The business model of cable television is starting to fall apart, the question is what's taking so long. As Americans begin to "cut the cord" and dump their cable companies once and for all, they have but one regret: once you stop paying for cable you can't see your local sports teams. Your cable company is gouging you because it knows you won't quit watching the home team over a few measly dollars.
According to Leo Hindery of InterMedia Partners the price of fan loyalty is higher than you think. "Directly and indirectly in a large metropolitan area the average cable or DirectTV (DTV) subscriber is going to be paying $50 a month just for sports," he says. Before you dismiss that number as way to high you should know that Hindery was the founding CEO of YES -the home of the Yankees in NYC. He knows the economics.
A glance through Disney (DIS) earnings statement does a nice job illustrating the point. Sixty-percent of the company's profits are generated by the cable division, which effectively means ESPN. Of that amount, $9.3 billion comes straight from the cable companies (called "affiliated fees"). Since Disney controls ESPN and viewers demand it, the company is willing to pay almost anything for rights to leagues like the NFL then pass the pain to the cable operators.
Open your monthly statement and you can quickly see that the cable companies turn around and add the ESPN fee right onto your bill.
The economics of all recorded programming is falling apart. Time shifting, iTunes and streaming have killed the value of content except for sports. Nielsen estimates that 20% of time spent watching cable is dedicated to sports programming. Most people watch sports in real time. As a result, Hindery says the only category of service that has outpaced inflation is sports. Everything else is in decline.
Surprisingly he doesn't think the answer lies in cutting the cord and using direct viewing via streaming service. The answer, he says, is the long-awaited government intervention in the form of a la cart pricing. That means getting ESPN would mean paying specifically for that service (for which Disney charges affiliates more than $5 a month).
If and when the FCC allows a la cart pricing, the bill will be broken out and customers will be able to see exactly how much they're really paying to support their teams. Unless or until that happens both your cable bill and your urge to cut the cord will only grow.
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