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Friday, November 7, 2008

The NFL's Anti-Consumer, Anti-Free Market Bullying Should Stop
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NFL Commissioner Roger Goodell apparently sent a letter on Halloween to Senator Arlen Specter in yet another attempt to have the government intervene in its market negotiations with cable companies over the carriage of the league-owned NFL Network. Such anti-consumer, anti-free market bullying should stop.

By now the dispute is familiar. The NFL has taken a handful of games from free broadcast television and moved them to exclusive distribution by the NFL Network. The NFL Network, however, is not free to cable companies. Those that might want to carry it have a choice: they can carry it on a special sports tier for which sports fans would pay an extra monthly fee, or they can carry it on the basic tier and spread the costs of the programming over the entire subscriber base, i.e., make all subscribers pay for the NFL Network programming.

The economics of the dispute are not very complicated. The owner of the programming (the NFL) will not distribute it on a platform free to viewers, so the question is whether it is to be paid for by all cable customers or only those who value sports programming. Now, it is understandable that the NFL would prefer to have the network carried on the basic tier. By spreading the costs of the programming over a larger number of subscribers, the per-subscriber retail price for the programming would be lower. In addition, if the programming is on the basic tier, there would be opportunities for viewers to surf to it who might not otherwise subscribe to a special sports tier, thereby enhancing the value of the network to potential advertisers.

From a consumer perspective, however, requiring non-sports fans to pay for the NFL Network, and thereby subsidize the viewing preferences of sports fans, is indefensible. That perspective is reflected though market mechanisms in the carriage negotiations between cable operators and the network. Under pressure to restrain retail cable rates, cable companies would prefer not to raise cable rates generally for specialized programming, but rather impose the costs of that programming on those who would demand it.

Normally the tension between a seller's desires and those of consumers is resolved in market negotiations. There is no reason to think that it could not be in this case as well. The NFL Network, however, has disdained market negotiations and instead appealed to the government to ensure that it gets both basic tier carriage and premium distribution fees. As I stated in testimony to House Commerce Committee's Subcommittee on Telecommunications and the Internet, the government should turn a deaf ear to such appeals.

In fact, 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 for programming and expanded services. 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 @ 9:02 AM | Cable , Sports

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