Will the cost of ESPN drive pay-TV to an a la carte model?


ESPN took it on the chin at Monday's UBS investor conference in New York, with pay-TV execs bemoaning the cost of sports programming and one, Liberty Media Corp. CEO Greg Maffei calling ESPN's fees for programming a "tax on every American household."

That "tax," and the rising cost of sports programming in general, are forcing operators to raise their rates to the point where consumers are becoming unwilling to pay.

The result could be broader sports tiers being offered, à la carte sports offerings or pay-TV systems with no sports offering at all.

Viacom chief executive Philippe Dauman, who noted the cost to carry ESPN "alone as a network in many systems is double the cost of all our networks combined," echoed Maffei's concerns during the conference.

SNL Kagan said subscribers pay $4.69 a month for ESPN, up 42 percent since 2006; over the same period, general content cable channels, which average 26 cents per month to subscribers, have risen just 24 percent.

ESPN, for its part, defended its pricing, and said the network is consistently ranked by cable operators as the most compelling and comprehensive driver of their businesses, offering more total value in a multiplatform world than any other basic cable network by far," said The Wall Street Journal.

But live sports remain a powerful draw. Nine of the top 10 most-watched programs recently have been NFL football games. Nielsen said regular season games average nearly 18 million viewers.

Both Dish Network (Nasdaq: DISH) and DirecTV (Nasdaq: DTV) have long been critical of the rising cost of sports programming. Dish Network has pared down some of its regional sports offerings and considered dropping Fox Sports during carriage fee negotiations last year.

DirecTV, too, has been a vocal critic. EVP of content strategy and development Derek Chang said sports programming fees are posing a conundrum for subscribers. The rising fees, he said, "start to get to levels where customers say they just can't afford it."

Last month, the company reached a last-minute deal with Fox for a package of programming that included several sports channels.

As Chang said more than a year ago: "In our battle to manage our economics, we will look to repackage channels where we have over-distributed, or frankly just to remove certain channels from our platform if they are not relevant."

With the enormous power of sports programming, their cost can be difficult to factor into the equation. But for many subscribers, leaving sports out of their programming equation leaves pay-TV with zero value.

The industry has long been fighting à la carte programming, but the increasing cost of carrying sports to operators may force that hand.--Jim