Out of Control

The cable companies’ position was that the NFL Network’s exclusive rights a mere eight football games—representing about 24 to 30 hours of live, relevant programming over the course of an entire year—did not warrant placement on the expanded basic tier, especially given the NFL’s demand of 80 cents a subscriber for the programming. Separately, DirecTV and Dish Network, along with AT&T and Verizon, had agreed to place the NFL Network on their expanded basic tiers, point being that the NFL Network was far from frozen out.

Adam Thierer recaps the whole battle today at the PFF blog. Here’s an excerpt:

Cable operators are eager to carry the new network, if only to provide sports fans access to those few games to which the NFL Network holds exclusive rights. But therein lies the rub. The NFL Network is not a general purpose sports programming service like ESPN that can be expected to draw sizeable audiences and advertising revenues throughout the year. Many cable operators, consequently, would prefer to carry the network on a sports tier so that only those who most value sports programming pay for it.

The billionaire owners of the NFL, though, want more. They want to extract fees not only from those who watch NFL games, but also from those who do not. In negotiations with cable operators, the NFL Network has insisted that it be carried in the basic programming package available to, and paid for, by all cable subscribers. Hence the impasse when large operators such as Time Warner Cable refuse to impose the cost of NFL Games on non-fans. So what does the richest league in the world do when it cannot impose its will on the market? It sends plaintiff pleas for help to Congress and the FCC.

The NFL’s biggest misplay was that instead of acting like the business it is, and hammering out a deal acceptable to both itself and the two cable companies it sought as clients, it turned to the government in an attempt to get legislators to ram its demands down the cable company’s throats. In doing so, the league wildly overestimated its political clout as well as the government’s willingness to intervene in the contract process, even with the somewhat unpopular cable industry.

Instead, lawmakers hoisted the NFL on its own petard, correctly asking if, as the NFL argued, it’s in consumers’ interest that NFL games be given as wide availability as possible, why is the league itself setting aside a bunch of games simply to boost the ratings of its own fledgling network? Some even raised the issue of the NFL’s antitrust exemption. The NFL’s power play to use the government as a means to enrich its own coffers was seen for what it was. But by then, the league itself had raised enough of a ruckus about the Patriots-Giants game that, to recover some fan goodwill, it agreed to offer the game nationally on over-the-air free TV.

It will be interesting to see how this concession affects negotiations next season. Chances are the NFL will be more willing to negotiate in good faith, especially since it’s shown it values a bigger audience over narrow programming. There also will be some fence-mending to be do with the satellite and phone companies who agreed to carry the channel, and perhaps eat the extra costs, in an effort to differentiate their service. The NFL completely undermined that competitive strategy.

The best thing is that the NFL’s run at government regulation has failed. Consumers already got a better deal by getting the Giants-Pats game for free. Now that the league has shown it values viewer eyeballs, next year might see the league lower its asking price for cable companies to carry the NFL Network, or fashion other creative arrangements, including making the NFL Sunday Ticket pay-per-view package, currently exclusive to DirecTV, available to the cable companies. This time, by steering clear and allowing market forces to work, lawmakers got it right.