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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

25 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

josher464

I have to say, I think that individualizing TV revenues would be an absolute disaster. The whole reason the NFL has managed to maintain economic balance among teams isn't the cap, it's the large, lucrative TV deal shared equally among teams. If anything, I think baseball needs a more centralized TV deal that would create a more even financial distribution among teams and take away much of the disadvantage that a Kansas City has against a New York.

Feb 26, 2009 10:36 AM
rating: 11
 
Drungo

Exactly. You're exacerbating the problem baseball already has with wild disparities in local revenues. One of the big fixes we had to look forward to was the equal distribtion of ever-growing MLBAM revenues. It's plausible that those revenues would overshadow the NESNs and the YES Networks in 10-20 years, and make for a much more level financial playing field.

This article seems to be implying that the fact that some teams have access to media markets orders of magnitude larger than others is a feature, not a bug.

Feb 26, 2009 10:59 AM
rating: 2
 
TGisriel

Add me as another fan who is disturbed by this plan which would exacerbate an already unhealthy advantage for the teams from the largest markets

Feb 26, 2009 12:52 PM
rating: 0
 
Shawn Hoffman

It does add to the disparity between top and bottom, but the other way to look it as that selling the rights collectively will be almost impossible (as they've found already). By splitting up the rights, there will actually be cash coming in, immediately. That money is subject to revenue sharing, so all teams do benefit. And I'd say on a proportional basis, this would probably actually favor small market teams.

Feb 26, 2009 12:05 PM
rating: 0
 
JayhawkBill

How does it favor the small-market teams to allow the Yankees to sell their own video rights, keep most of the money if revenue sharing applied and all of the money if the profits were buried in YES, and give a pittance, at best, to the small-market teams? How does it improve competitive balance in MLB?

If you check his linked blog, Shawn Hoffman attacked John Henry's support of an MLB salary cap as anti-Yankees on February 18th and defended A-Rod with respect to stats and years of admitted PED use on February 9th. Hoffman lives in New York (per Twitter), his posts occasionally (at least) support the Yankees, and this article seems to be an attempt to convince BP readers that giving more to the rich and less to the poor is somehow good for the game.

I notice that the bulk of the BP readers taking the time to post have already pointed out that Hoffman's ideas would favor big-market teams. I agree. I infer, though it is only a perception, that Hoffman's views may be influenced by his support for the New York Yankees.

I'm happy that BP is making space for articles regarding the challenges of the absurd blackout rules; I'm upset that this article is chosen as a viable solution to bizarre rules blacking out games of a half-dozen or more "home teams" at any given site. I'd offer a simpler solution: alter blackout rules to ensure that every viewer can somehow watch every game with their chosen premium subscription, be it an MLB.tv subscription or an Extra Innings subscription. Restrict the feed to the "home market" RSN if necessary or desired, but don't create a situation where fans can't watch their team because of blackouts.

And keep the revenues in the MLBAM pot, not in the pockets of the rich.

Feb 26, 2009 18:39 PM
rating: -1
 
jalee121

Personally, I would be willing to pay a premium to watch my team wherever I want. For example, I am going to school in central Illinois and currently do not get WCIU for White Sox games. I would be willing to pay an extra 50 or 100 bucks so that I could watch all games on my computer regardless of where I am living (ala no blackouts). I'm sure much the same could be said for many other "displaced" fans.

Feb 26, 2009 10:41 AM
rating: 3
 
kernsy

Absolutely anything would be better than the current blackout rules. As an Iowan, I'm blacked out from watching 6 teams (Cubs, White Sox, Cardinals, Brewers, Twins, & Royals) on MLB.TV. The degree that MLB has disenfranchised Iowans is borderline criminal. I just want my baseball!

Feb 26, 2009 12:02 PM
rating: 0
 
medialint

I have Dish Network and the "season ticket" package was available for a time, and I subscribed to it for two years. Last year it was no longer available on Dish. The NFL package has always been an exclusive Direct-TV thing. Living in San Francisco it would be nice to see the Phillies play (though I've long since embraced the A's as my team) and especially the Eagles (Raiders anyone? I think not...) I *could* switch to Direct-TV but I just don't like the whole idea of these packages being a monopoly. I would be more than willing to pay the cost of these packages if I didn't have to jump through hoops just to give my money away. I would welcome (tv quality) Internet streaming. Exclusive contracts, territorial rights ... who cares? I'm just a sports fan wanting to watch something other than the A's vs Mariners or Seahawks vs Niners once in a while and I have my checkbook ready ...

Feb 26, 2009 12:30 PM
rating: 1
 
PeterToms

Rightly or wrongly, BAM exists to increase the amount of "centralized" revenue in the industry. Taking the local digital rights away from BAM is contrary to that end. I also question Shawn's comment that the money would be subject to revenue sharing. Isn't one of the advantages of a team owned RSN that the revenues are not subject to rev sharing? Certainly if the Yanks and Red Sox had control of their local digital rights it is their RSNs - on paper - that would benefit.

This is a huge issue going forward. We'll see how the NBA strategy plays out and how the MSG vs NHL lawsuit over the same issue is resolved. Most seem to think MSG will lose, but if they win....Henry and Werner have been vocal about wanting control of these rights and many owners were upset that MLB granted ESPN access to digital rights that they themselves don't have.

Interesting topic.

Feb 26, 2009 12:31 PM
rating: 0
 
Shawn Hoffman

Pete -- You're right on your first point, and national packages and MLB Extra Innings have always been sold collectively. But local broadcast rights have always been sold by the individual teams. This would be an extension of that, and really, it's probably the only way local games will ever get streamed online.

Re: team-owned RSNs, YES, NESN, et al essentially pay a below-market rights fee to broadcast their games. That revenue is subject to sharing (the stations' ad rev isn't). If the Yankees sold their games online, the subscription revenue would go to the team, and would also be subject to sharing.

Feb 26, 2009 12:44 PM
rating: 0
 
Jay Levin

Agree with the comments above, re: this proposal is a disaster.

The blackout situation is intensely annoying to a small subset of fans, and the teams are leaving money on the table with those fans. Those fans have my sympathy -- the whole situation is idiotic, no doubt -- and of course MLB should not leave money on the table with literally not one shred of benefit to anyone.

Despite all that, this is by no means the game's biggest economic problem; vast local media revenue disparities are. MLBAM, equally distributed to all 30 teams, has been a small ray of sunshine in that awful situation, a subject about which many sabermetrically inclined folks seem to be tone-deaf if not willfully blind.

Furthermore, the current licensing allows fans to purchase streaming for all 30 teams at once -- an extremely simple model that has been a PHENOMENAL success in terms of revenues. Sending digital rights back to the clubs would not simplify matters, it would complicate them. It would very much break something that is very much not broken.

Jay (LetsGoTribe.com)

Feb 26, 2009 12:57 PM
rating: 1
 
chris in illinois

The system as it currently exists IS broken, that's the point. It's not a small subset of fans who aren't happy with MLBAM, it a large group who are being shut out from the very product they desire. I know at least a dozen people who at one time subscribed to the on-line service, but no longer do because they can't watch the teams that they want to watch. You don't get 30 teams at once and that's the problem.

Feb 26, 2009 13:45 PM
rating: 0
 
chriscaroy

I think you are underestimating the impact of blackouts, though I obviously don't have statistics to back it up. I assume with the streaming comment, you are referring to mlb.tv. Well, every mlb.tv user is blacked out from their "home" team's games, even if that team plays hundreds of miles away. In some cases, you can be blacked out of multiple "home" team's games, which besides being counter-intuitive, is absurd.

In general, though, any time an industry has people willing to pay for their product and refuses to provide it, they are operating sub-optimally. Thus, I can't see how MLB's current behavior can be defended from an economic standpoint.

More specifically, the underlying assumption of those opposed to Shawn's proposed plan seems to be that the "disparities in local revenue" are a problem for the game. I don't recall exactly when, but there was a somewhat recent column here at BP that concluded there was plenty of parity in the standings of major league baseball, that a salary cap was not the answer (this is not the only place this sentiment has been expressed). I mean, hasn't the "spending = winning" theory been debunked? Admittedly, perhaps for some people it has not. But if it has, why are disparities in local revenues a problem at all for anyone other than a team's owner?

One problem with revenue sharing, equal distribution, etc, is that owners have the opportunity to simply pocket the money rather than spending it on baseball operations. That is fine, and certainly their choice. But why do fans not clamor about this, instead choosing to scream about those who PAY the luxury tax? It is exhausting to still be hearing thinly veiled (or blatant) complaints about the "Evil Empire", which is essentially the argument being made by anyone wanting parity in revenue.

Just like in any industry, teams must simply get a better product, market it better, etc. "They make more money! It's not fair!" rings hollow (to me at least) when baseball has been in a boom for quite a few years now.

Thanks for the thread everyone. Great topic.

Feb 26, 2009 14:08 PM
rating: -2
 
Fresh Hops

I wouldn't say *small* subset. The effect of blackouts is that unless you are a cable subscriber, you cannot get video of your local team. The majority of a team's fans live within its blackout zone, and consequently, that means the majority of the team's fans can't get the video unless they're cable subscribers. Furthermore, being a cable subscriber does not guarantee that cable will carry your team anyway. If you live in the northeast, Phillies, Mets, Yankees and Red Sox are black outs for you. If you live in California, Angels, Dodgers, Giants, Padres and Athletics are black outs for you. In Iowa, you're blacked out of six teams. But cable subscribers are not carrying 6 teams in Iowa, or five teams in L.A., or four teams in Connecticut. You'd be lucky to have two in those areas.

Also, having 5 games blacked out means you can't get 1/3 of MLB games.

"Furthermore, the current licensing allows fans to purchase streaming for all 30 teams at once" This is just false. You get what's not blacked out, and, as I have noted, that may be 1/3 of all games.

Feb 26, 2009 14:15 PM
rating: 1
 
lynchjm

We actually get 3 in most of Connecticut and the Phillies aren't blacked out here. We are pretty much blackout proof.

Feb 27, 2009 16:05 PM
rating: 0
 
Fresh Hops

This was a great article. I strongly disagree that this is a good plan, for the reasons involving market disparities cited above. But this is a great article.


Feb 26, 2009 13:35 PM
rating: 0
 
PeterToms

Shawn, your comment "If the Yankees sold their games online, the subscription revenue would go to the team, and would also be subject to sharing." Just as the Chicago teams wanted to give the digital rights to CSN Chicago, wouldn't the Yankees give them to YES, Red Sox to NESN et. al? I don't know if we're splitting hairs here, but my understanding has been that digital rights are of more value to the RSNs and MSOs than they are to the clubs for their team web sites. Aren't these rights of value as VOD content also? In the Chicago instance, how would the money going to CSN Chicago have been shared with the other 28 clubs. (Not saying it wouldn't have been)

Feb 26, 2009 14:50 PM
rating: 2
 
Shawn Hoffman

It depends on how the deals were structured. I.e. the Pirates could let FSN Pittsburgh keep all subscription/ad revenue, if they paid an upfront fee. But for most deals, I'd have to think that the teams would keep the subscription revenue.

As for teams that own their own RSNs, the Yankees could theoretically "sell" their digital rights to YES. But I think MLB actually does an audit on these teams to determine what is market value for their local media rights, and they use that to calculate revenue sharing. They would probably use the same system in this case.

Feb 26, 2009 19:37 PM
rating: 0
 
Ben Solow

Shawn, any source for this comment re: audits? I know baseball is notoriously hard to study from an economic standpoint precisely because they're never audited (which is why the Blue Ribbon Panel data is so useful). Obviously David Stern refused to share data when there was the controversy regarding race in NBA officiating, so maybe the same desire not to share information is true for baseball, but I think it could be possible to deduce something from revenue sharing numbers if those are based off team audits.

Mar 01, 2009 16:01 PM
rating: 0
 
John Lowe

As a Las Vegas resident, I am blacked out of games involving 6 MLB teams that claim Las Vegas as a territory (Dodgers, Angels, Diamondbacks, A's, Giants, Padres). Only San Diego televises games in this market and that is likely only because Cox Cable serves Las Vegas and San Diego. The funny part is that none of these teams have any interest in Las Vegas as a market. Both the Padres and Dodgers have quit their AAA affiliations with Las Vegas and now Las Vegas is affiliated with Toronto. Las Vegas is now the only one of the 8 Western Conference teams in the Pacific Coast League to be affiliated with an Eastern team. If these MLB teams don't want the market, they shouldn't get to claim it.

Feb 26, 2009 18:13 PM
rating: 0
 
MikeFetters

...and I thought I had it bad in Central Illinois. Although an Extra Innings package makes sense for people living in the actual cities in which teams play (such as Chicago), losing even 3 of a possible 15 games (Cubs/Sox/Cards) is significant as far as I'm concerned, especially when the local broadcasts are not available in my neck of the woods in any way, shape, or form.

I would thus be happy if MLB would simply redraw the blackout boundaries to more closely parallel the broadcast radius of not just the RSN, but also the extension networks that pick up the games that the RSN is unable to carry; this is especially important for broadcasts out of Chicago, as only viewers in the immediate area are able to view broadcasts on WCIU or CSN+. This comes into play frequently, as at least once a week either the Cubs or Sox end up on one of the networks that do not reach Central Illinois.

I would be perfectly happy not to rock the revenue boat, but simply have MLB agree in principle that every game should be available to any fan who wishes to pay a reasonable price for the right to view it, be it streaming or via cable - even if you have to suffer the aforementioned 17 Discovery Channels as part of the package.

Feb 26, 2009 21:30 PM
rating: 0
 
agentsteel53

what about the postseason blackout? I don't have a TV. I sure do have a computer. Do I need to set my proxy server to spoof a Romanian IP address or something??

Feb 28, 2009 16:46 PM
rating: 0
 
deep64blue

Trying to blackout online games is crazy - an IP address registers where the Server is not where you are and, as agentsteel53 points out, there are ways round that.

Mar 02, 2009 08:51 AM
rating: 0
 
timburns116

Simpler solution? Set a price, determined by the team, to add to the cost of an mlb.tv membership. For the price of MLB.tv plus 35 Red Sox fans in Bangor can watch the Sox. MLB keeps the mlb.tv fee and the club keeps the "premium" fee. Thus, here in Indianapolis, I can watch the Reds on my laptop, rather than listen to my wife and daughters complain about it on TV.

Thus, different clubs get different cash. In markets like Indy and Iowa the amount can be tiered so that an eventual payment of $___ would enable the viewer to watch all the games and still provide the club with the revenues so they so love. Meanwhile, the mlb.tv system still garners the centralized revenue which will someday make "competitive imbalance" an anarchonism in Bud Selig's mind.

Mar 02, 2009 13:37 PM
rating: 0
 
mikedee

I would love this. I live 5 miles from Citizens Bank Park, in the one neighborhood that does not have CSN, so I see about 1 Phillies game a month on TV.

Still blackedout on MLB.TV, but if you're sneeky, you can make them think you live in Saudi Arabia and tune in ;)

Mar 03, 2009 07:33 AM
rating: 0
 
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