The Future of OTA Broadcasting
There have been several posts on RabbitEars opposing efforts by the FCC to reclaim spectrum from broadcasters for the sake of wireless providers and touting the value of broadcast television, and many in and out of the industry have refuted the notion that broadcast television is an outmoded technology obsolete in the age of the Internet. While I sympathize with the cause and don’t disagree with the message (a change of heart for me), I think it’s worth considering why people might think the Internet makes broadcast television obsolete, and from that determine how broadcasters might be able to leverage their strengths to survive and thrive going forward.
Regardless of anything else, I think it’s hard to dispute that technology, not only the Internet but also DVRs and maybe even digital television itself, have rendered the traditional linear broadcast schedule mostly obsolete. It’s now possible to watch huge libraries of movies and episodes of TV shows past and present in places like Netflix, Hulu, YouTube, and more, all waiting whenever you want it. Even when the episode first airs, it’s possible to use a DVR to time-shift it and watch it whenever you want, skipping ads along the way, which has become the bane of broadcasters and cable networks alike. The traditional linear broadcast schedule is an artifact of the days when television spectrum was extremely limited to the point where no market had more than seven VHF stations and the vast majority had far less; shows had to be squeezed into whatever spots on the schedule were available. Now, however, cable television has hundreds of channels and still falls far short of the offerings out there online; a typical scripted TV show on broadcast ends up waiting to be squeezed into a spot in a three-hour window (two on Fox and the CW, plus another hour on Sundays) where it has to compete for attention with numerous other shows on other networks and hope no one fast-forwards through the ads.
Where the value of a traditional linear broadcast network may lie is in live events that can’t be started whenever you want and can’t be delayed until later. If broadcast television survives and thrives past 2025, I have a hunch that a majority of it will be live programming. Scripted shows will not go away entirely, because advertisers can still get people to watch more ads more reliably when they’re stuck watching a linear channel (especially, oddly enough, if social media makes the first airing an event unto itself), but their share of the total schedule will shrink. I see the broadcast schedule of the future being heavy on news (especially live events like the State of the Union), reality shows with a live component, and – perhaps especially – sports.
One of the topics I tend to talk about the most over on my blog is sports, and specifically the state of sports on television. For those who have cable, we live in a golden age of sports on television where our options keep on expanding. For broadcasters and cable networks alike, sports has proven to be incredibly valuable programming as one of the few types of programming truly resistant to time-shifting, compounded by its ability to attract the kinds of audiences advertisers love. These factors have propelled ESPN in its rise from a small operation run from a shack in Bristol, CT, to quite possibly the most powerful brand in American media, one that makes so much money as the most profitable division of the Walt Disney Company it allows Disney’s other operations to rest on their laurels. A couple years ago ESPN paid the NFL nearly two billion dollars a year for the rights to Monday Night Football into the next decade (only a 63% increase over the previous contract, worth $1.1 billion) – the most valuable of all the NFL’s contracts despite MNF arguably being the second-weakest package in terms of quality of games behind only the package on the NFL’s own network.
This was partly for ESPN to have the rights to a considerable amount of NFL highlights, but also because having NFL games is a major reason for cable companies to pick up ESPN and people to sign up for cable to watch it. MNF and many other big-time sporting events make ESPN by far the most pricey national non-premium cable network out there: a good $5.26 of your cable bill goes into ESPN’s pockets (and that’s just for the main network, not its sister networks like ESPN2, ESPNU, or ESPNEWS). Where being a cable network was once a huge disadvantage, these days the fact ESPN can make money not only from advertising but also subscriber fees, something broadcast networks can’t do to the same extent, has given it a massive advantage when acquiring sports rights. In 2008 the Bowl Championship Series signed a contract with ESPN to put their five games on the ESPN network, turning the once-unthinkable into reality: college football’s national champion crowned on cable. Four years later no one batted an eye when the BCS extended that deal for ESPN to show the new playoff for another twelve years on top of that, especially after CBS and Turner’s own deal for the NCAA Tournament included a provision that will put the Final Four on cable the next two years and crown the national champion on cable every other year starting 2016.
The other three broadcast networks have taken notice, and all of them have launched sports networks of their own for their own piece of the action. CBS, which bought College Sports Television in 2005, has rebranded it into the non-college-specific CBS Sports Network; a big reason Comcast bought NBC was to synergize it with its own Versus network, since rebranded NBC Sports Network; and Fox relaunched its Speed Channel into Fox Sports 1 just this past weekend. That’s not all; Turner has reportedly flirted with converting TruTV into a male-focused sports-heavy network; Viacom replaced departed UFC programming on Spike by out-and-out buying the closest thing it had left to a competitor, Bellator, and reportedly kicked the tires on going after some Thursday NFL games; even Discovery Networks reportedly kicked the tires on putting some English Premier League games on its Velocity network. Even Al Jazeera has gotten in on the action, picking up rights to three European soccer leagues to help it establish a foothold on American soil with beIN Sport. All four traditional major sports leagues have started their own networks, as have two college conferences with a third on the way.
With the major media companies fighting each other for sports rights for their various networks, the fees those companies pay for rights have skyrocketed, and every time another incredibly lucrative deal is signed or another sports entity launches its own network, commentators come out of the woodwork to complain about the inevitable effect on your cable bill – including (perhaps especially) some within the world of sports itself. Here’s a little exercise: Take a look at your channel lineup, make a note of every single sports channel you receive (as well as other networks with significant sports content like TNT, TBS, and Galavision), then go to What You Pay For Sports, check off the networks you receive, and find out just how much of your cable bill is going into the pockets of big-time sports leagues before you even turn on your television set. Even cable operators are chafing at the rates all these sports networks charge them; after the MNF package was signed, some wondered openly whether cable and satellite providers might start dropping sports channels to save their customers money, and now DirecTV and others are charging a fee to customers in areas with multiple regional sports networks and Verizon’s FiOS is offering a package without sports channels.
Sports may be a big reason cable has gotten so expensive, but it’s also a major obstacle to cord-cutting, perhaps the single biggest one. Back in December, Slate’s Matthew Yglesias wrote a blog post explaining to people looking for Apple to make some sort of disruptive product to magically accelerate cord-cutting that pretty much everything you’d need to cut the cord successfully is already here – with one glaring exception:
In my household, as it happens, we're cord-cutters. The only things connected to our television are an Apple TV and a broadcast antenna. We watch Hulu and Netflix on our Apple TV, we buy some shows and rent some movies à la carte on our Apple TV, and we subscribe to NBA League Pass Broadband on our Apple TV. The disruption, in other words, is right there right now as we speak. The problem is it's not quite good enough. Thanks to blackout rules, even if you subscribe to League Pass Broadband you can't watch your home team's games or ESPN or TNT games (i.e., the playoffs). To really make League Pass Broadband a compelling product, Apple and the NBA would need to negotiate different deals. I assume the MLB and NHL apps suffer from similar limitations.
The state of Internet streaming of sports is decidedly mixed. ESPN’s broadband service, ESPN3, is available on most Internet providers, providing access to events ESPN has the rights to but doesn’t have room for on ESPN, ESPN2, or ESPNU, and many other networks that carry sports can be streamed online as well. However, most of these, as well as NBC’s streams of events like the 2012 Summer Olympics, require you to “authenticate” with a participating cable provider, effectively forcing you to sign up for cable in order to use a technology that should be making it obsolete. That’s assuming your cable provider has signed up for online access to those networks; the list of providers offering access to ESPN’s WatchESPN service is distressingly short (I believe it includes a grand total of one provider outside the top ten, and neither satellite provider). In any case, the great advantage of the Internet is its on-demand nature, which means its only value for sports-watching, aside from its potential cord-cutting value, is mobility.
As cable providers begin to launch new low-cost packages for customers who only want to pay for the channels they actually want even as they fight calls for a la carte, teams and leagues must ask themselves: will they continue to sacrifice some exposure for money, cutting deals with the likes of Apple (and Google, and maybe Microsoft and Facebook) as Yglesias suggests? Considering that this would either move national and local-team coverage to a subscription model (a-la-carte or no) or effectively turn Apple into a cable provider (Google’s actual entry into that field notwithstanding), I’m not sure that would preserve exposure as much as you might think, and it certainly wouldn’t be the best option for consumers. Thus, they must ask whether they are willing to keep taking more money even if it ultimately limits their exposure to the die-hards who can’t live without their product or whatever other programming their partners offer. Considering most sports as it stands consciously avoid the logical conclusion boxing took, with the biggest fights almost entirely residing on HBO and pay-per-view and the sport pushed to the margins of the mainstream consciousness, I doubt their appetite for money is that bottomless.
But that leaves teams and leagues with a seemingly intractable conundrum: their programming is so valuable that seemingly any outlet for it ultimately prices out the casual fan and threatens to rob it of that same value – unless they find an outlet that can continue to reach the maximum number of people no matter how valuable it becomes. That would appear to leave over-the-air broadcasting as the best long-term solution, and as such, broadcasters may well find themselves at a critical point of opportunity, the salvaging of the marriage between sports and broadcasting critical to the future of both, a substantial, rejuvenated sports presence on broadcast potentially enough to spur the unthinkable outcome of cord-cutting sports fans, even sports fans at the forefront of cord-cutting.
One of broadcasters’ great advantages is their ability to operate locally, an aspect that, when it comes to sports, should come in especially handy when it comes to the level of individual professional teams. However, in addition to the aforementioned disadvantages, broadcasters run into a few other problems that effectively leave them begging for scraps in most cases from local teams. Teams want an assurance of coverage outside their immediate market, and that means they’d rather sign up for a single regional sports network that can establish cable carriage fairly easily with a small number of providers than try to syndicate their games to stations in outlying markets; for their part, in an age where most general-purpose stations are network affiliates, broadcasters are reticent to piss off those networks by pre-empting programming for sports events. Many teams have also decided to start networks of their own, especially in baseball where money from owning your own RSN isn’t subject to revenue sharing agreements in a sport without a salary cap, allowing the Yankees to use their YES Network to maintain their dominance at the top of baseball’s food chain. (The Yankees sold close to half of YES to Fox last year.) Even the venerable WGN could see the end of its 65-year-old relationship with the Cubs so the team can chase more money by putting all its games on cable (never mind the national distribution on cable WGN America gives them), on a channel the team owns itself.
To me, this suggests the key could be the edge cases – once-independent stations that once were at the core of local teams’ reach, but were deprived of them not only by the rise of the RSN but by their own affiliation with UPN and the WB, and these days, with the CW and MyNetworkTV. Though it initially launched with pretentions of bringing English-language telenovelas to the American market, MyNet quickly abandoned it in favor of a mini-network format consisting of a random collection of reality shows and, for a time, WWE SmackDown!, before abandoning even that pretense and becoming a “programming service” doing little more than redistributing other syndicated programming, resulting in there being no practical difference between taking on MyNet and remaining independent; it is, quite literally, the “network” that should never have been, yet one that continues to survive against all odds because cheap station group owners appreciate the two hours a day of inventory they don’t have to program themselves. I have no doubt MyNet, and possibly the CW, would not even exist, at least not on a national level, if it weren’t for RSNs’ advantages in money and distribution that leave local stations begging for scraps from local teams (scraps that most outlying markets have to watch on the RSN anyway).
What would happen if stations that were MyNet (or even CW) stations now instead somehow were able to obtain the rights to a variety of local sports? By itself, it probably isn’t enough reason for ESPN junkies to cut the cord, but I have to imagine that for many, the ability to watch your local team is a bigger reason for getting cable than simply grabbing ESPN, especially if cord-cutting accelerates to the point where leagues decide taking money from ESPN doesn’t outweigh the relatively marginal exposure they’d get, resulting in even less reason to pick up ESPN. Perhaps ESPN comes to resemble what it looked like in the 80s, running on college and niche sports, perhaps with some occasional professional games thrown in. Even at best that would be a long-term process, at least on the national scale, with most of the most valuable national contracts locked up into the next decade, though I could see some of the most popular games, like the college-football playoff, moved to sister broadcast networks through emergency contract tweaks if cord-cutting accelerates fast enough.
This is just one area where broadcasting can reclaim some territory in the world of sports that has been ceded in recent decades, and it may not be one the owners in the best position to do so would want to take; the part-owner of the CW and the full owner of MyNet, CBS and Fox, care so little for broadcasting they’ve been making noise about migrating their networks to cable, and Fox in particular also happens to be the largest owner of RSNs and so is the last party who’d want to stop that gravy train. (Tribune, the other major big-market CW and MyNet affiliate owner on top of owning WGN, could take the lead on this, but I personally would like to see the rise of a true fifth network, and Tribune’s stations are pretty much the only CW or MyNet affiliates in the country, with a very small handful of exceptions, to produce their own news, making them the most important stations for such a network to corral.) Broadcasters would face tremendous obstacles in trying to wrench rights away from cable channels in the short term, but in the end, sports may be vital for the survival of broadcasting in the long term – and broadcasting may just have something to offer to teams and leagues that could make their long-term prospects more viable as well, if they can sell it to them.