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February 26, 2009

Solving the Digital Blackout Blues

Liberation!

by Shawn Hoffman

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"This is all a very, very complicated matter. Who really has these [digital] rights, and how do we best bring them to the marketplace? That's the big question. And though we're in sort of a holding pattern right now, it's no doubt the single biggest economic issue our industry is facing."
-MLB Club Official (Sports Business Journal)

That anonymous club official was interviewed before the financial world collapsed in September, so you can forgive him for seeming to have a weird set of priorities. But if you've been reading this space, you know how valuable the digital rights to local MLB game broadcasts could be in the long term. As complicated as the issue may be, you would think that when everybody is losing-and I mean everybody-there would be some serious incentive to figure it out, but so far, no luck. If you live in Montana, you still can't see Mariners games on MLB.tv (or MLB Extra Innings, for that matter). Or, perhaps even worse, if you live in New York, you can only watch the Yankees or Mets if you're also willing to buy FitTv, about seventeen Discovery channels, and a couple hundred other cable stations that you'll never watch.

Maury Brown has been front and center advocating for the fans on this issue, but the teams aren't exactly thrilled with the situation either. Along with MLB Advanced Media, regional sports networks (RSNs), and cable operators like Comcast, they are leaving money on the table every time a major league game is played without being streamed locally over the internet. Needless to say, there's a market for online Yankees telecasts in New York, or Red Sox games in Boston. But with so many entities looking to get their own piece of the pie, everyone has been left flatfooted.

So here's one proposal that could work. It's not all that complicated, because it really doesn't need to be. The most important thing is to get this product to market sooner rather than later, so that the customers don't have to send any more angry letters, and everyone involved can finally begin making some money off of it:

  • MLB turns over all local digital rights to the thirty teams, meaning that each team can sell its own local broadcasts online (if it wants to). The teams are required to use MLBAM's technology (they'll pay a flat, market-value licensing fee to do so), and cover all streaming costs, but the league is otherwise not involved.

  • With MLB and MLBAM out of the way, the teams are free to negotiate with their local broadcast partners and cable operators. If nothing else, this simplifies things by cutting the number of interested parties from four to three (or, for the teams that own their own RSNs, from three to two). It also recognizes that a blanket set of terms for thirty local markets would be a disaster.

  • Each team is its own master. If any team can make a profitable business out of this, they're free to do so. If not, they don't have to, but they'll still own the rights, and can use them whenever they choose to. Each team creates its own set of packages (monthly, yearly, bi-yearly, etc.) and chooses its own price point (that could be $50 for the season, $10 per month, or completely free). They could also opt for bundling their games into the normal MLB.tv package for an extra charge.

There might be a real-world model for this type of plan coming soon. The NBA is reportedly going to de-centralize its local digital rights, though there are still a few details to be worked out. MLB has been a bit more stubborn about giving up any digital rights, but they'll certainly be keeping an eye on the NBA's progress, and it wouldn't be a surprise if they came to this same conclusion a year from now.

The cable companies would still be roadblocks, of course. Both the networks and the operators have a vested interest in keeping games on television only, or at least in receiving a significant piece of the ensuing revenues. But with each team acting autonomously, they would likely have a much easier time cutting deals. Take this real-life scenario from Sports Business Journal last fall:

Major League Baseball hopes to launch local online streaming of live games next season after it failed to come to an agreement with Comcast on a potential test of Chicago Cubs and White Sox games earlier this year, marking the latest entry in what has long been a growing and divisive issue within baseball.

Industry sources said Comcast and MLBAM would have split ad sales revenue, and geo-tracking technology was in place to ensure that the game would only be available to the CSN Chicago subscribers.

But talks for the test to occur in the 2008 season remain deadlocked after they broke down over several issues, including whether the games would be available on MLB.com or the CSN Chicago site. Both sides want to house the game on their respective sites in order to control the user experience and generate traffic numbers.

There's an easy solution to this: make the games accessible on both sites, split the ad revenue, and give CSN Chicago a referral fee for any subscribers that sign up through its site (or, in another variation, give CSN Chicago all of the ad revenue, and keep all subscriber fees). This isn't some wild idea; this is how most deals are made within the internet's open business culture. Unfortunately, both Comcast and MLB are so closed by nature, and so worried about setting the wrong precedent, that they chose to do nothing, leaving an obvious moneymaker on the shelf.

With our new plan, there are no wide-ranging precedents to be set; deals are made on a case-by-case basis, with thirty different teams making thirty different agreements. Most importantly, there would actually be some indirect competition between teams, creating real incentives to get the best deal possible (if the Yankees are making lots of money off of it, the Red Sox will want to as well).

The results would be very positive in the short term. The teams would have a brand-new local revenue source, which, for some, could prove extremely lucrative, but it's in the long-term that MLB would really win. As I wrote last week, if broadcast and cable television cease to exist in 10-20 years (what I call a Murdochian Dystopia, after the man who likely made the last multi-billion dollar bet in history on a newspaper), all baseball games will be served over the internet. This obviously shifts the sport's entire model; MLB could distribute the games without a broadcast partner, and keep all of the revenue for itself. Given all of that, it's MLB that will eventually hold the cards.

This plan would give them a solid head start. The arcane territorial rights (which were drawn up decades ago) would still need to be fixed, but this would make it possible for Cubs fans in Iowa, or Dodgers fans in Las Vegas, to actually watch their teams play. And that would be a major step in the right direction.

---

Shawn Hoffman writes about business and baseball at Squawking Baseball.

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

Related Content:  Territorial Rights,  Business

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