How the fear of cord-cutting has SportsNet LA scrambling

Sep 23, 2015; Los Angeles, CA, USA; Legendary broadcaster Vin Scully is honored before the game between the Los Angeles Dodgers and the Arizona Diamondbacks at Dodger Stadium. Mandatory Credit: Richard Mackson-USA TODAY Sports
Sep 23, 2015; Los Angeles, CA, USA; Legendary broadcaster Vin Scully is honored before the game between the Los Angeles Dodgers and the Arizona Diamondbacks at Dodger Stadium. Mandatory Credit: Richard Mackson-USA TODAY Sports /

Not even two years after giving the Los Angeles Dodgers a record 25-year, $8.35 billion television broadcasting deal, SportsNet LA is scrambling to find answers to its bottom line issues. One of the main culprits responsible for the problem is distributors’ fear of cord-cutting.

Time Warner Cable, which operates SNLA, inked the Los Angeles Dodgers to the deal with high optimism. Los Angeles is the most populous sports market in North America, and 2016 will be Vin Scully’s final season broadcasting Dodgers game. What SNLA’s brass didn’t anticipate was the unwillingness of distributors to pay the price essential for TWC to make a profit off their investment.

Carriers like DirecTV, Cox, AT&T and Verizon have refused to pay the price that TWC has asked to add SNLA – and, therefore, Dodgers games – to their lineups. The price was initially $5 per subscriber per month reportedly, but now with Opening Day less than a week away and zero progress, TWC has cut its asking price by 30 percent to try to convince distributors to strike a deal.

So far, it’s not looking good.

David Lieberman reports that TWC doesn’t expect any other distributors to carry SNLA by Opening Day, and naturally encourages those who want to watch Dodgers games from Opening Day onward to switch to Charter, Brighthouse or TWC. Those are the three distributors that currently carry SNLA, as Charter owns both Brighthouse and TWC.

Why the hesitation by other distributors to add SNLA? These distributors have two choices with the cost of acquiring the rights: absorb the cost themselves or pass the cost on to their subscribers. With a population approaching four million in the Los Angeles area, it’s clear which of those options the distributors would elect. Doing so, however, has them scared to death. It’s not hard to understand why.

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We have seen the effect of rising costs of premium sports content and its correlation to “cutting the cord” in another place already. The Washington Post reported last November that ESPN lost seven million subscribers from 2013-2015. While it’s hard to prove that the cost of the access was the reason for all those losses, the bottom line doesn’t care why. That’s a loss of hundreds of millions of dollars in revenue and forced ESPN to do two things that it didn’t want to do.

ESPN was ordered by its parent company, Disney, to trim the fat. Additionally, the cost of access for those subscribers who remained increased. While that may have corrected the current balance sheet, it created a death spiral for the future.

A loss of variety of content created by cost-cutting measures and bumping up the price of the service means subscribers are essentially paying more money for less content. Realizing that causes more subscribers to decide they can live without the service, which in turn causes the cost-cutting and rate increase to continue, which means more cancellations – you get the point.

That situation is exactly what these distributors who have declined to pay for SNLA are trying to avoid. Given the current overall climate regarding cable and satellite television, taking risks isn’t something they can afford to do.

The Pew Research Center reports that 19 percent of 18-to-29-year-olds have canceled their subscription television services, and that as of the time of their survey, 24 percent of respondents were plodding through life without it. The main reason that the vast majority (74 percent) of respondents cited for cutting the cord? Rising subscription costs.

It’s easy to understand why a business which is already hemorrhaging customers because of the cost of its service is apprehensive to ask those customers to pay more for that service. Even if that bump in cost includes access to Dodgers games and a final chance to listen to Scully call a game, these distributors have thus far decided that the risk isn’t worth the reward.

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It’s possible that deals could be reached in-season or for 2017 and beyond. Right now it’s a game of chicken, as both sides wait for the pressure on the other to force a concession. All the while, SNLA still has to make its payments to the Dodgers regardless of revenues. If this situation continues, that could become very costly.