The Industry

The High Cost of Sports Programming

The web news site Axios reports that sports channels were the top ten most expensive channels in terms of what is charged to cable operators. Not only are sports channels the most expensive programming, but their prices are increasing faster than most other channels, helping to continue to drive up the cost of a cable subscription. They only other channels that are increasing prices at a faster clip are local network affiliates of the big over-the-air networks like ABC, CBS, FOX and NBC.

Axios reports that they received the cost of networks from industry analysts Kagan. The five most monthly cost to cable companies include:  ESPN $7.54; YES $6.05 (Yankees and Nets); SportsNet LA $4.64; Fox Sports AZ $4.63; and Fox Sports Detroit $4.51.

I’ve seen estimates that the average cable subscriber pays about $20 per month to cover sports programming – a huge percentage of a total cable bill. That figure obviously varies by market and by specific cable package, but most expanded basic cable packages include numerous sports channels like ESPN, FS1, the NFL Channel, the NBA Channel, etc.

Sports channels are expensive due to the high costs of obtaining the broadcast rights to various sports teams and leagues. For example, a major percentage of the revenues earned by college football and basketball programs comes from revenue agreements with networks like ESPN.

Another reason that the monthly fees charged for sports networks keep rising is due to cord cutting and the overall loss of cable customers in the industry. It’s been reported that ESPN has already lost over 2 million customers for the year – a number that is line with estimates of cord-cutting. ESPN has lost almost 12 million customers since their peak at the end of 2013.

Subscription fees to cable companies account for more than 60% of ESPN’s revenues (with most of the rest coming from advertising sold during sporting events). It’s also been reported that ESPN accounts for almost 30% of the value of Disney stock, so it has to be alarming to the Disney parent company to continue to watch customers leave the service. ESPN has made up for some of these losses by selling over a million monthly subscriptions at $5 for ESPN+, an online network that offers sports programming not shown on the basic ESPN channels.

Live sports are still one of the major draws for consumers. Numerous surveys have shown that local sports are one of the primary reasons why many customers keep their traditional cable subscriptions. So far, sports programing has not been offered on the Internet except through expensive monthly plans like Sling TV or PlayStation Vue that look a lot like a cable subscription.

There might be a coming shake-up in the sports programming world. Currently Disney is selling 22 regional Fox sports networks, which was one of the government’s requirements for the merger of Disney and 21st Century Fox. One of the bidders for these networks is Amazon, and the speculation is that they might offer much of the content on a streaming basis. That would be a major shake-up of the industry that thrives due to sales only to cable companies. The Fox sports networks own over half of the rights to Major League Baseball, the NBA and the National Hockey League, so it’s a powerful pile of programming rights.

A few things are certain. The model of raising subscriber cable prices by $2 every year to cover increases in sports programming is a model that can’t be sustained forever. Saving money is the number one reason given by cord-cutters for leaving traditional TV. It’s also likely that Amazon or somebody else is going to change the market paradigm and will sell sports content a la carte by the game.

I subscribe to PlayStation Vue mostly to get the sports. I could cut that annual bill in half if I could pay $5 per event to watch those events I really want to watch. A Gallup poll last year showed that 37% of households say they are not sports fans. Rising cable prices are going to drive a lot of these households to find cheaper alternatives, and as dropping ESPN subscribers show they will opt out of paying for sports they don’t watch. Charging each cable household $20 per month to watch sports is not sustainable.

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