From the moment the deal was announced, many questioned the unprecedented price Time Warner Cable (TWC) agreed to pay for the exclusive right to distribute Los Angeles Dodgers games through its SportsNet LA channel. Though the deal was deemed a coup for the team’s new owners, TWC acknowledged the risk that it could lose money on the Dodgers. Would this be the deal “where the big TV money in baseball bubble pops”?
The free market answer is, “Yes”. When TWC demanded that SportsNet LA be carried on the basic service tier at rates of $4-$5 per subscriber, DirecTV balked. The satellite operator was willing to place a bet in the marketplace that its subscribers would rather skip the Dodgers than be forced to bail TWC out of its bad deal, and so far, its bet has paid off. Fans feel like its the Dodgers who let them down.
Faced with the consequences of its own hubris, TWC asked the FCC for help in negotiating the price of the SportsNet LA channel. FCC Chairman Tom Wheeler responded by sending TWC a letter requesting details about TWC’s proposed arbitration process and indicating that the agency would intervene “as appropriate” to bring relief to consumers.
Though some see the letter as a threat to TWC, its reaction to the potential for government intervention is telling. A TWC spokeswoman said, “We’re grateful for the FCC’s intervention.” It’s TWC, not consumers, that needs relief.
The numbers are enough to make one wonder whether TWC was counting on government intervention all along to socialize the risk of its deal. According to the Los Angeles Times, an average of only 121,000 households — less than 3% of the Los Angeles area’s TV audience — watched Dodgers games last year when they were still widely available. These numbers indicate that DirecTV is unlikely to lose a substantial number of subscribers even if it refuses to carry the Dodgers indefinitely.
If the vast majority of DirecTV subscribers don’t regularly watch Dodgers games, it’s difficult to see how consumers would be better served by FCC intervention. If the FCC were to set a price that is within the range of TWC’s expectations, it would force pay-TV prices in the LA market even higher. It would also prevent the market from popping the sports channel pricing bubble on a nationwide basis by sending a signal that the FCC is willing to socialize the risk of bad programming deals while privatizing the rewards.
The FCC could instead require that TWC offer Dodgers games on an à la carte basis, but if that were its intention, it wouldn’t need to bother with an arbitration process — DirecTV has already agreed that, “the simplest solution is to enable only those who want to pay to see the remaining Dodgers games to do so at the price Time Warner Cable wants to set.”
Though DirecTV’s solution would undoubtedly be better for consumers than TWC’s twisted offer, there is an even simpler solution. The FCC should let the market determine the fate of the TWC/Dodger deal.