The Link between Netflix, Broadcast Rights, and Professional Sports Riches

In my post on the cost of sports broadcast rights, I noted that one of the factors cited for the inflation in those rights is the willingness of cable and satellite subscribers to accept the increases in their bills.  The key thing to understand about the price of pay tv packages (called MVPD in industry and regulatory jargon) is that it is driven by the price of the sports networks such as ESPN, Fox Sports, and various regional sports networks (such as MSG and SNY in New York).  The price for these channels is orders of magnitude over a random non-sports channel such as Lifetime or even CNN, and they are increasing rapidly on an annual basis.  For example, there are some reports that some cable operators have been paying ESPN over $4 a subscriber/a month, while other channels could run in the range of $.25 – $.50.  Typically, these high prices have been bundled with contractual provisions that guarantee that a channel like ESPN are bundled into the most basic packages.  The result of this is that ESPN or a like sports channel gets a payment for virtually every cable subscriber, regardless of whether that cable subscriber likes or does not like sports, since subscribers for the most part cannot get the channels that they want on a la carte basis. 

This model is threatened by Netflix and other such models.  To the extent that you are not interested in live sports and are willing to endure a certain delay in watching other programs (for example, when a series is available on DVD).  Netflix gives you the option to cut the cord.  You can fill in news online.  If non-sports watchers stop handing money over to the cable systems and subsequently over to the sports networks to help pay for the inflated sports rights, one of the stool legs making those ever-increasing prices possible — namely the willingness of cable and satellite subscribers to also pay higher rates for their television subscription packages– will be weakened, threatening the system.