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March 12, 2007
The Ledger Domain
Not a Done Deal...Yet
Two months after the deal was leaked, officials from MLB and DirecTV announced on Thursday of last week that they had reached an expanded seven-year, $700 million deal. By the end of the month, MLB's package that shows out-of-market games, Extra Innings, could be on DirecTV exclusively, and removed from cable and EchoStar's DISH Network. I say "could" because MLB seems to have left a window of opportunity open for cable, through iN Demand and the DISH Network, to remain options for consumers.
"In response to those concerns of our fans, baseball has negotiated with DirecTV to offer the package to the incumbents," Major League Baseball President Bob DuPuy said at the announcement last Thursday. "I hope that those fans who have been directing their concerns to us over the last several weeks will now encourage their cable carriers to in fact enlist for this package."
"The provision also requires the incumbents to agree to carriage rights to the MLB Channel proportionally equivalent to DirecTV's commitment," MLB said in a statement. "Should the incumbents decide not to match DirecTV's commitment, the MLB 'Extra Innings' package will be exclusive to DirecTV."
Essentially, MLB has given iN Demand and DISH until the end of the month to meet the DirecTV's commitment, or the exclusive deal takes effect. The "proportionally equivalent to DirecTV's commitment" part entails placing the upcoming MLB Channel on the basic tier, along with certain financial aspects, which the incumbent carriers (iN Demand and DISH) have said they would meet.
On the face of it, MLB appears to have caved in to pressure from fans who will be unable to make the switch to DirecTV, as well as to some of the politicians representing them. In a statement after the announcement of the deal, Senator John Kerry (D-MA) seemed to back off away from hard-line comments made last month. "I will review this deal to ensure it benefits consumers," Kerry said. "I'm encouraged that Major League Baseball may be willing to provide broader access to their games than what was initially proposed."
Following up on Thursday announcement, MLB officials met with iN Demand executives on Friday to see if they could work out a way to meet DirecTV's offer. Fans seem to have a glimmer of hope. E-mails and phone calls are pouring into their local cable operators, and to DISH and iN Demand.
Here's the real deal: iN Demand and DISH most likely won't be meeting the key provision, which is to place the MLB Channel on their basic tiers. That element was a poison pill provision, one that both MLB and DirecTV know the other two carriers won't meet, barring an extraordinary turn of events.
In a matter of hours after the announcement, Robert Jacobson, the president of iN Demand, said in a prepared statement, "Major League Baseball has chosen to cut a de facto exclusive deal--including conditions for carriage that MLB and DirecTV designed to be impossible for cable and Dish to meet--with one satellite operator, and (will) disenfranchise baseball fans in the 75 million multichannel households who do not subsribe to DirecTV." EchoStar issued a response similar to iN Demand's statement. "We have been asking Major League Baseball to make the package available a la carte so that only those who choose to get the games today can continue to do so," the company said in a prepared statement. "We hope they will act in the best interest of consumers and provide that option."
MLB and DirecTV were savvy in setting up the announcement. They have been working with the other carriers for some time to see if there would be a way to get them to line up with DirecTV's offer. By placing the deal in cable's and DISH's court, MLB and DirecTV set the stage for the incumbents to come off as the bad guys, get the heat from the fans that had been directed at them, and get politicians off their back. But why does what they've offered seem like such a poison pill?
The MLB Channel and the Basic Tier
As we covered earlier, the key to going exclusively with DirecTV is MLB's desire to place the MLB Channel on the basic tier, where it would have the broadest exposure. DirecTV has offered up to show the MLB Channel on their basic tier when it launches in 2009, and this is seen as the main sticking point in whether iN Demand and DISH can show Extra Innings.
When looking at the recent past, it's easy to see why cable most likely won't be offering up a place on the basic tier for the MLB Channel. Last year, Time Warner and Comcast (who, along with Cox Communications Holdings, Inc., and Time Warner Entertainment - Advance/Newhouse Partnership make up iN Demand) pulled the NFL Network over a similar dispute: placing the league channel on the basic tier. Cable operators such as Time Warner and Comcast often opt to place sports offerings on their pay-sports tier as opposed to the basic tier, citing costs. In the case of the NFL, they had asked for a pretty steep 70-90 cents per subscriber per month. As of publication, the details around the prospective MLB Channel fees are not known.
"Comcast believes it has the right to carry the NFL Network on a sports tier, and will vigorously defend its position," Comcast said at the time last year in a statement, adding that "the NFL is trying to force cable companies to charge many consumers for programming they don't want."
And therein lies the crux of the matter: passing costs onto consumers that may have no interest in the NFL Network, or the forthcoming MLB Channel. For carriers to provide such programming on the basic tier to be acceptable, they usually have to pass the associated fees on to the customer. Dedicated channels to a particular sport are seen as a niche offering, and therefore better suited sold a la carte.
From MLB's perspective, the costs associated with launching a network need to be offset in some fashion. Basic tier placement gets the most eyeballs on the programming, and presents a way to cross-advertise Extra Innings. Given these factors, it seems that an exclusive deal is still in the offing, unless the government steps in.
The FCC, John Kerry, and Arlen Specter
As mentioned, John Kerry seemed to back away from the hard line stance he had taken in late February, but that does not mean that Congress and the FCC aren't still looking into the deal. Given the deal's structure, these entities may be who ends up keeping Extra Innings on cable and DISH.
While Kerry stepped back a bit, Arlen Specter (R-PA), stepped forward in comments made to the AP last week. As we reported in January, Specter has been looking into NFL Sunday Ticket, and has considered introducing a bill that would repeal the NFL's antitrust exemption under the Sports Broadcasting Act of 1961. As noted, Specter is a senator from Pennsylvania. Comcast is headquartered in Philadelphia, and is one of the principle owners of iN Demand.
"I will be analyzing the commitment to see... if the conditions for other carriers are satisfactory," Specter said to the AP. "This arrangement should motivate the NFL to reconsider broader coverage on its Sunday Ticket and Thursday/Saturday programming to make such games available to other carriers beyond DirecTV. It may be necessary for the Senate Judiciary Committee to have further hearings on the antitrust implications of the NFL and MLB TV programming, and whether it is in the public interest to allow the antitrust exemptions of the NFL and MLB to continue."
Members of Congress have made these types of threats before, and it remains to be seen if they follow through. The FCC on the other hand, may be in more of a position to block the deal. In a letter to Senator Kerry, FCC Chairman Kevin Martin said, "I share your concerns regarding this proposed deal. ... I am concerned whenever consumers cannot purchase the programming they want or are forced to purchase programming they don't want."
Making the Jump to DirecTV on MLB.TV? Keep This in Mind
What happens if cable and DISH stay with their offer, the government doesn't step in the middle, and you decide that you want to keep watching Extra Innings and you currently don't have DirecTV? Here's some little-known tips to keep in mind:
Does Your Voice Matter?
For the many of you that have written since Thursday asking how they can get in touch with MLB or their carrier to voice your displeasure, there maybe little in the way of recourse for you at this point. I found it ironic that MLB said that there was little in the way of complaints coming in, and that Commissioner Selig found the complaints "ridiculous," yet DuPuy asks those complaining to call their carriers to try and get them to go along with the deal. As a result, complaints to MLB would seem futile at this juncture. The deal is in place, it's just a matter of iN Demand or DISH killing off the notion of exclusivity at this point.
As for what you might expect from calling the carriers, it seems that MLB's insistence on being included in basic tiers would kill off any chance of their being allowed to add the MLB Channel. Would it be out of the question for the NFL to sue cable over the NFL Network being pulled if they had placed the MLB Channel on the basic tier? One would think that's a real possibility. As a result, calling the carriers seems fruitless, as well.
One has to ask if DirecTV simply offered up a better deal, bringing us to this point. After all, they are taking the risk of placing the MLB Channel on their basic tier, which iN Demand and DISH seem unwilling to do at this time. MLB is weighing that against the total number of consumers that would have access to Extra Innings across all the incumbents in the current format, and has decided that being exclusively on the basic tier on DirecTV is in their long-term interest. With the season nearly upon us, DirecTV needs to market the package, fans should wait to see if iN Demand and DISH will blink, and MLB can wash its collective hands of the matter. Two weeks from Saturday we'll know whether it's business as usual, or whether the next seven years will be an exclusive arrangement, barring an act of Congress. Stay tuned.