Major League Baseball Has a Major Problem with Antitrust Lawsuit
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The last, best hope for the continued preeminence of cable television is live sporting events.
Live sports are basically DVR-proof television because games are obviously more entertaining to watch for fans when the result is unknown. Everything else on television can be recorded and watched later, which allows the viewer to fast-forward through the commercials.
The demand for sports on television is fueling the increase in the cost of cable subscriptions. Major League Baseball (MLB) and other sports leagues are charging cable companies and networks more for the rights to broadcast their games on television, and those costs are being passed on to consumers—even those who don't watch sports.
However, Major League Baseball is being targeted in an antitrust lawsuit that could ultimately curtail the growth in league-wide revenues from television deals.
According to Joe Flint and Meg James of The Los Angeles Times, nearly half of the cost for the average cable bill is from sports programming. Flint and James also reported that "monthly cable and satellite bills are expected to rise an average of nearly 40%, to $125, according to the market research company NPD Group."
The increased revenue from growing cable deals has been a driving factor in MLB's earnings growth. Revenues have increased by 257 percent since 1995, from $1.4 billion to $7.5 billion in 2012, according to Maury Brown of the website The Biz of Baseball. Brown also reported that earnings will at least exceed $8.4 billion by 2014 due to MLB's new contracts with Fox, TBS and ESPN that will bring an additional $788 million per year into the coffers.
Individual teams have benefited significantly in recent years from the boom in rights fees. The Los Angeles Dodgers were the latest organization to reap the benefits with a reported $7 billion agreement over 25 years with Time Warner Cable.
Yet the seemingly endless growth in revenue from increasing television contracts may not last forever. The cable industry's top lobbyist and former Federal Communications Commission chairman Michael Powell recently warned that government intervention could be the end result of the unchecked growth in rights fees (h/t Joe Flint, Los Angeles Times). In an interview with C-SPAN's The Communicators, Powell said:
We all ought to wake up and be careful ... so we don't blow this into smithereens at some point and invite the government to do it for you, which I think nobody would be a winner in.
Government intervention could ultimately prove to be unnecessary to protect consumers depending on the outcome of the antitrust case against MLB. Jeff Passan of Yahoo! Sports reported recently on the lawsuit aimed at MLB, the National Hockey League, regional sports networks, Comcast and DirecTV. Passan wrote:
The antitrust lawsuit aimed at blowing up Major League Baseball's lucrative television-rights territories and forcing the league to abandon its antiquated blackout policy will proceed after a federal judge Wednesday affirmed the claims that MLB's media structure is anti-competitive.
U.S. District Judge Shira Scheindlin said MLB's policy, which includes offering out-of-market games only in a package and blacking out in-market games, raises prices, reduces competition among teams and used "monopoly power" to restrict fans' ability to watch games...
The plaintiffs argue that prices for viewing games would go down with natural competition and a new system – perhaps one in which MLB offered a-la-carte games on the Internet or mobile devices – would benefit fans.
The revenue growth taking place via MLB's anti-competitive media structure appears to be a case of MLB using its antitrust exemption to manipulate people into paying higher cable prices. Cable subscribers that do actually want to pay to watch baseball don't have any other options besides paying higher prices because of MLB's blackout policies. The only way around paying for cable is to move out of your favorite team's market in order to bypass the imposed blackouts, or to find a new favorite out-of-market team to watch.
Would you cancel your cable subscription if you could watch your in-market team online?
Major League Baseball's golden goose is undergoing a squeeze in the courts right now, and that could turn out to be a major problem for the game's revenue flow. However, the result of the court case could help cable consumers and baseball fans.
In the end, what is in the best interests of MLB is not necessarily the same thing as what is in the best interests of the fans.
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