By Sarah Barry James - Tuesday, December 11, 2012
There was never any question that consumers would ultimately pay for rising sports costs, but just how much they will pay is becoming a bit clearer.
On Dec. 10, news surfaced that DIRECTV had added a $3 surcharge for sports channels in markets that have more than one regional sports network. The charge applies only to new customers signing up for one of the company's four higher-end packages, including Choice and Choice Plus, which DIRECTV bills as being its most popular package.
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"The fee is $3 and it's simply a surcharge, for new customers only, in a small percentage of zip codes where we are carrying multiple RSNs," DIRECTV spokesman Robert Mercer told SNL Kagan. "The cost of sports programming is going through the roof, and this is a way of recovering some, but not all, of those costs in certain markets where they are particularly high."
DIRECTV estimated in a Los Angeles Times report that roughly 20% of markets around the country have more than one RSN. But that percentage could increase as new networks are created.
In October, the Los Angeles market — which already had two regional sports networks in the form of News Corp.'s Prime Ticket and FOX Sports West — added two more RSNs with the launch of Time Warner Cable Inc.'sSportsNet and Deportes. Though most pay TV operators serving the L.A. market, including DIRECTV, are now carrying the networks, they did not come cheaply: Time Warner Cable asked distributors for affiliate fees of $3.95per subscriber per month for the pair.
In November, while DIRECTV and Time Warner Cable were still in negotiations regarding carriage of the new channels, DIRECTV CEO Mike White said the networks represented "another example of how broken this system is."
"People take the same content, package it up, bid it up for 3x the national average on a per-game basis and then try and stick it back to the other distributors in the geography, and I think that's very unfortunate," the CEO said during a Nov. 6 conference call. "Adding other stuff to the bundle that the average consumer can't pay for without allowing it to be sold to those that want to pay for it is just not right. So we'll continue to stand strong for our customers."
Given those remarks from White, it is not surprising that DIRECTV's Mercer said the introduction of the regional sports fee is about giving customers more choice. "Since this only affects new customers in certain zip codes, this small group of potential customers are given the opportunity at point of sale to take programming packages with RSNs and the extra fee before signing up for DIRECTV," Mercer said. "And the vast majority still opt for the packages with the RSNs."
The DIRECTV spokesman also noted that new customers who are not interested in sports, or in paying the regional sports fee, could choose the company's Entertainment package, which offers fewer networks and no RSNs, and costs less than either the Choice or Choice Plus packages.
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SNL Kagan analyst Mari Rondeli said in an interview that the move does seem aimed at providing new customers more transparency to aid in their decision-making process.
"I think it's meant to give some choice to customers," Rondeli said. "It appears that the surcharge is for new customers only, and subs opting in for lower tiers won't have this, so customers have an option."
She added, however, that there is also a secondary motive: "I am sure they want to highlight why the pricing is going up so drastically," she said. "We know multichannel operators have been struggling with programming cost increases, especially sports."
Of course, when it comes to rising sports costs, it is important to note that some might argue that DIRECTV is part of the problem — not only because it agrees to carry high-priced RSNs but also because it owns a number of them, including Root Sports Rocky Mountain, Root Sports Northwest and Root Sports Pittsburgh.
Interestingly, Denver is one of the U.S. markets with multiple regional sports networks — Root Sports Rocky Mountain and Altitude Sports & Entertainment — meaning that new DIRECTV customers in the city will be asked to pay the satellite operator a $3 sports surcharge to cover in part DIRECTV's costs for carrying its own network.
According to SNL Kagan data, Root Sports Rocky Mountain will earn monthly affiliate fees per average subscriber of $2.33 in 2012.
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