David Rone, president of Time Warner Cable Sports, said the company's… (Christina House, For The…)
Already the largest cable television provider in Los Angeles, Time Warner Cable Inc. now wants to become the dominant sports programmer in the region.
On Oct. 1, the New York company will launch two regional sports networks: Time Warner Cable SportsNet and Spanish-language network Time Warner Cable Deportes.
The cable operator has shelled out billions of dollars to snag the Los Angeles Lakers away from Fox Sports West and now has its eye on the Dodgers too.
The company is tired of being held hostage by high-priced sports channels and has decided to stop fighting the competition and begin imitating it. The cable operator, which has about 2 million subscribers in Southern California, is taking steps to cut out the middle man.
That middleman is News Corp., parent of local cable channels Fox Sports West and Prime Ticket and a formidable opponent. Even though Fox Sports West lost the Lakers to Time Warner Cable, that channel still has the Angels and Kings. Prime Ticket has the Dodgers and Clippers. Fox Sports operates 18 other sports networks around the country as well.
If content is king — as many in the industry believe — sports are the jewels in the king's crown. Advertisers place a premium on sports content because viewers tend to watch it live as opposed to taping games to watch later and skipping ads.
"It's one of the reasons sports continues to hold its value," said Rick Burton, a professor at Syracuse University's David B. Falk College of Sports Management. "It's still a growth stock."
It is also why most local sports have migrated to cable networks such as Fox Sports West. The costs have become prohibitive for over-the-air TV stations. For example, KCAL-TV will no longer carry the Lakers starting next season.
Acquiring sports rights is only half of the battle for Time Warner Cable. It also has to secure distribution deals for SportsNet and Deportes from satellite broadcasters DirecTV and Dish Network Corp., as well as from other cable operators serving the region, includingCharter Communications Inc. andComcast Corp. The two channels are being sold as a package.
Over the next few weeks, Time Warner Cable will open negotiations with other distributors. Already some are expressing concern about being gouged.
"We've got a big problem in our industry with the rising costs of programming, and sports is probably the biggest driver," said DirecTV Executive Vice President Derek Chang. "Any time you introduce a new pricey channel, that's probably not a good thing for subscribers."
Despite the tough talk, it is unlikely a distributor would risk not having the Lakers for long. The hometown basketball team is the premier sports property in Los Angeles. This season, the team's games on Fox Sports West and KCAL-TV averaged more than 300,000 viewers — more than the Dodgers, Angels, Clippers, Kings and Ducks combined.
"Nobody in Southern California is going to want to be without the Los Angeles Lakers," said Adam Swanson, an analyst at industry consulting firm SNL Kagan.
Time Warner Cable isn't saying how much it wants from distributors. But Vijay Jayant, an analyst with financial consulting firm ISI Group, put the price at $2.50 per month per subscriber. Others in the industry say that figure is low and that the company will demand $3.50 for the two services.
Distributors are already paying Fox Sports more than $5 combined per month per subscriber to carry Prime Ticket and Fox Sports West. Even though the Lakers are no longer on Fox Sports West, Fox is going to try to hold the line on its price, people familiar with the company's thinking said.
Besides the Lakers, Time Warner Cable has also acquired the rights to the Galaxy soccer team and the WNBA's Sparks. The Spanish-language channel will have its own identity and not just be a dubbed version of the English network. Time Warner Cable Deportes will have its own production teams for live sports and will carry boxing, wrestling and international soccer. The two networks will have 120 full-time staffers and some freelancers in El Segundo.
Time Warner Cable tapped former Fox Sports and Creative Artists Agency executive David Rone as president of Time Warner Cable Sports. A corporate lawyer by training, Rone chooses his words carefully and keeps his cards close to his vest. He said Time Warner Cable's motivation in Los Angeles is akin to buying insurance.
"We know what the proposition with the Los Angeles Lakers is for the next 20 years," Rone said.
As for going after the Dodgers, Rone would say only, "If we have the opportunity, we would be very highly desirous of striking a relationship with the new ownership of the Dodgers."
Fox will do its part to make sure that opportunity never comes. Under its current agreement with the Dodgers, which will expire after the 2013 season ends, Fox has an exclusive 45-day window to negotiate with the Dodgers starting Nov. 30 of this year. A Fox Sports spokesman declined to comment.
"If Fox lost the Dodgers it would make it tougher to sustain the two channels, particularly if one of your main distributors is Time Warner Cable," said Lee Berke, president of LHB Sports, Entertainment & Media Inc.
While Rone is trying to get two sports channels off the ground, Time Warner Cable Chief Executive Glenn Britt has expressed concern about the cost of regional sports networks for consumers and distributors. In the midst of a now-resolved fight with the Madison Square Garden Channel in New York, Britt suggested that perhaps such networks should be sold separately so those who aren't fans don't have to pick up the tab. In the sports world, such talk is considered blasphemy.
Rone would not directly address the apparent disconnect between Britt's thoughts and Time Warner Cable's actions except to say, "because of who our parent company is, there's been a lot of rigor that has been brought to the decision-making and analysis of how we price these services."