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April 9, 2007

The Ledger Domain

Breaking Down the Extra Innings Agreement

by Maury Brown

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Hear that sound? That's the sweet clatter of thousands of television clickers scanning for games on MLB Extra Innings, as last Wednesday saw iN Demand-a consortium of cable operators such as Time Warner Entertainment-Advance/Newhouse Partnership, Comcast iN Demand Holdings Corp., and Cox Communications Holdings Inc.-come to an agreement with MLB and DirecTV to keep the out-of-market television package on cable. The deal was brokered well past MLB's self-imposed deadline of March 31st, and the day before the regular season started, leaving many fans hanging in a sort of purgatory while trying to determine whether to ride it out and see if some type of agreement would be reached, or bail out of their current provider and jump to DirecTV or MLB.TV.

So, Extra Innings is no longer exclusively available in one location, but that doesn't mean some providers aren't still on the outside looking in. What's the new deal all about? Here's a breakdown of the "post-exclusive" world for Extra Innings, and what's still up in the air.

Details of the New Extra Innings Agreement

When word leaked out in early January of MLB's intent to make DirecTV the sole provider of Extra Innings, the agreement was for the satcaster to pay $100 million a year for seven years for Extra Innings, and place the upcoming The Baseball Channel on the basic tier to approximately 15 million DirecTV households. Now, with iN Demand onboard, the dollar amount for Extra Innings remains $100 million annually, but is split between DirecTV and iN Demand. That arrangement could be split-up further with DISH Network in the picture, which we'll get to in a bit.

The big shift in the new agreement has to do with The Baseball Channel. As mentioned, in a DirecTV exclusive arrangement the total households that would receive The Baseball Channel would be 15 million, but with iN Demand now part of the deal, that figure jumps to an astonishing 40 million households. Hold that figure in your head for a second and take this in: when the NFL launched The NFL Network, it was made available to 35 million homes. MLB hits the jackpot with the new deal, and while the 40 million figure will be one of the most successful launches ever on just the addition of iN Demand, there are still other cable operators, such as Cablevision, that could get into the mix and drive the total household count up higher still.

The particulars in equity ownership of The Baseball Channel shifts, as well. The original exclusive agreement had DirecTV holding a 20% ownership stake. Now, DirecTV and iN Demand will own 16% respectively. While MLB gears down from 80% to 68% ownership, they can look at the proportion as a glass half-full. Yes, they own less, but then they also take on less risk in the venture. If DISH were to somehow come into the picture, as well, this percentage would shrink further as they have made it clear that an ownership stake would have to come with DISH onboard.

The other financial aspect that comes into play with iN Demand now part of the Extra Innings picture has to do with the subscriber revenues that are attached to The Baseball Channel, on top of the $700 million for Extra Innings. The NY Times reports that MLB will take in the lion's share of the annual subscriber revenues associated with the deal. At $120 million annually, the total take would be $600 million in revenues, which MLB gets a portion of. Added to the Extra Innings component, MLB could approach an estimated $1 billion in revenues with the new deal, and as mentioned, that's not including other operators that wishing to show Extra Innings are being told that placing The Baseball Channel on the basic tier is mandatory.

What of EchoStar's DISH Network?

Not everyone that had Extra Innings prior is doing the happy dance since Wednesday's announcement. EchoStar's DISH Network was noticeably absent from the announcement, and word at the time was that DISH was still interested in reaching an agreement, and MLB said they were still working with them to try and bring them back into the fold. That's the public position, but posturing seems to point to DISH moving on.

While iN Demand and MLB announced the deal for Extra Innings, DISH was touting new regional sports network (RSN) offerings in High Definition. The seven HD RSNs launched include Fox Sports Network Florida (DISH Network Ch. 373), Fox Sports Network Midwest (Ch. 368), Fox Sports Network West (Ch. 367), Fox Sports Network Prime Ticket (Ch. 361), Fox Sports Network Rocky Mountain (Ch. 364), Fox Sports Network South (Ch. 370), and Fox Sports Network Southwest (Ch. 366). On Friday, DISH announced that they had reached a deal with Mid-Atlantic Sports Network (MASN) to show Nationals and Orioles games. In addition, DISH posted on their website a series of reasons why they feel that getting in bed on the Extra Innings deal was bad for their customers, and said they were working with members of Congress to try and get the new Extra Innings deal overturned to allow them to get into the picture at what they feel are better terms for consumers. So, while DISH and MLB may say they are interested in consummating a deal outside of the iN Demand/DirecTV/MLB deal, the rhetoric coming out of DISH seems to point to their operating as if a deal can't be reached, short of intervention by Congress.

With iN Demand in the Picture, is Cable Completely Covered?

MLB and cable scored when they came into the new Extra Innings picture, but that doesn't mean that every cable subscriber that had Extra Innings last season was able to get the channels after Wednesday. Customers Cablevision, Charter Communications, Insight Communications, Mediacom Communications, and a host of other distributors have not been allowed to broadcast MLB Extra Innings until individual agreements are reached over the forthcoming The Baseball Channel. While some may have reached deals by publication, until these carriers reach agreements, Extra Innings is not available to their customers.

So, if I Now Have Extra Innings, I Got All the Games, Right?

So, you're asking if you have Extra Innings, you can catch all those games now, right? Well, not exactly. There are a bunch of blackout restrictions to take into consideration. Remember, for every Saturday of the regular season, the FOX Television Network has the exclusive national rights to broadcast games up until 7:00pm ET (4:00pm PT). That means you're blacked out up till then. And… (takes a big breath)… ESPN maintains their exclusive national broadcast window for all Major League Baseball games on Sunday nights, therefore, no telecast can be made available for out-of-market distribution. As their rights are for night games only, any games which start after 5:00pm ET (2:00pm PT) cannot be distributed out-of-market. However, on the first Sunday after the All-Star Game (7/15/07), no game with a start time after 3:00pm ET (12:00pm PT) can be distributed out-of-market.

On top of that, you can still be caught in the Blackout Blues. Here's a note to all of you Cardinals fans: FSN Midwest is blacking out games in central Illinois and parts of Iowa and Kentucky. The issue is between Fox Sports Net and DirecTV and Dish Network., and add in the fact that there will be 19 fewer games available for free over the air this season for the Cardinals, and it seems that those wishing to get their fix of the reigning world champs may have a harder go of it as far as fullfilling those wishes.

So, Who Won?

Who came out on top of the new Extra Innings deal? MLB certainly did. The key has been The Baseball Channel in all of these negotiations, and with MLB seeing 40 million or more households having access to it when it launches in 2009, this was a huge win for them. Yes, it appears they lost out on DISH Network, but then this less than losing out on iN Demand, and they'll pick up a fair number on new MLB.TV subscribers who can't stand the thought of losing out on their favorite team if they are out-of-market.

Questions abound as to whether or not MLB could have handled this matter any better. The answer by nearly every analyst that has examined this deal is a resounding 'yes.' Clearly, making the exclusive deal with DirecTV retroactive to 2008 would have allowed the parties time to hammer out their agreement and allow fans ample time to adjust. Instead, it created considerable ill-will among fans, and possibly among the parties involved in the negotiations. Also, one wonders why the telecommunication companies weren't in the picture. The Verizons and Cingulars of the world will undoubtedly be larger players in the future, as the technology to deliver content into homes converges with other high-tech delivery platforms such as set-top boxes.

Maybe we can count John Kerry and some other members of Congress among the winners. After all, they held a hearing that forced the parties together. While that may seem like a reason, even Kerry admitted that there was little they could do to force the matter. Still, by having MLB extend their self-imposed deadline, the politicians will get some bit of credit from the deal coming together.

Maybe, in the end, we can also count the fans among the winners. An exclusive arrangement with DirecTV would have left thousands in a lurch, and from the multitude of voices that have come across the web, most seem glad to have the deal consummated and, for the most part, behind them.

Look at it this way: we have seven years to determine who really came out on top, who lost, and whether the deal is a smart one. Until then, if you still have access to Extra Innings after the deal, grab some popcorn, kick up your feet, and enjoy some baseball. It's the start of a new season, and with that, click to your heart's content.

Maury Brown is an author of Baseball Prospectus. 
Click here to see Maury's other articles. You can contact Maury by clicking here

Related Content:  MLB,  Extra Innings,  MLB Network,  Deal,  Mlb The Show,  The Who,  The Atlantic

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