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July 29, 2009

The Biz Beat

Seeing Everything?

by Shawn Hoffman

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In a lot of ways, MLB Advanced Media really gets it. Their marketing strategy needs a major overhaul-they're trying to be a portal in a post-portal world, and it's grossly limiting their earning potential-but their technology is best-in-breed, and they really seem to understand that sports games will eventually be broadcast and distributed by the leagues themselves, not third-party networks. And why not? Once internet-enabled televisions and super-high-speed broadband become commonplace, cable networks will start being phased out, and MLB Extra Innings will become unnecessary. MLB can just cut out the middle man and make MLB.tv its primary method of distributing baseball games-on your television, computer, or mobile phone.

But while MLB rushes toward that inevitable future, the other leagues-and especially the NFL-don't seem to be in such a hurry. Like it or not, the world is still dominated by old media; less so than it was five or ten or fifty years ago, but far more so than most tech pundits give it credit for. The NFL generates well over half of its revenue from its television partners (MLB is closer to 33 percent), including $700 million from DirecTV (that will rise to $1 billion in 2011). Those companies have an enormous impact on every decision the league makes, and the NFL has gone out of its way not to make sure they're not even the least bit uncomfortable.

So the question is this: Will MLB face any repercussions in the short-term for its aggressive strategy, and is the NFL right to play it safe?

In case there still were any doubts that MLB was headed in this direction, MLBAM drew a massive line in the sand last month when it announced its partnership with a little-known company called Boxee. Boxee offers a web browser that is optimized for your television, making it ridiculously easy to watch web video on your big screen. That's great for consumers, but not so great for cable operators and TV networks-why would you pay $150 a month for cable, or watch a half-hour show with eight minutes of commercials, when you can watch that same show with two minutes of commercials, for free? Leaving nothing to chance, Fox, NBC, and Disney have gone out of their way to make sure Hulu isn't available on Boxee, disabling several workarounds and playing an incessant game of cat-and-mouse over the last several months. They want you to use the site, of course, just not if it's on a television. And thus the deck chairs on the Titanic have been properly rearranged.

MLB, meanwhile, is essentially toeing the line with cable operators, who also happen to be their partners on MLB Extra Innings and MLB Network. MLB.tv is now featured on Boxee, making it dead simple to watch on your television once you have the browser installed (this, unfortunately, isn't such a simple process yet). Eventually, that should make it easy to bypass Extra Innings, which is such an important property to the cable providers that they (in)famously put MLB Network on their basic tiers just to keep it.

It doesn't seem like this should be such a tough decision for MLB-after all, it has to share profits on Extra Innings, whereas it keeps every cent from MLB.tv. But the NFL clearly sees things differently, as they've only streamed NBC's Sunday night games thus far. (I'm purposely not counting the incredibly annoying half-game/half-talking-heads approach they take with their Thursday night NFL Network games, which are technically streamed on NFL.com). MLB has even beaten the NFL to in-market streaming, despite the fact that almost all of the NFL's games are on broadcast networks.

Think about that for a second. In order for baseball games to be streamed inside a team's local market, MLB has to cut deals with each team's local RSN, as well as the local cable operators, all of whom are terrified of losing subscription fees. The NFL, on the other hand, has deals with just four networks: Fox, NBC, CBS, and ESPN. Three out of the four rely solely on advertising, meaning that their objective should be to simply put the games in front of as many people as possible. (ESPN, the lone cable station in the group, is the exception.) If anything, the NFL should have had in-market streaming years ago.

Given that stance, it's no surprise that the league has consistently (and justifiably, to some extent) refused to create its own out-of-market games streaming package, which would effectively compete with DirecTV's NFL Sunday Ticket. Instead, they only make games available online to those that are already DirecTV subscribers, have purchased Sunday Ticket for $280, and then were willing to plunk down another $100 for the "Superfan" package.

The same goes for the league's brand new iPhone offering, just unveiled a couple of weeks ago. If you're one of the seventeen people in the United States that is both a Sunday Ticket Superfan and an iPhone owner, you'll now be able to take the games with you anywhere you go. Needless to say, that's a very different approach than the one MLB has taken, considering every baseball game is now available live on the iPhone to MLB.tv subscribers, along with one or two free games per day for non-subscribers.

No doubt, the leagues have different business models, and the NFL has more incentive not to ruffle any feathers. But looking forward, the NFL is probably shooting itself in the foot. The league would have to sell five million streaming subscriptions at $200 a piece to fully replace its DirecTV deal-certainly ambitious, considering MLB is only selling a half-million subs at about $100 per. But those numbers could look conservative by the time the DirecTV deal expires in 2014. And here's the real key: even if the NFL offered a full streaming package on the web, DirecTV wouldn't just disappear; having NFL Sunday Ticket would still give it a major leg up on cable in the short run, and the company should still be willing to pay a pretty decent chunk of change for that package.

It's probably too late, though. The league's new contract with DirecTV, signed this past March, almost certainly gives the satellite provider exclusive rights to stream the NFL's out-of-market games. In five years from now, you can bet the NFL execs will be staring at their watches waiting for the deal to run out.

MLB, meanwhile, will be free to take advantage of what should continue to be a rapidly-growing market. It may piss off some cable executives, but it doesn't really matter, because MLB-and all of the other sports leagues, for that matter-controls incredibly valuable content, which most people will watch the same way ten years from now as they did ten years ago: live, and with commercials. With all of their other shows are being DVR'd and Hulu'd and pirated, the operators and the networks will have no choice but to play by the leagues' rules.

MLB realizes this and is jumping on the opportunity, building a massive customer base in the process. The NFL apparently still needs time to figure it out.

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,  MLB Network,  Mlb The Show,  NFL,  Streaming,  Mlb.tv

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