who don’t want to pay the fee, and sports programmers who don’t like the precedent it sets. What do you think? Will DirecTV cave under the pressure?