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June 11, 2009

The Biz Beat

Probing the Yankees' Local Streaming Deal

by Shawn Hoffman

After years of negotiations and infighting, local MLB games are finally coming to a PC near you. That is, as long as you live in New York, subscribe to Cablevision, and root for the Yankees. The team, via the YES Network, signed a deal with Cablevision earlier this spring to stream games online within the team's local broadcast area at some point this year, a first for any major American sports team. There will presumably be a subscription fee, and the games will likely be shown on yankees.com, yesnetwork.com, and cablevision.com.

After the news broke, I posted some key questions about the deal on Squawking Baseball, hoping that some of the details would come out this week. Thus far, not so much, but while we wait, it's worth taking a look at how the answers to these questions could affect baseball's digital broadcasting business in the coming years.

What is the revenue-sharing breakdown between the Yankees, Cablevision, and MLB Advanced Media?

We'll start out with the most important question first. This deal could set an enormously important precedent, especially for small market teams: how much local digital revenue will be shared among the thirty teams, via MLBAM? The company is supplying the technology, and possibly even paying the streaming costs, so it certainly seems entitled to a sizable fee.

There haven't been many hints yet, but 15-25 percent for BAM seems like a reasonable guess-after all, the Yankees probably had to convince MLB to allow this deal in the first place. The higher it is, the better it will be for small market teams, who could really end up benefiting from this arrangement in five to ten years.

As for how the Yankees/YES and Cablevision will split the rest, it could be tied to YES's normal cable subscription fee, which was up for renewal this spring (more on this below). This split won't be quite as important as BAM's, however, since each team and RSN has a different set of relationships with its local cable providers.

How much will the subscriptions cost? Will there be a discount for MLB.tv subscribers?

How much they'll cost is anyone's guess. Perhaps $50? Perhaps $75? Whatever it is, it will lay the groundwork for all future deals. If anything, the Yankees could end up being the Mets' and Red Sox' guinea pig, and if the Yankees charge $100 and no one buys it, that will give the others a very good indication of what their own fans might be willing to pay.

It would probably make sense to offer it along with MLB.tv as well, since existing MLB.tv subscribers are probably the target demographic for each team's local product, and it shouldn't be very difficult to up-sell a solid chunk of customers on a combined package. If there was a discount involved, it would likely have to come out of BAM's take, but this could be worth it if the company is receiving a significant piece of all local deals.

Who brokered the deal? Was it the Yankees, or MLB?

If MLB is trying to make deals with every cable provider in every local market, it could be years before all thirty teams have local streaming packages. If MLB is going to cede the local digital rights to the individual teams-as it seems they've mostly done in this case-the teams would be left to hammer out deals on their own. The competition that will result (if the Yankees are making money off of it, other teams will want to as well) will drive much better deals more quickly than if MLB were to try negotiating each one.

Will this affect the subscriber fee that the Yankees demand from Cablevision for the YES Network?

Only if the online package is free-which I doubt it will be. In that case, it would make sense for YES to raise its rates, considering the network is providing more value than it was before, but by charging an additional fee for the streaming package, that added value would essentially be wiped out. Could there be a small change depending on which side is getting a larger cut of the streaming profits? Sure, but the online package will be bringing in a relatively small amount of money in the short-term, so this shouldn't have a huge impact on YES's normal sub fee.

How far along are other deals, both for the Yankees and for other teams?

There are a number of other cable providers in New York and New Jersey (not to mention another big-league team), so it wouldn't be shocking to see the Yankees close more deals relatively quickly. As for the rest of the league, we could still be months or even years from hearing another peep, especially if MLB is in charge of the negotiations.

Bonus Question: How does this affect the Yankees' stated income for revenue-sharing purposes?

YES owns the Yankees' local broadcast rights, so the new revenue here presumably goes to the network. Of course, the Yankees own most of YES, so the deal certainly benefits the team, but if the revenue isn't on the team's books, how is it accounted for in regards to revenue sharing?

There's actually a rather simple solution. MLB already estimates how much the Yankees-and all of the other teams that own their own RSNs-would make if they sold their broadcast rights to a third-party network, and it uses that figure to determine the team's shareable revenue. If a team is streaming its games locally, the value of that team's broadcast rights goes up, and so too should the league's estimates.

Conclusion

Maury Brown has been covering this issue for years, and I wrote back in February that teams were leaving money on the table every time a game is played without being streamed in their local markets. This deal is a step in the right direction, but we're only about one percent of the way there. Most people in New York will still be shut out from Yankees games online. Even if all of the other teams strike similar deals, a Dodgers fan in Las Vegas still won't be able to watch his team play, nor will a Mariners fan in Montana, unless they can already see them on cable.

This is also assuming that other teams can get deals done in the first place. As I noted earlier, the Sports Business Journal lays out many of the complexities in their article that broke the story, and the cable providers in particular are going to be major roadblocks. For teams with less potential earning power than the Yankees, this may not even be worth the battle, and that would be a huge net loss for MLB as a whole.

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:  MLB Network,  Yankees,  Streaming

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