This Time It Is Not Personal
I am sure all of us have noticed the constant reminders during the Fox Sports West broadcast of recent games that DirecTV will soon be booting the network, and others, off its channel lineup. Naturally, this has caused a great deal of consternation among Kings’ fans who would sooner miss a carnal interlude with our wives and girlfriends rather than a Kings game (present company definitely not included). As Scribe pointed out earlier, we have already gone through such an escapade last season with Dish Network, an incident that was painful to me in many ways. I am still apologizing to my downstairs neighbor for damaging his plants when I threw my dish off my balcony after the Kings’ entire October television schedule was wiped out. Watching Dish owner, multi-billionaire Charlie Ergen in his stupid, company logo shirt telling me why I should not be upset did not improve my disposition. Then, rubbing salt on my stitched up forehead cut up while tossing the damn metal plate, Dish Network actually charged me $350 for prematurely disconnecting my service.
Well, I switched to DirecTV, and this time I am not panicking. That is because the nature of the dispute, while superficially similar, is different in nature. As I discussed in my blog on the Dish Network quarrel, this was deeply personal. Put plainly, Rupert Murdoch, the CEO of News Corporation, the owner of Fox, and Charlie Ergen despise each other. The genesis of their hatred goes back to a failed merger between Murdoch’s direct broadcast satellite (DBS) assets and Ergen’s firm which was called Echostar at the time. Making matters worse was that Murdoch was eventually forced to sell these assets (a longitudinal position over the U.S. and some broadcast satellites) to Echostar at a reduced price once it became evident the U.S. market did not have room for a third DBS provider. When it comes to business, Murdoch rarely loses and never forgets an enemy. Given the bad blood, I was not surprised that this fight escalated to the point where customers actually lost some games.
With DirecTV, there are no such vendettas involved. In fact, DirecTV was partially owned by News Corp. as recently as 2008. Murdoch transferred his interest in DirecTV to Liberty Media in exchange for Liberty’s shares of News Corp giving his family tighter control of the latter enterprise. Liberty Media is controlled by John Malone, a cunning executive who ironically became wealthy in the cable television industry. Malone takes second to no one when it comes to furthering his own business interests, but in contrast to Ergen, has made lots of money investing alongside Rupert Murdoch. In an industry that is dominated by gigantic egos, this distinction is critical.
When it comes right down to it, the argument between Fox and DirecTV is about how much multi-channel providers, cable and DBS, should have to pay for sports programming. With the continued fragmentation of the television audience, only one constant remains – the ability of televised sports to draw significant audiences. In fact, NFL games make up 13 of the 14 most watched shows of this fall season. Knowing this, the professional and college sports leagues are able to charge networks such as Fox a premium for the right to broadcast their games. As the cost of these rights escalates, the networks require more revenue in order to pay for them. With advertising growth sluggish due to a slow economy and competition from new media, the only source of cash available to pay for these rights comes from cable and DBS companies who pay a monthly fee for each channel in their lineup. In the case of minor channels, this fee can be as low as fractions of a penny per month. But for the most watched channels such as ESPN and the Fox Sports regional networks, these fees represent a significant percentage of your cable or satellite bill. Any increase in rights fees need to be passed on to us, the consumers, something these companies are loathe to do for fear of antagonizing their customers.
In a nutshell, Fox wants to increase the amount DirecTV pays to carry their network while DirecTV wants to preserve its profit margin. The reality is, however, that neither party can live without the other. DirecTV knows that lots of Kings’ (and USC and UCLA) fans will cancel their service if their games are not available. By the same token, Fox cannot live without DirecTV’s 19 million+ customers as it affects their ad rates and cuts of lucrative rights fees altogether. Put in more simple terms, Malone and Murdoch both want to make lots of money and can only do so if the fans have their faces glued to the screen watching our beloved team. So, rest easy, this will get resolved. Gosh, I love capitalism!