Last week, Major League Baseball reached a settlement with a group of fans who sued the league over its internet broadcasting policies, alleging that its system of regional television contracts and blackout policies was collusive and eliminated competition. The settlement won a reduction in the price of Major League Baseball’s MLB.tv online service, as well as the introduction of a single-team option at nearly 23$ cheaper than any previous option offered by MLB.
Critically, though, this settlement protects those blackout agreements and protects the monopoly regional sports networks hold over baseball broadcasts in their home markets. The new single-team option, which will sell for $83.99, only allows viewers in a team’s home media market to access their games with a verified subscription to the regional sports network – a service that will cost an additional $10. Additionally, this service will only provide the road team’s broadcast, so if a fan wants to follow their team through their home broadcasters, she’s still out of luck. By protecting these blackout rights, Major League Baseball is protecting a significant revenue stream, but it could cost them important opportunities to build a base of young fans.
Even with the substantial price reduction – at $109.99, MLB.tv’s premium offering will have its cost slashed by $20 – this settlement was an easy choice for Major League Baseball by the numbers. While a roughly 15% price reduction will chip away at profit margins, that loss pales into comparison to what Major League Baseball would stand to lose without the monopoly power that forces fans to subscribe to regional sports networks to access their local team’s games.
The real fuel behind the huge rights fees teams like the Dodgers ($7bn over 25 years from Time Warner), Angels ($3bn over 20 years from Fox Sports), Rangers (also $3bn over 20 years from Fox Sports) and even the Arizona Diamondbacks (at least $1.5bn over 15 years from Fox Sports) is not television ratings. As Dave Warner of WhatYouPayForSports.com told me about the case of the Diamondbacks – a mid-market team with mediocre attendance numbers that hasn’t made the playoffs since 2011 – the value of their regional sports network is about access to basic cable subscribers, whether they’re baseball watchers or not. “D-Backs games on Fox Sports Arizona average 83,000 viewers,” Warner told me over email, “which actually outdoes a lot of broadcast network TV shows in Phoenix. On the other hand, Fox Sports Arizona is in 2.5m homes. So 2.5m people are subsidizing 83,000 baseball fans.”
This is just how things work in sports broadcasting now, a phenomenon Patrick Hruby referred to as the “Sports Cable Bubble” at Sports on Earth in 2013. With the growing number of sports channels on basic cable – from the ESPNs and the Fox Sports offerings to the regional sports networks to the specialty channels like league or conference networks, each of these channels rakes in a subscription fee from every basic package subscriber. Exact numbers vary depending on the cable provider, but many subscribers are paying as much as $80 or $90 per year for sports programming, whether you’re a general sports nut, a fan of a specific team, or somebody who watches zero sporting events whatsoever. The cable networks need to keep sports available on basic cable to retain the proportionally small but dedicated base of sports fans, and the teams need the subscription fees from the broad customer population of cable subscribers, which includes over 80% of the nation’s homes.
That’s great for Major League Baseball in the short term. Not only have many teams re-negotiated their local deals to great effect in recent years, Major League Baseball negotiated a gigantic $12.4bn national rights deal with ESPN, Fox, and TBS covering regular season and playoff games. But we have already seen what happens when the subscription fees get too rich for cable companies to justify carrying a regional sports network with Time Warner in Los Angeles, which has left 70% of the cities pay television homes unable to watch the Dodgers as rival cable providers refuse to pony up for their new network. Viewership in Los Angeles dropped to just 56,289 homes per game in 2014, and Time Warner is reportedly taking losses of over $100m per year as they haggle over the costs.
This is the doomsday scenario for baseball, and one that they will have to worry about much more in coming years. The median baseball viewer was 53 years old in 2014 according to Nielsen, and by eschewing over-the-top streaming options and forcing fans to go through cable to watch baseball, the game misses out on critical chances to entice new fans. Cord-cutting has accelerated in recent years, with millennials – in the 20-35 age range – 1.7 times more likely to leave behind their cable subscriptions than other generations. Additionally, baseball’s insistence on featuring a vast majority of its postseason on cable networks like Fox Sports 1 and MLB Network is keeping young fans locked out of the game’s most thrilling moments. And that’s not just young adults – the proportion of kids aged 6-17, the group easiest to convert into lifelong fans, has dropped from 7% of the postseason viewing population 10 years ago to just 4% now.
Things are unlikely to change significantly until at least 2021, when the aforementioned national television deal signed in 2014 expires. But what then? “If cord-cutting accelerates in the next five years, a couple of things could happen,” Warner suggests. “On the one hand, baseball could find its way back to broadcast TV in search of a wider audience. On the other hand, the networks might finally break down and offer a sports-only package of channels on cable, similar to what Sky Sports does in the UK, and the fans who watch will be the ones who pay for it – which is how it should be.”
And this is the problem with MLB’s approach. What happens when they can no longer rely on the subsidies they receive from the millions of sports fans who subscribe, however unwittingly, to the regional sports networks infusing money into coffers across the league? There is no doubt Major League Baseball can handle the creation of an over-the-top streaming service – MLB.tv is an industry leader, and MLB Advanced Media is so trusted to do streaming right that it has been commissioned to build streaming services for Sony and HBO, among other companies. They should have no problem building a capable product for a post-basic cable world.
But who is going to buy it? As baseball’s legion of older fans ages, who is going to fill in that gap? It’s not going to be young people, because Major League Baseball’s entire recent business model, including last week’s settlement, has been built on restricting cost-conscious, largely young cord-cutters from their product. Major League Baseball is protecting its golden goose by settling and keeping the courts away from their precious blackouts. But the way people watch sports and pay for their entertainment in general is changing. By forcing fans to go through cable monopolies to access the game, baseball is losing much-needed opportunities to win over new, young fans. This may not be an immediate problem, but quite simply, Major League Baseball won’t be able to rely on people who don’t care about its product to pay its bills forever.
