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Time Warner Cable's Dodgers channel shutout

Time Warner Cable is stymied as it tries to force pay-TV viewers to buy the Dodgers channel, which many don't want. Could this pave the way toward a la carte programming?

April 10, 2014|David Lazarus
  • John Hartung will be the main studio anchor for SportsNet LA. A Time Warner Cable official said DirecTV and other pay-TV companies will eventually cut deals to provide the Dodgers channel to all subscribers.
John Hartung will be the main studio anchor for SportsNet LA. A Time Warner… (Jay L. Clendenin, Los Angeles…)

Call it a curveball that nobody wants to swing at.

After decades of forcing consumers to pay for channels they don't want, the pay-TV industry is strongly resisting Time Warner Cable's efforts to make subscribers of all its rivals pony up $4 to $5 a month for a Dodgers channel.

All eyes are currently on satellite heavyweight DirecTV, whose 1.2 million Los Angeles customers give it a roughly 30% share of the local pay-TV market, slightly less than Time Warner's estimated one-third market share.

DirecTV says it would be happy to provide the channel to anyone who wants it, but so far has rejected Time Warner's insistence that all customers take it. Dish Network, Verizon FiOS and AT&T U-verse reportedly are standing pat until DirecTV either prevails or caves.

At stake, it could be argued, is the future of the pay-TV business.

"This is a big change," said Emily Rusch, executive director of the California Public Interest Research Group. "And wouldn't it be nice for people to pay only for the channels they want to watch?"

Not just nice, but a revolutionary change to a system that generates enormous profits for its corporate overlords by requiring consumers to buy products they don't want.

Imagine if Cosmopolitan magazine made subscribers also take Popular Mechanics or if buyers of "The Poky Little Puppy" also had to purchase "Fifty Shades of Grey." That's what pay-TV customers have had to stomach for years.

Don't like sports? Doesn't matter; here are a dozen sports channels. Don't speak a foreign language? Who cares? Here are channels in Spanish, Chinese and Korean.

By next year, the average monthly cable bill will reach $123, or $1,476 a year, according to NPD Group, a market researcher. The typical subscriber, meanwhile, watches only about 17 channels on a regular basis, based on estimates from the ratings firm Nielsen.

So when DirecTV says it would rather offer a pricey new sports channel to customers on an a la carte basis, that's a move with potentially seismic consequences.

The same thinking would logically apply to ESPN, the Golf Channel, Nickelodeon, MTV and the dozens of other channels that may not appeal to all pay-TV subscribers.

DirecTV is standing atop the slipperiest of slippery slopes, and its industry chums are cautiously crowding in behind it.

"DirecTV has an obligation to all of its 20 million customers to deliver the best possible programming and the best possible value," Dan York, the company's chief content officer, told me. "That means not saying yes to everything that's proposed to us."

He oversees DirecTV's programming and is responsible for cutting deals with other pay-TV companies. He's the guy staring down Time Warner over the cost of SportsNet LA, the new Dodgers channel.

Despite my best efforts, York steadfastly refused to comment on the record about a switch to a la carte programming. The last thing he wants is to declare war on a system that's been highly lucrative for his employer and its shareholders.

But York said DirecTV has crunched the numbers and found that most of its L.A. subscribers oppose paying what Time Warner is demanding for a Dodgers-only channel.

"We're trying to protect them," York said.

Imagine that: A major pay-TV company wants to safeguard its subscribers from unfairly paying for a channel that most of them don't want. If that's not a tipping point, I don't know what is.

But don't tell that to Time Warner.

"I don't for a second believe this is a tipping point," said Maureen Huff, vice president of public relations for the cable giant.

She said DirecTV and other pay-TV companies will eventually cut deals to provide SportsNet LA to all subscribers. There's no precedent, she said, for offering a regional sports channel on an a la carte basis.

"It's simply not how the business model works," Huff insisted. "It's not how it's traditionally worked."

And that, of course, is a terrible rationale for perpetuating a costly, consumer-unfriendly practice.

The problem for Time Warner is that the company shelled out a reported $8.35 billion for exclusive rights to distribute SportsNet LA. That whopping sum pencils out only if almost all other pay-TV customers in the region can be forced to pay an additional $4 to $5 a month for the channel.

For Time Warner to cut the monthly rate or, God forbid, offer the channel a la carte, recouping that multibillion-dollar investment would become much more difficult if not impossible.

Terms of the deal are a moving target.

Time Warner reportedly will pay the Dodgers $210 million this season — $84 million for media rights plus $126 million more for the so-called value of SportsNet LA. The rights fee is expected to grow 4% annually, topping $200 million by the end of the 25-year deal.

Huff declined to comment on the numbers, but Time Warner has to be nervous about the fact that none of the other leading pay-TV services are willing to play ball.

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