It's been a pretty ugly year when it comes to cable MSOs sparring with fellow operators over distribution of regional sports networks. MSG and Time Warner Cable (NYSE: TWC) saw a backlash from subscribers and politicians in January, after Time Warner Cable refused its demands for a rate hike. Now, Time Warner Cable is attempting to squeeze up to $4 per subscriber from Cox Communications, DirecTV (Nasdaq: DTV) and other pay TV providers in the Los Angeles area that want to carry its new Time Warner Cable SportsNet RSN.
In January, in the midst of Time Warner Cable's battle with MSG, which is controlled by Cablevision (NYSE: CVC) CEO Jim Dolan, Time Warner Cable CEO Glenn Britt argued that the company should be able to carry MSG on a sports tier. "What was a minor problem is turning into an astronomical problem. The ultimate solution is to get that programming on some sort of smaller packaging scheme," Britt told The Wall Street Journal.
Time Warner Cable went seven weeks without MSG, leaving subscribers unable to watch the New York Knicks, the Buffalo Sabres and other pro sports teams. It finally agreed to a deal in February to carry MSG on Time Warner Cable's expanded basic tier, rather than a sports tier.
While Time Warner Cable has fought sports programmers for the right to carry both national networks such as ESPN and RSNs like MSG on sports tiers, it has a different view on tiers when it comes to distribution of SportsNet. In order for Time Warner Cable to pay for its $3 billion, 20-year rights deal with Los Angeles Lakers, it wants SportsNet to be carried in the most widely distributed cable and satellite programming packages. Expanded basic carriage will give Time Warner both subscription and advertising revenue.
Late Wednesday, in response to a request from Cox that it be able to carry SportsNet on a tier, Time Warner Cable issued a statement in which it noted that no RSNs are carried on sports tiers. "That would be unprecedented," the company said.
What is also unprecedented are the wholesale fees that cable and satellite affiliates are paying for regional and national sports networks in Los Angeles. If you include SportsNet, Fox Sports West, Fox Prime Ticket, NBC Sports Network, The Golf Channel, ESPN, ESPN2 and other networks, the wholesale fees for sports programming in Los Angeles area may crack $20 monthly per subscriber. With the Los Angeles Dodgers TV rights deal coming up for renewal next year, sports programming will get even more expensive for distributors and subscribers in L.A.
Last year, Time Warner Cable began testing a programming package called TV Essentials in New York and Ohio. Costing just $30 to $40 monthly depending on the cable system, TV Essentials includes local broadcast stations, AMC, CNN, Bravo, HGTV and Lifetime. It doesn't include ESPN or regional sports networks.
Naturally, Time Warner Cable isn't offering subscribers in Los Angeles the option of taking a TV Essentials package.
For more than a decade, smaller cable operators such as Mediacom Communications and other pay TV distributors that don't own RSNs have demanded that programmers allow them to place sports networks on a tier. Some have even lobbied Congress and the FCC on the issue.
It appears unlikely that regulators or legislators will force programmers and operators to give consumers the option to buy sports tiers any time soon. But if cable and satellite subscribers in Los Angeles and other markets begin to drop pay TV subscriptions because they can no longer afford the programming, the industry may be forced to make some major changes.--Steve