Mark Cuban, the billionaire tech entrepreneur and eccentric owner of the NBA’s Dallas Mavericks, writes in his latest Maverick Blog about how potential regulatory decisions made by the FCC could drastically influence the future of network television and change the way people consume their entertainment.
Sports fans probably are not paying attention to what is happening with broadcast television. The over the air broadcast networks, all of which are the biggest customers of the NFL (CBS, NBC, Fox and ABC/ESPN) are now pushing TV Providers (cable, telco and satellite), to pay retransmission fees. In other words, the broadcast networks want to be paid for every TV Provider subscriber, just like cable networks get paid. It’s a reasonable request in many ways. But there is a flip-side.
The ability to send their network signal over the air to TVs (to be received without paying a TV Provider) is a right that is regulated by the FCC. The FCC is also in charge of the Broadband Initiative in the US. Whats the connection? The same spectrum that the broadcast networks use to send their digital tv signal over the air to TVs could be re-allocated to the broadband initiative. Which is more important to US Citizens, over the air TV stations or more wireless broadband bandwidth ? Its a simple question with no simple answer. What is absolutely certain is that a very convincing argument could be made that wireless bandwidth is more important than over the air TV.
If this argument wins, the amount of spectrum to TV stations could be minimally cut, impacting the picture quality of their signal. It could be reduced substantially, severely impacting the quality, leaving just enough for a basic Standard Definition quality signal, or it could be cut 100pct with a subsidy being provided so that that the formerly over the air signals could be received over the broadband bandwidth or from an existing TV Provider. In any of these scenarios. it could be a big problem for the NFL. All NFL regular and post season games are currently broadcast on over the air stations. If the business and delivery of those over the air stations changes substantially, the economics of the NFL could change substantially.
Do you think the NFL and the NFL Players Association are building this scenario into their models as they negotiate their new CBA (collective bargaining agreement)? They should, it has a far better than zero chance of occuring in the next 5 years.
Payout Perspective:
Networks like NBC and CBS are getting outbid by ESPN – a cable network – for sports programming, because of the dual revenue stream (advertising and fee-per-subscriber) that ESPN enjoys. These networks simply don’t have the money to bid, nor the capability to leverage the sports content into as much revenue. It’s almost become a self-fulfilling prophecy of sorts: the fees and advertising allow ESPN to bid for superior content; that content drives higher revenues in the form of fees and advertising; and, those greater revenues again allow ESPN to bid more for superior content.
Thus, it’s only natural for these major networks to want their cut.
However, if the spectrum changes and shifts towards broadband, these networks are likely to suffer even more. That not only jeopardizes the position of these networks, but other sports properties like the NFL whose business models are so well-tied to that distribution method.
How does this effect an MMA property like the UFC? It provides more incentive for them to stick with ESPN, rather than pursue a a deal with a major network (aside from, perhaps, a deal with ABC which owns ESPN). But it also emphasizes the importance of continuing to develop a strong online distribution medium.
The operating environment that exists today will change – it’s a certainty. Nobody knows when or how, exactly, but it will change. Hedging risk through preparation and contingency planning, as Mark points out, is the key to succeeding in the future.
Note: Read the entire article for Mark’s take on why MMA has been so successful. Good points about risk management – or lack thereof – in professional sports today.
The bandwidth claw back doesn’t have to be an all or nothing affair. In most markets there are empty channels that can be used for bandwidth hogging apps already. In markets like LA where pretty well all the bandwidth is used the most likely stations to get clawed back aren’t the big 4 but rather the infomercial and other channels like that which have lower ratings. The lower your ratings the cheaper you will be to buy out. This will leave less competition for the remaining channels.
Channel allocations around the country will get shuffled to try and create a common hole across the country. Say channel 45 -50 or what ever but it is doable. If you go with lots of low power transmitters in that space you can get a lot of bandwidth going on.
Incredibly interesting stuff. Thanks.
I got to recommend going to Cuban’s blog and reading all of it. The little bit about MMA was intriguing.