Should Smaller, More Valuable Viewer Groups Pay For Big Program Rights Increases?

Take the most valuable programming and hold it hostage to viewers. What do you think would happen? Would viewers pay an extra fee for NFL football, "American Idol," or the season and series finales of any big show?

If you're HBO, you're out of this equation; your customers are already paying an extra fee. But if you are ESPN with "Monday Night Football," or Fox, CBS, or NBC with their NFL football, the growing sentiment is that big TV rights fees may not keep pace with growing advertising revenues that support the programming.

Yes, big sports leagues will continue to pay sizable percentage increases per year -- but how will they financially account for this? ESPN just shelled out around 60% more for "Monday Night Football": around $1.8 billion a year.



Will advertisers pay 60% more next year?

For all the extras that ESPN will get from the NFL - such as new shows and certain digital and international rights -- ad revenues from those specific 17 "Monday Night Football" games is where the real money is. In recent years, TV sports advertisers have paid high price hikes -- 15% or more per year -- relative to other programming. But that's not 60%.

Say what you will about cable's affiliate fee structure -- something broadcasters are getting a taste of through retransmission revenue - those revenues for networks aren't rising as fast as they have in the past.

The NFL rights fees for Fox, CBS, and NBC will assuredly go in the same direction -- all due to the NFL's steady ratings as compared with fast declines in non-sports programming viewership. For some networks, the NFL is "must-have" even if it's a loss leader. It pulls people into their big tent.

But in the future more TV networks -- just like most new digital content providers -- will be thinking more about viewer "subsets."

Concerning the NFL, Derek Chang, executive vice president of content strategy and development at DirecTV, told the Los Angeles Times: "It is valuable programming, but it is only valuable to a subset." But, he warned, this was "taking us down a dangerous path."

What is dangerous? TV entertainment consumers are price-sensitive -- especially these days. Chang says subscription TV is already losing customers; more might want to cut the cord.

Certainly, this is a problem. But if that subset of viewers cannot do without that product, perhaps they might pay more. Perhaps they should pay more. DirecTV for years has been getting nice business from its big NFL Sunday Ticket package where viewers spend an extra $300 for an entire season of football games. But that doesn't generate enough revenue to run its entire satellite TV distribution business.

In the future, a few more networks will need to come to a similar decision -- no doubt with the NFL's blessing. Think of it as being on a video-on-demand basis, a daily basis, an iPad basis, or another digital device basis.

Fractionalization of TV -- which speaks to viewer "subsets" -- is a continuing process that established TV and media companies have sleepless nights over.

Whether it's "American Idol," "Real Housewives" or the New York Giants battling the Dallas Cowboys, a price point versus an intense fanatic viewer subset has always been the real issue. What would you pay for a show you really wanted? The industry still awaits some real breakthroughs.

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