7
The idea of a new sports TV network gets all the headlines, because it involves a lot bigger dollars spent and generated. But much more efficiently, the new [Comcast-NBCU] company can massively expand its existing footprint online, bringing together all of these various (and valuable) assets—along with a couple quick acquisitions—to become a leader in emerging sports media, not just televised sports media.
—Dan Shanoff, ESPN columnist
BRIAN ROBERTS'S FAVORITE SPORT MAY BE SQUASH, but as a businessman he knows the real value in American television entertainment lies in controlling rights to football, basketball, and baseball games. If there was a guiding ethos to Comcast's pursuit of NBC Universal, it was to gain control over more sports programming. Live sports is the one thing that people can get almost nowhere else—not on DVD, not online—the only options are pay-TV or a stadium seat. Leo Hindery, a thoughtful former cable guy who has played leadership roles in TCI, AT&T Broadband, and Liberty, thinks that the winners in the media world will be those with a devoted audience. “If you own audiences viscerally, deep in their core … [that's] a relationship that has value,” he told Bloomberg in mid-2011. John Malone, interviewed in late 2009, sounded impressed by Comcast's NBC Universal strategy: “There's no question that if you have a strong position in sports, and you have distribution, you're kind of in the catbird seat. … Because if your competitors don't carry it, you're going to gain market share in your distribution. If they do carry it, you're going to charge them a lot of money for it. So either way, it's kind of a nice position to be in. Trust me, I used to be there.”1 No form of programming is more visceral, addictive, and loyalty creating than sports.
In an era of disaggregation and fragmentation, watching cable sporting events is a shared pastime. Our brains love this kind of stimulation—indeed, the brain circuitry that makes us successful operates on the same kind of learning, memory, and motivation signals that sports programming provides. For a sports fan, the salient focus of any room in which a cable sports channel is playing is the screen, and we're all wired to focus on the most salient stimuli. Sports fans care intensely about access to sports programming.
The complex interplay among teams, broadcasters, cable sports channels, and video distributors over the past ten years has led to a perfect storm: content that people (particularly men aged 18–49) crave, available only over pay-TV services at ever-higher prices. In many ways, the subject of sports programming crystallizes all the convergence stories of the twenty-first century—and sports provided the motivation for the NBC Universal deal.
You might think that the league commissioners were the most influential people in sports. You would be wrong: the leaders of companies that distribute sports content call the shots. They dictate how all of us see sports and how we think about what we are seeing. (Sometimes the distributors own the teams, which further simplifies the chain of influence.) Sports fans may even prefer to watch their teams on television than in person because they want all the content that accompanies a televised game. This is why the former CBS Sports president Neal Pilson told a reporter that the Comcast-NBCU deal was “the biggest thing that's happened in my 40 years in broadcasting. No question.”2 As Rupert Murdoch told News Corp. shareholders in 1996, ownership of long-term rights to major sporting events can be used “as a battering ram” in all pay-TV operations.3 Comcast now has more battering rams in its armory.
As the FCC observed in 2004, “The basis for the lack of adequate substitutes for regional sports programming lies in the unique nature of its core component: regional sports networks typically purchase exclusive rights to show sporting events, and sports fans believe that there is no good substitute for watching their local and/or favorite team play an important game.”4 This is true “must-have” programming. According to the Congressional Research Service, “the programming for which consumer demand is both broadest and most intense is major sports programming.”5 The effect is so strong that in the places where there is real competition between video-distribution companies (satellite, cable, telco) most viewers choose their distributor based on the availability of sports content. The numbers are eye-popping, particularly where a subscriber's home team is involved. One survey showed that “some 40–48% of cable subscribers would be less likely to subscribe to cable service if it lacked local sports [programming].” An additional 12 percent of respondents were unsure whether the absence of sports programming would affect their decision, ensuring that at least 40 percent, and possibly as many as 70 percent, of potential video-distribution subscribers would not subscribe to a service that did not have local sports programming.6
So a video distributor's ability to gain access to local sports content, and the price and other terms of conditions of access, are important factors in its ability to survive. A satellite, cable company, or phone company that drops local sports programming risks subscriber defections. Video distributors, the FCC recognizes, “will drive hard bargains to buy, acquire, defend or exploit regional sports programming rights.”7 Comcast has driven some of the hardest bargains of all; it has evolved over the years from a mere distributor of other peoples’ games to a sports-rights juggernaut.
Even before the NBC Universal transaction, Comcast had gone beyond traditional programming to become a powerhouse in sports. By August 1997, it controlled several local teams in Philadelphia as well as the rights to distribute their games—Flyers hockey games, 76ers basketball games (Comcast sold the team in 2011 but retained the rights to televise and distribute the team's games and retained ownership of the building in which the team plays), and Phillies baseball games. Across the country, it acquired extensive broadcast rights to local sports content, allowing the company to build a dizzying array of regional sports networks: Comcast SportsNet (CSN) Bay Area, CSN California, CSN Chicago, CSN Mid-Atlantic, CSN New England, CSN Northwest, CSN Philadelphia, CSN Houston, CSN Southeast, and CSN Southwest. Comcast also holds partial ownership interests in SportsNet New York, Comcast/Charter Sports Southeast, and MountainWest Sports Network.8
Comcast has used its ownership of sports rights (and, in Philadelphia, the teams as well) to make life more difficult for its competitors. The best-known example of this is in Philadelphia, where it has denied satellite companies—competitors with Comcast for video subscriptions—access to CSN Philadelphia. Yet as described in Chapter 2, the 1992 Cable Television Consumer Protection and Competition Act forced cable distributors to give the nascent satellite companies access to their programming.9 So how was Comcast able to withhold the most important programming of all?
It did this by using a loophole in the legal structure for programming, which was interpreted by Comcast to mean that cable operators did not have to give satellite companies access to programs that originally came to the cable provider over a wire in the ground. At the time when Congress mandated that cable operators treat all their competitors fairly, most programs arrived at central cable-distribution facilities (the “headends”) by way of satellite. So Congress focused on practices by the cable distributors that would prevent a competitor (like a satellite-distribution company) from providing “satellite cable programming,” and the FCC's program-access rules initially followed that lead: if programming arrived by satellite at a cable headend, the cable operator had to make it available.10
The rules were originally written to make it possible for satellite pay-TV distributors to compete with the cable companies, and they were modestly successful along those lines: nationally, satellite distributors have about 30 percent of the video-distribution market. But programming that arrived at a headend by way of a wire was not within the scope of the program-access rules. Comcast argued that it did not need to be: from the cable company's perspective, boxing satellite companies out of access to sports programming that it owned and that came via wire should be permitted because exclusivity would enhance innovation and programming diversity.
Yet Comcast as a vertically integrated cable operator controlling rights in sports programming now has the incentive and ability to use its programming to block competition. At any rate, Comcast has made sure to transmit its sports programming in Philadelphia only through terrestrial means. Same programming, different delivery mechanism, different access rights for satellite competitors.
Comcast's withholding of sports content has been an enormous problem for satellite video-distribution companies because they have nothing to offer subscribers who want regional sports shows in the Philadelphia area. The harm is significant: according to the FCC, Comcast's refusal to provide sports to the satellite companies has reduced satellite adoption by 40 percent in that region.11 You might think that Comcast as a rights owner would want the fees that would accompany distribution of its teams’ games, but there is more value to Comcast in foreclosing competition: directly charging 60–70 percent of video subscribers high prices for sports content is worth more to Comcast than licensing that content to its competitors. People really want sports, and satellite companies can't sign up customers without it.
Competitive wired video providers—other cable companies and telephone companies—have also suffered. At the February 2010 Senate Antitrust Subcommittee hearing, Colleen Abdoulah of WOW! was clearly frustrated by the bundles of programming Comcast required WOW!'s customers to buy in order to get access to the sports they actually wanted. “It is very difficult to compete without that kind of transparency, without that kind of market-rationalized pricing,” she said, “and it is wrong for consumers. They do not have the choice because we are told [by Comcast] how to deliver the product. We are not able to deliver it in the way the customers have asked us to deliver it.” Getting to the heart of her subject, Abdoulah went on: “Specifically, sports, if people want to just watch sports and pay more for it, we would love to put that on a tier [sell only sports programming to consumers who wanted only sports]. We are not allowed to do that.”12 But WOW! has to sell the bundles, because the mere threat that sports shows won't be available will keep subscribers from choosing its services.
Comcast sales representatives in Philadelphia told RCN subscribers several years ago that RCN might not be able to provide Comcast's local sports network (CSN Philadelphia) in the future. (RCN, the small company from Princeton that was trying to get a toehold in Philadelphia, is what is called an overbuilder by the cable industry: a small cable-distribution company that tries to compete with the big guys.) RCN alleged that Comcast limited it to untenable short-term contracts for CSN Philadelphia, knowing that a sudden loss of this crucial local sports programming would decimate RCN's subscriber base. Comcast only stopped doing this when the Department of Justice intervened to ensure that competitors (at least, wired competitors) would have access to CSN Philadelphia. As with satellite, it is apparently more valuable to Comcast to withhold programming from its competitors than to reap the increased fees that would come from licensing the content.13
Comcast has long taken the position that the rules under the 1992 act that require it to give competitors fair access to its sports programming are no longer necessary given the success of these competitors over the years. There are dozens of ways for Comcast to redefine its obligations under the act, but for Comcast it would be even better for those obligations simply to disappear.
In order to use sports rights as a sledgehammer, Comcast has to acquire them in the first place. Hardball tactics come into play here as well. Comcast initially acquired rights to the Portland Trail Blazers in 2007, when it paid approximately $120 million for a ten-year carriage contract. Although it vowed at the time to “dramatically increase exposure for the Trail Blazers,” Comcast has not licensed CSN Northwest to its rivals, including two satellite providers and the cable system Charter Communications. Comcast has announced plans to “expand” Trail Blazers coverage by making Trail Blazers games available online—for Comcast's cable subscribers only.14
But the most colorful rights-acquisition story comes from football. Comcast has always wanted rights to more football games, and in late 2005 and early 2006 the company applied for a license from the NFL to carry a package of eight live NFL games on Versus. Versus was shown on Comcast's expanded basic tier to 21 million subscribers. But NFL did not want to license to Comcast. Instead, it wanted to license games to the NFL Network.
Comcast retaliated. Saying that “a state of war existed” between itself and the NFL, it moved the NFL Network from its digital tier, seen at the time by approximately 11 million subscribers, to a special “sports” tier that carries an additional charge and is seen by only 2 million Comcast subscribers—Siberia for sports. Former NFL commissioner Paul Tagliabue testified to the FCC that “Mr. Roberts warned me that, as a result of the League's failure to license the eight-game package to Comcast for Versus, ‘[our] relationships with the cable industry are going to get very interesting.’” The NFL's senior vice president also testified that Roberts “threatened that, if the NFL did not license the package to Versus, Comcast would drop the NFL Network from the ‘D2’ [digital] tier and shift it to an undesirable premium sports tier” delivered to just a fraction of the Comcast households that then received the NFL Network.15
Comcast said that it had decided to reduce NFL Network penetration to save its subscribers money. Yet as NFL officials pointed out, Comcast did not actually reduce its subscribers’ fees when it retiered the NFL Network; rather, it continued to charge them the same price for fewer channels.16
These tactics have clearly won Comcast some advantages. In the end, it negotiated a price for NFL Network (approximately fifty cents a subscriber per month) that was far below the rate it had previously paid or the rate paid by most other cable systems. Comcast's friends also did well in this transaction—large cable systems that do not directly compete with Comcast (including Time Warner and Cablevision) had their contracts renegotiated to lower prices.17 As Andy Schwartzman, one of the consumer advocate witnesses at the February 2010 hearing, told the Senate Judiciary Committee: “Even the NFL, with its vast resources, couldn't crack the Comcast stranglehold without lawsuits, FCC proceedings, and years of uncertainty before it reached a negotiated settlement which was less than what it wanted.”18 As a result of a settlement in 2009, the NFL Network ended up on a lower-penetrated digital tier that reached about 11 million customers. This was better than the Siberia of a premium sports tier, but not what the NFL had sought from Comcast.
The sports industry has learned its lesson. When MLB started its own network in 2008, five years after the NFL launched its network, it gave equity to Comcast right away while asking for distribution. No one needed to be beaten up twice.19
When Comcast acquired rights to show NHL games in 2011, the company paid an enormous premium—$200 million, far more than the $60 million ESPN was willing to pay. It was, in a sense, a foreclosure premium, a bet that hockey would be a prize that ESPN eventually would not be able to do without. (Rupert Murdoch made the same bet when he bought exclusive rights to NFL broadcasts on behalf of Fox—and lost $350 million—in 1994. He dismissed the loss, calling it “an investment” in altering audience perceptions of his then low-rated network.) Comcast chief operating officer Steve Burke must not have been worried about the NHL's low ratings or concerned that Comcast paid more than ESPN would have for the same rights. Hockey has a deep, passionate fan base, and Comcast was game to challenge ESPN with hockey as its anchor sport. With the NBC Universal merger, hockey has paid off: Thanks to a tw0-billion-dollar deal with the NHL, the new NBC Sports Network cable channel will have up to a hundred regular-season games to air in primetime each year for the next ten years. NHL television ratings in the United States climbed 84 percent between 2007 and 2011, and the league's seasonal revenue is up to nearly three billion dollars.20
According to an article published in the Sports Business Journal in 2010, “If the [Comcast-NBCU] deal is approved, the sports industry stands to be one of the biggest beneficiaries,” because Comcast will “become even more aggressive buying up sports rights.”21 That's exactly what has happened. Even more than run-of-the-mill sports rights, which are unique and valuable, Comcast wants rights to once-in-a-lifetime signature events because those are even more valuable. Just months after the merger between Comcast and NBC Universal was approved, Comcast spent $4.4 billion—outbidding Disney-ABC and News Corp.–Fox by a billion dollars—to acquire rights to the Olympics through 2016.22
Once Comcast has the rights it wants, its clustering strategy allows the company to charge higher prices for its sports content than non–vertically integrated regional sports networks can command. Portland is a good example. Before Comcast signed its ten-year deal, Fox Sports (FSN Northwest) held a five-year television contract for the sports rights in the area. At the time the Fox contract was signed in 2002, Comcast had little presence in the Portland area; it soon acquired AT&T Broadband and became the dominant pay-TV provider in that city. When the Trail Blazers television rights contract came up for bid for the first time after the AT&T-Comcast merger in 2007, Comcast offered three times the annual price (approximately $14 million per year) that Fox was willing to pay. Once it had the rights, Comcast reportedly asked competing pay-TV providers to pay more than two dollars per subscriber per month in Portland for the same programming—substantially more than FSN Northwest had previously charged. Predictably, no other major pay-TV provider in Portland was willing to pay such high prices.23
Same thing for the NFL content. Although Comcast has not been able to exclude other pay-TV providers from NFL programming altogether, it has achieved its goal of forcing competing distributors (satellite, overbuilders, and telephone companies) to pay higher affiliation fees than it pays. When it comes to sports programming, Verizon, for one, is willing to stand up and talk about Comcast's abusive pricing and strategic withholding practices. In a 2011 document filed with the FCC, Verizon stated that Comcast had a “long history” of withholding access to regional sports networks.24
The same thing will undoubtedly happen with Olympics programming. Comcast is planning to make money by charging other video distributors, such as Cablevision and DirectTV, more for its Olympic-content channels (NBC-the-network, and Versus—now, predictably, renamed the NBC Sports Network—and any special Olympic channel created by Comcast), raising advertising rates, and charging for access to Olympic events through tablets, mobile devices, or whatever else somebody comes up with.25 It is a big play, but it is not surprising.
It is no wonder Comcast focused on sports in acquiring NBC Universal: the company could lock in long-term customers for its general-purpose pipe and high profits by locking up additional local, national, and international sports programming. And it could try to expand the sports dollar-extraction marketplace. In 2008, Brian Roberts was not considered one of the top hundred most influential people in sports—but in 2009 he and Steve Burke shared fifth place and Steve Burke alone was named the most influential person in the sports business at the end of 2011 by Sports Business Journal. The reason was the NBCU transaction.26
Murdoch was right: sports could be a battering ram. But this wasn't a one-sided joust. Comcast needed its own defenses against ESPN. ESPN was a Goliath, a master at extracting fees from customers, and Comcast needed leverage on its side of the deal.
Sixty years ago, sports helped television take off, and NBC led the pack: the first network television sporting event was NBC's Gillette Cavalcade of Sports in 1944. After several years in prime time, televised sports eventually moved to the weekends. There it attracted substantial advertising and sponsorship, and fees for broadcast rights skyrocketed. The 1970s rights for NFL, NBA, and MLB broadcasts cost $50 million, $2 million, and $18 million respectively; by 1985 those same rights cost $450 million, $45 million, and $160 million. Players were paid more, and sports was getting to be an enormous business.27
If the twentieth-century paradigm was sports driving television—people buying televisions in order to watch games for free—the twenty-first-century-paradigm is sports working with pay television to charge sub-scribers. These days satellite and cable providers can charge for both advertising and subscriptions, earning two streams of revenue, money that allows them to pay the sports leagues more for the rights to their games. In turn, the distributors can charge consumers to watch.
The pay-TV sports story starts with ESPN. Launched in 1979 by an unemployed sports announcer named Bill Rasmussen, ESPN began on a flyer, taking advantage of unused capacity on an RCA satellite. Initially, its all-sports programming was advertising supported and free to the many independent cable systems then in existence, reaching about 5 percent of all subscribers. After a change in management in the early 1980s, ESPN decided to start charging cable operators a small monthly fee. The major cable companies went along, setting the stage for an enormous twenty-first-century marketplace: today, pay-TV distributors pay on average between twenty and fifty cents for most cable channels they carry, though ESPN may be getting as much as seven dollars per subscriber.28
ESPN quickly became the largest cable network in the country, distributed to almost 29 million households by 1983. Its purchase by ABC in 1984 drove the story farther, because having distribution across the ABC-TV network as well as through the cable channel gave ESPN the negotiating strength (and cash) to sign up all the major sports leagues for broadcasting rights: NBA, NHL, NFL, and MLB all held long-term broadcasting contracts with ABC-ESPN during the 1980s. ESPN's rights to Sunday night NFL football and the Major League Baseball playoffs made it the top cable channel starting in 1999. This trend has continued, with ESPN broadcasting all college football Bowl Championship Series games and many other major league events. ESPN makes about $6.3 billion a year, up from $1.8 billion a decade ago. It can bid for and win whatever game rights it wants.29 Or, at least, it could.
After witnessing ESPN's success, Comcast began its own efforts to build a sports portfolio. By buying the broadcast rights from sports leagues, it could then charge competing distributors to show the leagues’ games. Another strategy was to buy up teams and existing sports networks. Comcast moved to control Chicago by taking over Fox's regional sports network there, and replicated this strategy across the country. It now owns eleven regional sports networks (RSNs) that control all or most of the rights to carry local professional teams in baseball, basketball, soccer, and hockey in particular areas.30 As Richard Sandomir of the New York Times puts it, RSNs are now “the primary local outlets on which to see professional teams play.”31 Comcast has control over RSNs in seven key regions across the country, all of them in markets where the company has 60 percent or more of the area's cable customers.32 Fans who want to watch their teams will have to sign up with Comcast, and Comcast's strength in video raises even higher barriers to entry for any business that wants to compete in providing wire for Internet access into homes.
Comcast's next move was its abortive attempt to purchase Disney, including Disney's ABC and ESPN channels, in 2004.33 According to Steve Burke, then president of Comcast Cable, Comcast's primary motivation for the deal was to gain control of ESPN, the only major national sports network. Burke described ESPN (and presumably sports programming generally) as a business with tough entry barriers: “ESPN is a great castle with a very big moat.”34 When the Disney deal failed, Comcast had to find other ways to reduce the pressure of ESPN's high fees. As the Wall Street Journal reported in 2011, Comcast's Versus cable channel premerger was small compared to ESPN: it was seen in only 80 million homes, while ESPN was seen in more than 100 million, and “Versus costs cable operators about 28 cents per month per subscriber … compared with more than $5 for the full lineup of basic ESPN channels.”35 Comcast executive Jeff Shell said in 2009 that expanding Comcast's sports business was the “top of our list over the next five years.”36 NBC Universal provided the path.
The NBCU deal allowed Brian Roberts to do several things. It gave him the standing to win rights to broadcast the Olympics, thus keeping them out of ESPN's hands; he can bid up the cost of rights in sports events, thus raising ESPN's costs; he can pay less for ESPN, which he claims now receives about a quarter of Comcast's revenue, or $6 billion a year, by showing that he has substantial programming rights that ESPN needs; he can demand that competing video distributors pay more for new bundles of programming; and he can be far more aggressive in buying up rights to NFL, MLB, and NBA games.37 According to sports media analyst Dan Shanoff, Comcast can take all this content online under the TV Everywhere umbrella and instantly become a top-tier online site “with massive growth potential in local media and social/mobile media.”38
What's more, because none of the program-access rights discussed in Chapter 2 apply to the online world, and because the FCC's jurisdiction to impose that kind of structure online is unclear, ESPN, which accounts for 75 percent of Disney's cable networks earnings and nearly a third of its overall earnings, may not be able to run footage from Comcast-NBC events on its online site. Comcast can simply move its buffed-up NBC Sports Network (formerly Versus) online, with all the NBC content and all the regional sports networks added to it, and then put these shows behind a firewall, allowing only Comcast cable subscribers to see certain games or events. Even if Comcast-NBC decided not to block content entirely through authentication, it could still use it to charge other cable providers higher prices for NBC content than the network currently does. These higher prices would be passed on to subscribers. There is a precedent for this behavior: NBC put certain Olympics events behind a firewall in 2010.39
The most obvious thing Comcast could do to hurt ESPN, though it is not likely to do so, is refuse to carry the channel or threaten to move it to a higher tier with lower penetration. Such threats would be useful in price negotiations for ESPN programming. But there are many other incremental steps Comcast could take. For example, what if ESPN's sports events were less interactive than Comcast sports events? Comcast already provides interactive access to Sunday Night Football games by way of Xfinity.com, feeding viewers online chats, statistics, and analysis while streaming the games. As the owner of the pipe, it would be within Comcast's power to reduce interest in ESPN by slow-rolling access to similar functions accompanying access to ESPN content. Another scenario is that whatever sports content Comcast-NBCU acquired, like the Olympics, could be exclusive to Comcast-NBCU.
All the fees for advertising and subscriptions Comcast-NBCU can now charge will support the overall strength of Comcast's sports operations—allowing it to outbid other networks for future rights and, in turn, think of ways to raise its rivals’ cost of access to that programming. Comcast-NBCU's sports operations may not be bigger than ESPN, but the cable company may be able to squeeze CBS and Fox out of the game. And with hockey, Sunday Night Football, and the Olympics, it can put pressure on ESPN on a national scale.
More generally, the sea of revenue and exclusive arrangements that Comcast now commands will allow it to transform its premerger sports operations into must-have content (the NBC Sports Network) for most of the households in its regions—thus locking in those subscribers for the long term. This is the apotheosis of the TV Everywhere model: streaming sports content on an iPad to users who have paid for a cable subscription.
Comcast wants a share of the enormous revenues ESPN is now commanding. It wants its own quasi-online version of ESPN, but bigger, and it wants to be the only source of the sports content that it controls. As ESPN vice president Damon Phillips told the Chicago Tribune in 2008, with broadband Internet today, “people base their decision on speed and price. We think that will change, with content being the deciding factor.”40 The ability of a wire distributor to decide what content goes to which consumers carries with it the ability to monetize that content—charge differentially for it—and Comcast is unquestionably looking to have these additional revenue flows in place. As long as people are willing to pay a lot for sports, Comcast will keep making money.
There are lots of synergies here: Comcast grows sports, sports grows Comcast, and consumers are apparently willing to pay more every year for Comcast's sports packages. You might think that competition between Comcast and ESPN would drive prices down. But because Comcast controls distribution, Comcast can bid more for rights and pass those increases on to consumers; ESPN then has to bid more and pass those increases on to Comcast. The competition is over revenue share between ESPN and Comcast, and it is the sports lover who pays. The daily cost of bundled programming is about the same as a nice lunch. And who wouldn't enjoy a nice lunch, even if the only restaurant in town keeps raising its prices?
The Comcast-NBCU merger is probably only the first of a series of transactions that will integrate content—particularly sports content—with distribution networks. In that way, Comcast-NBCU now resembles Rupert Murdoch's News Corporation. That giant media conglomerate says proudly that it communicates with 70 percent of the world's population on a daily basis. In the United States, News Corp.’s profits from its Fox cable channels alone amount to around $700 million a year, and it also controls sixteen RSNs, 20th Century Fox, vertically integrated satellite distributors in Italy and the United Kingdom, the Wall Street Journal, and 45 percent of Hulu, among many other holdings.41 News Corp. has been clear from the beginning of the convergence era that it sees subscription models as the future. It is not enthusiastic about ad-supported online content: “Good programming is expensive,” Rupert Murdoch has told shareholders. “[It] can no longer be supported solely by advertising revenues.”42 Free content, to Murdoch, is a joke. Only the 2011 phone-hacking scandals involving Murdoch and his News of the World stopped News Corp. from buying BSkyB and its premium sports channels, and using them to squash competition from other pay-TV distributors.
As Comcast gets as big as News Corp., how will regulators in the United States react? When free broadcast of sports has been completely replaced by pay TV over a big Internet Protocol pipe, what will constrain the market-powerful distributor from raising prices every six months? Without rate regulation, and in the absence of competitive pressure, what can any federal agency do about ever-increasing prices being charged to loyal consumers? How will competing distributors get access to this programming without rules that govern what happens online, where the FCC's jurisdiction is highly uncertain? Will any programmer put sports online on a one-off basis, faced with almost certain retribution from the giant cable distributors?
With NBC Universal's sports content under its tent, Comcast is now in a position to direct the future of subscription sports in the United States—or at least to give ESPN a run for a lot of money. Comcast's control of its own distribution network changes its incentives and gives it more ways to beat down competitors than ESPN has: it can refuse to supply programming to rival distributors on reasonable terms; deny carriage of independent sports networks so new sports channels cannot reach Comcast's subscribers; extract equity in any channel that wants carriage; ensure that anyone signing deals with Comcast makes sports content available online only through the TV Everywhere authentication scheme, which requires that the viewer subscribe to Comcast pay-TV services; and force everyone else to pay exorbitantly for Olympics content bundled with a lot of lower-value programming. Sports is the battering ram.43