Disney and Time Warner Inc. paid through the nose to lock up an additional nine years of NBA rights and secured access to one of the most coveted assets in what is now the Sports Age. But according to research company The Diffusion Group, the $24 billion deal left pay-TV--and consumers--vulnerable.
"The fact that incumbent operators were not involved in this arrangement is especially important," TDG notes in its latest report, titled "Hoop Dreams." "It means they will pay for these massively expensive new rights. And when TNT and ESPN charge operators these increased fees, operators will in turn increase the monthly fees paid by their subscribers. In fact, this NBA deal alone could raise the average American's pay-TV bill by a couple dollars per month. Add to this increased costs associated with NFL, MLB, and college sports rights and you have a disastrous scenario, which could fuel direct-to-consumer OTT offerings from major networks and lead to greater incumbent subscriber loss."
A number of analysts and cable executives have wondered how programmers ESPN and Turner will monetize an investment that averages $2.6 billion in yearly price tags between them. TDG thinks it knows how this is going to get done.
"Increasing monthly fees is not an easy sell in an era of Cord Nevers, Cord Cutters, and Cord Shavers, and it appears that the pain of explaining this cost increase to consumers will fall on pay-TV operators, this despite the fact that they do not actually benefit from these deals," report author Joel Espellen concludes. "To the extent that more and more basketball fans get their NBA content from Turner and ESPN's online properties, these deals hurt operators. We believe this scenario will play out with increasing frequency in coming years between content owners and pay-TV operators, with the operators generally getting the short end of the stick. Once again, it's good to be king, and pretty tough if you are not."
- read this TDG report
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