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Tuesday, January 12, 2016

Television Rights, Baseball's Tsunami

I unfortunately don't have enough time to properly treat this story, but a couple related pieces turned up on Techdirt and Fangraphs on the always-interesting subject of television rights that are required reading for anyone concerned about the future of baseball. First, Fangraphs draws us up-to-date with a case I can't believe I had missed, Garber v. Office Of The Commissioner Of Baseball.
Long-time Fangraphs readers are probably already familiar with the Garber suit, as we’ve previously covered the case on a number of different occasions. By way of a brief recap, though, the lawsuit essentially alleges that MLB violates federal antitrust law by assigning its teams exclusive local broadcast territories (the same rules that also give rise to MLB’s infamous blackout policy).

Not only do the plaintiffs allege that the creation of these exclusive territories illegally prevents MLB teams from competing for television revenue in each others’ home markets, but they also contend the rules restrict teams from competing with the league itself in the national broadcast marketplace (preventing teams from signing their own national television contracts, for instance, or offering their own out-of-market pay-per-view services in competition with MLB Extra Innings and MLB.TV).
The plaintiffs want to entirely do away with regional broadcast restrictions, which would possibly pave the way for MLB Advanced Media (MLB.TV) to take over that entirely. It could also allow the Indians to sell games in the New York market, or vice versa (much more likely), opening the prospect for both internecine warfare and additional revenue streams. MLB will argue that fans benefit from the current situation by keeping smaller market teams in higher revenue local TV deals. There is something to that argument, particularly with respect to casual fans, who are mightily subsidized by cable viewers who don't care about baseball.

Such subsidies are unfortunately not part of Techdirt's analysis, which fails to grapple with the fact that the overall revenue picture is much bigger with cable than without, for the simple reason that the average fan can only shell out so much:
It's an argument that essentially claims that MLB must limit the number of broadcast options customers have to choose from because not limiting them will eventually lead to even less options when teams fold. This argument rests on MLB's revenue sharing practice, where teams negotiate their local broadcast rights and leave the national rights entirely up to the league, which then doles out national broadcast (and streaming) revenue democratically through the league, meaning the popularity of the Yankees and other large market clubs is resulting in income for small market teams (like the Tampa Bay Rays).

Here's the thing: everyone knows this argument's time was twenty years ago. Fans know it, because they use the internet and streaming services and they embody the desire of customers to watch more teams in more ways without blackout restrictions. MLB knows this as well, as you simply can't make sense of all the work the league has done to expand its streaming options without that knowledge. What they are trying to save in all of this is a bit of the right to still handle national streaming rights the way they handle national broadcast rights. It's about retaining control. But the league itself is what allowed for the expansion of the league into small market areas. For them now to rest the argument for their antitrust exemption on the un-viability of those markets, resulting in harming consumer choice, doesn't make any sense. It's essentially asking for a kind of bailout for some teams via the exemption. Put another way, MLB's argument amounts to: some of our teams don't have enough fans to sustain themselves, so we need an antitrust exemption to keep them afloat, just because. How is that in the public's interest, even if MLB's assessment is correct?
A fine question. The assumption hitherto is that team valuations can only ever go up, at least over a long enough time frame; but much of that in turn is built on a foundation of cable TV rights deals, deals that now look not only long in the tooth but primed for extinction.

Addendum: An interesting David Lazarus column from a few days back in the Times about cord-cutting; the author details the calculations by which he reckoned it would save him money. Time-Warner had an uptick in video subscribers, about which they made a booming press report, but in reality 32,000 is a tiny drop in the bucket compared to their overall subscriber base.
A recent report by the New York research firm EMarketer estimated that about 17% of U.S. households will have cut the cord by the end of this year, rising to nearly a quarter of households by 2019.

"Cord cutting is unambiguously accelerating," Moffett said.



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