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Thursday, January 3, 2008

Suits With Their Hands Out
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Who would Patriot fans have to blame if their cable operator did not carry the final game of the New England team's undefeated regular season? Look no further than the NFL offices.

The NFL is the most financially successful league in the world. NFL franchises are worth, on average, about a billion dollars each, and five of them are worth quite a bit more than that. One might imagine that a league whose aggregate value exceeds the GDP of Iceland and Jordan combined would be content. One would be wrong.

No, the NFL is not making enough, apparently, merely filling stadiums (many of which were built with taxpayer subsidies), hawking team wares, and marketing TV rights to broadcast and cable networks. Now the NFL would like to wring a few more golden eggs from the goose by forcing non-fans to pay for televised games. Even those accustomed to the rich getting richer must find the inherent unfairness of the NFL’s power sweep offensive.

Allow me to diagram the play. NFL games are unique assets, conferring considerable market power upon the team owners and the league. As a result, the NFL has been able to demand lucrative broadcast distribution deals from the major networks for years. Now the NFL is attempting to go one better by distributing a handful of its games on its own programming service, the NFL Network.

Cable operators are eager to carry the new network, if only to provide sports fans access to those few games to which the NFL Network holds exclusive rights. But therein lies the rub. The NFL Network is not a general purpose sports programming service like ESPN that can be expected to draw sizeable audiences and advertising revenues throughout the year. Many cable operators, consequently, would prefer to carry the network on a sports tier so that only those who most value sports programming pay for it.

The billionaire owners of the NFL, though, want more. They want to extract fees not only from those who watch NFL games, but also from those who do not. In negotiations with cable operators, the NFL Network has insisted that it be carried in the basic programming package available to, and paid for, by all cable subscribers. Hence the impasse when large operators such as Time Warner Cable refuse to impose the cost of NFL Games on non-fans. So what does the richest league in the world do when it cannot impose its will on the market? It sends plaintive pleas for help to Congress and the FCC.

Indeed, the league is asking Washington to impose mandatory arbitration when cable operators do not agree to the terms it demands. Now, to be fair, the FCC has, on rare occasions, ordered mandatory arbitration in programming disputes. In fact, as the former Chief of the FCC’s Media Bureau, I was one of the architects of the policy supporting such intervention. But in every instance, the FCC intervened only upon finding that market negotiations were failing, or were likely to fail, because one or the other party would benefit from that failure.

In the current dispute, cable operators reap no advantage from their failure to reach agreement with the NFL Network. To the contrary, as we've seen in the final weeks of the NFL, there is growing outrage among fans that certain games will not be available on cable. The cost to cable operators who do not carry the network will not be insignificant.

Thus, a cable operator’s refusal to accept the demands of the NFL suggests that the market is working, not that it is has failed. The cable industry has been struggling to control consumer prices in the face of increasing costs. By holding the line on new programming costs – particularly programming which appeals to a defined subset of consumers – the cable operators may be able to help control against cable rate increases for all subscribers. It is fair to be sympathetic to the consumers who subscribe to cable systems that have not acceded to the NFL Network’s demands, but that sympathy is no basis for a federal bailout of wealthy NFL owners at the expense of non-fans.

posted by W. Kenneth Ferree @ 9:45 AM | Cable , Sports

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