Today’s exercise in everyday economics: Brian Stelter and Amy Chozick making the case that cable and satellite TV subscribers are paying a “sports tax” (ht: Jennifer R.). Writing in the New York Times, they say:
Although “sports” never shows up as a line item on a cable or satellite bill, American television subscribers pay, on average, about $100 a year for sports programming — no matter how many games they watch. …
Publicly expressing the private sentiments of others, Greg Maffei, the chief executive of Liberty Media, recently called the monthly cost of the media empire ESPN a “tax on every American household.”
Patrick Flynn personifies the consumer challenge. He and his wife, who pay Comcast $170 a month for television, Internet and a home phone in Beaverton, Ore., are keenly aware that part of their bill benefits the sports leagues that charge networks ever-increasing amounts for the TV rights to games. Save for one regional sports channel, he said, none of them are worth it. …
But there are also millions of viewers like Russell Tibbits, of Dallas, who says, “If you eliminate sports channels from cable packages, I literally would not own a TV.”
Sports channels apparently make up a sizeable chunk of subscription costs. The authors report, for example, that ESPN earns about $4.69 monthly for each subscriber, while the next closest channel is TNT at a mere $1.16.
Given the limited number of channel bundles that cable and satellite services typically provide, the relatively high cost of sports channels creates the possibility of significant cross-subsidies. The sports-agnostic end up covering some of the costs of the sports-obsessed.
Of course, the reverse can also be true. Russell Tibbits may watch only sports channels, but he’s helping pay for AMC, Lifetime, and TNT, too.
For that reason, both sports fans and non-fans may prefer more choice about which channels they pay for. This “a la carte” discussion has been around for years, but Stelter and Chozick highlight a new factor. Changing technology make it make it easier for subscribers to get around current subscription models:
Soon, though, there may be an Internet alternative — something that was heresy until recently. Distributors like Dish Network are talking to channel owners about creating virtual cable providers that would stream channels over the Internet instead of traditional cables. That would break up the bundle of channels that subscribers have grudgingly accepted for years and allow subscribers who don’t like sports to avoid paying for them.
“They’re aggressively looking for ways to offer a lower-cost package of channels without sports,” said the chief executive of one such channel owner, who insisted on anonymity because the talks were confidential. “There may be a market in America, whether it’s 10 or 20 million people, that would be very happy to have 50 or 60 channels but not ESPN.”
By streaming the channels online, old distributors like Dish or new ones like Google could do an end run around the contractual commitments and market dynamics that effectively force them to carry sports channels now.