March 26, 2007
The Ledger Domain
iN Demand and MLB Tussle Over Extra Innings
Confused? Here's where we are now, and what's on tap for this week as this saga rolls into Act III.
MLB Passes On iN Demand's Counteroffer
As mentioned in the last article, MLB has given the incumbents (iN Demand, the consortium of cable providers including Time Warner and Cox Communications, and EchoStar's DISH Network) until March 31st to match DirecTV's offer. There are financial elements in play, as well as DirecTV's offer to place the upcoming The MLB Channel on the basic tier.
On Wednesday of last week, iN Demand came forward with a counter offer. "As the current home for Extra Innings for more than 200,000 cable subscribers, we have extended ourselves to do our best to be able to continue to provide this package to baseball fans and our customers," said Robert D. Jacobson, President and CEO of iN Demand Networks in a statement at the time of the offer. "This offer meets all the conditions set forth by MLB last week. Throughout this entire process, our goal has always been to respect the wishes of baseball fans who currently subscribe to Extra Innings through their local cable provider, and we stand ready to execute an agreement before the beginning of the baseball season," Jacobson said.
Fans hoping to keep Extra Innings on cable had their hopes up for just over one hour before MLB shot down iN Demand's offer. Bob DuPuy, president and COO of MLB released a statement, part of which read, "The communication sent to our office today by iN Demand is not responsive to [the offer DirecTV has made to MLB]. In spite of their public comments, the response falls short of nearly all of the material conditions (among them requirements for carriage of The Baseball Channel and their share of the rights fees for Extra Innings) set forth in the Major League Baseball offer made to them on March 9."
The following day, the NY Times reported that Tim Brosnan, baseball's executive vice president for business, said in a telephone interview that "the correspondence they sent us amounts to a misleading press release and a failed strategy if their intention is to make a deal and to truly deliver this package to their customers."
Jacobson shot back: "We understood that if we matched the terms of the DirecTV offer, we'd have a deal," he said. "We feel we've done that." He added that he was never shown a copy of the contract. Brosnan countered, "We laid all this out in painstaking detail to them in our meeting on March 9. We could not have been any clearer."
What exactly was iN Demand offering, and what was MLB looking for? The difference seems to be in how the interpretation of the structure of the deal, and good old-fashioned posturing on the part of MLB and iN Demand if the deal goes exclusive. So where is the disconnect between the two?
DirecTV has agreed to place The MLB Channel in 80 percent of their households, according to a filing with the FCC sent later in the day on Wednesday. MLB wants to see iN Demand do the same: match the 80 percent of its digital households, which would represent approximately 40 percent of iN Demand's total subscriber base. Added to this issue is the fact that DirecTV has offered an up-front guarantee in terms of the fees to MLB. As part of its package, iN Demand wants to tie the rights fee to an actual subscriber basis, which places more risk with MLB.
As for DISH Network, EchoStar Communications CEO Charlie Ergen also said on Wednesday that his company (parent of DISH Network) had yet to meet with MLB officials to see if they will somehow continue to be able to offer Extra Innings to their customers, and "called into question" whether MLB was willing to offer DISH and iN Demand the same deal as they are offering DirecTV. Ergen mentioned the fact that as of this date, EchoStar and iN Demand have not been offered a stake in the MLB Channel. MLB has offered up a 20 percent stake in the channel to DirecTV. Ergen added that EchoStar is "not interested in signing a deal that forces it to carry the channel on its most widely distributed basic package when so few of its customers subscribe to Extra Innings."
That was Wednesday. If you look back to shortly after MLB and DirecTV made their public announcement on the deal on the 8th, cable was already motioning toward passing on a deal to keep the Extra Innings, and was working back-channels to try to retain customers from jumping to DirecTV. How were they going to do that?
Cable Providers To Do An End Around?
Shortly after MLB made their official announcement that they had reached an extended deal with DirecTV to make them the exclusive carrier of Extra Innings barring cable and DISH matching DirecTV's offer, word started to percolate out some cable operators might offer up MLB.TV at deeply discounted rates or for free. MLB.TV is the online offering that MLB provides to show out-of-market games. Indeed, Cox Communications has already set up a special promotion page that offers the service for free via rebate to anyone that was a subscriber last season to Extra Innings through Cox.
So one might ask, if iN Demand were serious about their offer to MLB and they felt MLB would accept the deal, why would Cox offer up the MLB.TV promotion that they know would raise the ire of MLB? The rebate offer has all the earmarks of a carrier that is preparing for a post-Extra Innings world. As for other providers that make up iN Demand, Time Warner was initially unaware of the offer being made by Cox, but Marc Farrar, a spokesman for Time Warner Cable in San Diego said, Time Warner was "moving forward under the assumption (Extra Innings) is not going to be available to us." In response, MLBAM Sr. Vice President Jim Gallagher said, "We will not allow any of our assets to be used to undermine this deal" through an effort such as bulk buying of MLB.TV subscriptions.
What Will This Week Bring?
On Tuesday, there will be a hearing before members of congress on the proposed exclusive deal with DirecTV. The U.S. Senate Commerce Committee will hold the hearing, which will have Sen. John Kerry (D-MA) as the chair. Bob DuPuy and iN Demand president Rob Jacobson will be but two of the luminaries that will testify regarding the deal. The session is entitled "Exclusive Sports Programming: Examining Competition and Consumer Choice," and it may have consumers unable to get DirecTV as potential witnesses.
Will the hearing make any difference? After all, the season starts on Sunday, and the incumbents have until Saturday (the 31st) to match. As I've mentioned before, all indicators point towards an exclusive deal between MLB and DirecTV. Short of intervention from the FCC or congress, that's the most likely path.
You have to ask yourself if DirecTV is simply offering up a better deal. This may seem a bit of backtracking on my part, but with the details on how DirecTV is offering fees upfront compared to iN Demand's per subscription structure, and DirecTV's willingness to place The MLB Channel on the basic tier, it's hard to say the DirecTV deal doesn't have its advantages.
Sadly, as we've covered over and over here on BP, a good number of MLB's core fans will be left in a lurch if the deal goes exclusive to DirecTV. With a week to go before the season starts, ask yourself if waiting for the FCC or Congress to jump into the fray is what you are hanging your hat on as you plan your baseball content needs at the beginning of the season. Could something dramatic happen between now and Opening Day? The rest of the week will be telling.