A la carte pricing, the market has spoken
By Brian Mulligan, CEO, Brooknol Advisors
October 7, 2014 12:01 am
from FieldsofGreen.com USA Today
I noted in early July that a la carte pricing might be the necessary concession that gets the Comcast/Time Warner Cable (TWC) and the DirecTV/AT&T deals done. I noted the Obama administration needed a win for the American public and the companies in both deals would be more than happy to concede to an “a la carte” pricing model as a way to control runaway programing costs.
Baseball’s season is drawing to a close and TWC didn’t get a single significant cable or satellite provider to pick up its new Los Angeles Dodgers regional sports network (RSN). TWC paid the Dodgers $8.35 billion over 20 years to be the sole provider of regular season Dodger games. No one but TWC agreed to pay the $3.85 per sub fee for the new RSN in LA.
The Dodgers may have the most exciting team that they have had since they came to L.A., with talented and charismatic players such as Clayton Kershaw and Yasil Puig, among others. If such an exciting team can’t secure affiliate deals, it is hard to imagine what it would take to get one done at the level TWC was asking. The FCC asked, and TWC agreed, to binding arbitration with satellite provides and other cable operators. However, the programing providers declined. They aren’t going to burden their customers with additional costs of yet another RSN.
TWC is quick to point out that its per sub cost is lower than the most expensive RSNs. But this misses the point that the overall cost of programing is growing rapidly and eroding what is already the smallest margin in the recent history of programming providers. As such, any additional cost can’t easily be passed along to consumers on the basic tier. The economy isn’t helping. But my guess is that in an even stronger economy such additional costs would be hard to pass along.
The market has spoken and was comfortable enough to miss the regular season of one of the most exciting baseball teams in the nation’s second biggest market. It portends that even if the merger deals noted above clear without requiring a la carte pricing, the market will demand it over time.
In terms of TWC, the cost of the Dodger deal will likely be lost from a P and L standpoint in “purchase accounting” if the Comcast deal goes through. If the deal doesn’t clear the Justice Department, TWC will likely take a restructuring charge along with other abandon merger costs. Regardless of the accounting, the market has spoken and it does not look good for new RSNs, and existing ones may have to take a haircut when their deals are up. The impact this will have on sports teams that depend on RSN revenue in the short term will not be positive. In the long term a la carte pricing might be so high that teams may actually benefit in the long, long run.
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Brian Mulligan is currently the CEO of Brooknol Advisors, a Media, Entertainment and Sports Advisory Company. Mr. Mulligan has held CEO, Chairman, COO or CFO position of virtually every media/entertainment vertical for majors over a 30 year career, from Co-Chairman of Universal Pictures, CEO of Universal Television, Chairman of FOX Broadcasting and Cable, EVP/CFO of a Fortune 50 Company, SVP of MCA INC, EVP of Strategic Planning and Corporate Development Universal, Senior Executive Advisor Boston Consulting, Vice Chairman of Media/Telecom of a Money Center Bank, and worked extensively in/with private equity. Instrumental in over $175 billion of media and entertainment transactions.
