Most people probably have no idea how cable contracts work and why there are the packages that we are forced to buy from our TV providers full of channels we never watch. If you want to get a introductory course on how cable systems work, read the fascinating book, Those Guys Have All the Fun: Inside the World of ESPN. In short, service providers like DirecTV and Verizon have to pay fees to the networks they wish to carry on their service. They pay a per-subscriber rate and depending on the popularity, or perceived popularity, of a network, that rate can be pretty hefty.
Take ESPN for example. They are the most expensive channel for any service provider to carry at $5.54 per subscriber. For reference, the 2nd most expensive channel is TNT at $1.16 per subscriber. For further reference, NBC is 33 cents per subscriber and CBS is 24 cents per subscriber. ESPN is a powerhouse and it is demanded by nearly 100% of people who subscribe to a pay TV provider. They are in 99 million homes. You do the math on that. So what does this have to do with anything? Well a channel like ESPN drives up everyone’s cable or satellite rates. ESPN knows they have the power because they don’t have any competition. TV providers are forced to carry them and they have to pay whatever ESPN charges.
The first phase of a possible shake-up was announced on March 5 by Fox in their announcement of their intention to launch a 24 hour sports network meant to compete with ESPN. You might be thinking that there is no way that anyone will ever compete with ESPN but don’t be too hasty. FOX has been getting more and more successful with the FOX Sports Networks and they have bid for and won big sports contracts for major sporting events. When FOX launches their network, FS1 on August 19, they will be in 90 million homes (remember how many ESPN had?) and their cost to TV providers? Analysts estimate that FS1 will cost between 75 cents and $1 per subscriber. Don’t expect ESPN to start shaking and crying right away but they are going to have to take notice. FOX is hiring big names like Regin Philbin and Michael Strahan to join the network in addition to several other younger, hipper analysts that will contrast greatly with ESPN’s stodgy old man network look. All of us want this launch by FOX to be successful. If they are, FOX will help us lower our future cable bills.
The 2nd shot that has been fired across the bow of the TV world is underway as we speak. Verizon is currently in negotiations with content providers to change the basic TV model for how networks charge providers to carry their channels. Rather than being forced to buy channels in blocks, no matter if subscribers actually watch the channels or not, Verizon is negotiating to instead change the system to a charge by use model. Folks, this would be huge for everyone. This really could be the biggest shift in TV since the advent of pay TV. Gone would be the days where you are forced to pay for 200 channels when you really only ever watch 10. In this model, you would be able to use only what you want. This would drastically reduce the overhead of TV providers which would lower costs for everyone. At this stage, it is unlikely that Verizon will be successful in their negotiations but the fact that it has been brought up means that this is the future. As networks like ESPN and AMC (remember the Dish Network fiasco) continue to bully providers in to paying higher and higher rates, we will see a revolt by the major TV providers.
A cable TV shake-up will be good for all of us. We are all being held hostage by both the networks and our TV providers. If both of these situations work out, we will all benefit in the end. I’ll be sure to keep everyone up to date on the news as it happens.
Fox Sports 1 launches on August 19.