Friday, October 04, 2013 4:13 PM ET 
By Adam Gajo
Can a subsidiary of a media giant really go bankrupt? It appears so, with a boardroom battle leading Comcast Corp.to dip the parent company of its 22%-owned Comcast SportsNet (CSN) Houston into Chapter 11 bankruptcy Sept. 27 — a move the Houston Astros (which own 46%) and the Houston Rockets (31%) will almost surely contest. At stake is a 10-year, $1 billion rights deal signed by the network last year. CSN Houston is reportedly three months in arrears on payments to the two teams.
The sports media front has recently been full of stories of risings sports costs, a shift toward long-term contracts, and professional sports teams and carriers partnering to create new networks. But CSN Houston's involuntary Chapter 11 filing highlights the risk of creating a high-dollar, long-term, multipartner regional sports network. One issue in long-term sports rights agreements is what happens when the managing partners can't align their strategic initiatives and the network suffers as a result?
As details of the internal challenges of CSN Houston emerge, sports teams and networks may grow more wary of signing long-term deals, favoring short-term RSN partnership agreements moving forward.
CSN Houston has struggled to earn carriage from most of the large distributors since it debuted in October 2012, with the network only available to about 40% of its home-market subscribers. The RSN has failed to reach distribution agreements with Time Warner Cable Inc., AT&T Inc. U-verse, DIRECTV and Suddenlink Communications. The primary reason for the network's limited carriage is its reporting asking price of $3.40 per sub per month, deemed too high for a network with limited appeal and demand.
But the battle for the price of the rights fee wasn't just between the RSN and its prospective distributors. According to a number of sources, the disagreement started within the network's own boardroom.
A major factor in CSN Houston's distribution problem stems from the RSN's four-person panel, which must approve all carriage agreements. The panel consists of one Astros spokesman, one Rockets representative and two Comcast agents. The network's failure to come to an internal agreement on how to adjust the affiliate fee has prevented the RSN from reaching wider distribution, a major factor in the bankruptcy filing.
Looking past the bankruptcy, we believe the court event could result in the network dropping its average per-sub asking price toward the $2.50 mark, which in turn could expedite the signing of the fleeting agreements with DIRECTV, AT&T U-verse, Time Warner Cable and Suddenlink Communications. We also believe the network could drop its price as low as $2.00 per sub per month and still generate a profit by 2015 (assuming that the carriers, excluding RSN-shy DISH Network Corp., sign agreements).
When CSN Houston's at-launch asking price proved too high, some of the distributors didn't budge. The network could have adjusted its affiliate fee to pursue wider distribution over the course of the year, but the RSN's distribution panel and internal conversations produced no changes.
Another factor contributing to CSN Houston's distribution challenges involves the network's shortfall in leverage for negotiations. The network is the home of the Houston Astros and the Houston Rockets. The Astros are eight years into a postseason drought, with the last three seasons producing fewer than 60 wins each. The Rockets, on the other hand, made it to the playoffs in 2012-2013, but lost in the first round. Before that, the Rockets had missed the playoffs the previous three seasons. That said, the network needed to be more aware of how its teams' lack of success could impact the network's value and appeal.
The bankruptcy filing coupled with the Houston Rockets' free-agent signing of center Dwight Howard could provide enough of a nudge for carriage deals prior to the Rockets' Oct. 30 season opener against the visiting Charlotte Bobcats.
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