Sports programming may finally be getting too costly
Some pay-TV providers are rejecting a Houston regional channel backed by Comcast. It may not be the last.
According to The Wall Street Journal, both DirecTV (DTV) and AT&T (T) have refused to carry CSN Houston, in which Comcast owns a 22% stake, saying the channel's fees are too expensive given its limited appeal with viewers. That's especially true for the Astros, a team that's one of baseball's worst and has earned the nickname "Lastros" by folks in the Houston area.
Comcast's problems in Houston, though, could be just the start of a worrisome trend.
In recent years, the costs for sports programming have increased dramatically because it's one of the few TV genres that people continue to watch live. It's also widely watched by young male viewers, which are hard for advertisers to target otherwise.
Sports channels account for 19.5% of all fees cable and satellite operators pay, and Wall Street is increasingly nervous that these expenses are rising too high, too quickly.
For instance, 21st Century Fox's (FOXA) Fox, Walt Disney's (DIS) ESPN and Time Warner's (TWX) ESPN will double what they pay MLB on an annual basis under the $12.4 billion contract that runs from 2014 to 2021. The National Football League's deal that runs through 2022 got a 63% raise for its broadcast rights, and the NBA saw a 20% hike. Even a niche sport such as the National Hockey League was able to double its broadcast fees.
These increased costs will affect the bottom lines of many companies.
Goldman Sachs (GS) cut its rating on Disney last month, citing rising fees for sports broadcasting rights. ESPN has been traditionally viewed as a strength for Disney, accounting for 45% of its operating profit. But now, analysts are likely to make similar downgrades on other media stocks.
Sports broadcast fee increases are also spurring renewed calls for a-la-carte pricing of cable service, in which consumers pay only for the channels they want to watch. Pay-TV providers have repeatedly argued that such a system is impractical and would lead to higher prices. In the meantime, it looks like Comcast's home run was more like a long fly-ball out.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
If people would quit paying for cable the advertisers would force cable down our throats' for free.
I remember when MTV came out and said the income from it's cable subscribers would make it ad free. They broke that promise in less than a year. At the time I got free cable with my apartment.
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