Monday, January 22, 2007

DirecTV Deal

I sort of want to preemptively apologize for my ignorance on the subject, but for the past few days I've been somewhat baffled by arguments in the overwhelmingly negative reaction to DirecTV's exclusive deal for MLB Extra Innings.

Perhaps it's because I really don't have that much emotionally invested - I grew up following baseball by reading about it and playing it, not watching it, and that tendency has remained - but I think a lot of the comments about the business decisions behind the deal don't make much sense. Few people in online outlets seem to think the deal makes much sense for either side, although I could simply be reading the wrong sites. Many believe DirecTV is overpaying for something that won't really cause people to switch services, while MLB seems to have taken another step toward alienating its fanbase and potential exposure for a quick buck. I buy neither of these arguments.

I agree that DirecTV likely won't gain that much from cable users switching to DirecTV just to get MLB EI and the new MLB only channel. To focus on people who will make such a brazen consumer choice is very myopic, however. People move, especially young males 18-35, the coveted target demographic. While switching the service you already have installed seems ridiculous, to a person getting a new place, the appeal of getting the only package with NFL and MLB games would seem pretty strong. Moreover, it should be remembered that DirecTV does not only compete with cable; it has other satellite companies to compete with. While I'm far from an economist and have no idea what any of the relevant numbers involved are, $700m for exclusive rights to out-of-market MLB broadcasts seems pretty reasonable considering the amount spent on Howard Stern. And of course, there's a ton of free advertising built into this deal, just as was the case with Stern.

From the MLB perspective, there are two large mitigating factors here. First, I think MLB is betting heavy on MLBAM and the internet-based viewing options. The main constituency being cut out is digital cable subscribers, but the number of digital cable subscribers who don't have high-speed internet isn't exactly about to grow. And I would be pretty amazed if MLB's profit margin from viewing isn't much, much larger than its profit margin from EI on cable. They're mostly robbing Peter to pay Paul, but Peter's cost of living is Manhattan-esque while Paul's staying in South Dakota. And, you know, they're getting cash to do so. If there are only 750K current subscribers to MLBEI, it seems like they should expect to at least break even on the $1oom vs. subscriber loss, with a big payoff coming from switches to online viewing.

Second, I don't really buy the argument that the MLB has much to lose from alienating its fans in this regard. For one, MLB already alienates its fans who have these packages with the bizarre blackout rules; nobody really already thought that MLB was fan-friendly when it came to letting you see its games. Moreover, while it certainly is a raw deal for plenty of people, the MLB is not geared toward its hardcore fans. Ticket sales continue to drive the MLB economy, and most teams have spent the last 15 years attempting to maximize their profits from attendance by upgrading stadiums, installing luxury boxes, and re-evaluating concessions and marketing. Hardcore fans don't pack the stadia, and MLB's interests have always been more in attracting the dollars of frivolous consumers than in maintaining a happy base of fans. The hardcore fans at stake who will walk away aren't exactly the game's biggest financial contributors, for one, and aren't exactly that likely to walk away from the game. As apparently has happened in the past, fans who get alienated by MLB's machinations tend to heal those wounds once their teams start winning again, and MLB is obviously stressing parity to the extent that it can be reasonably expected that it can salve over most of its missteps.

Moreover, the MLB just witnessed the strong arm that cable gave to the NFL Network. I'm sure this point has been made in the news reports, but I've yet to see it (i.e., I'm lazy and haven't looked for it). I don't know why MLB should bother negotiating with the cable companies, especially since they're so heavily integrated with most of the content providers and are ostensibly a lot more focused on how to shift to new entertainment and advertising models with the rise of internet programming, DVR, etc. MLB is already addressing those questions on its own with MLBAM, and it seems like MLB has already come to a satisfying preliminary set of answers to the questions raised by the present and future shifts in media. Given that, it only seems sound to grab a little more control of the supply/demand curve. Moreover, the NFL parallel is worth noting: if baseball fans claim MLB has screwed them over, at least baseball makes its games available online; the NFL has always been more exclusive in its viewability than MLB currently is, and local NFL games are blacked out when they don't sell out. It's hard to say that MLB has alienated its fans in many ways that the NFL has not already, and the NFL is obviously not doing too poorly.

The fans who are or will be upset are the ones who love baseball, and MLB simply has such a large monopoly as a provider of high-quality baseball game entertainment that MLB alienating lovers of the game with its marginal business decisions is unlikely to have long-lasting effects, in my opinion. For the most part, people alienated by the decrease in broadcast options are not the type who will be able to start regularly attending college, HS, or minor or independent league games; we can probably reasonably assume that this group of people wants mostly to stay home, and the cost of watching a game on a computer is still a lot less than the cost of a minor league game in most relevant circumstances. And since MLB will remain dominant in terms of game data available to the public, it sure is unlikely that many statheads will be able to forget about the big leagues.

I'm sorry for having this read like an unresearched, contrarian op-ed piece; I just really don't buy the "MLB is screwing its fans over; doom will ensue" leitmotif. I'm not a student of business or economics, so who knows what I could be getting completely wrong? The only real argument I'm interested in here is that MLB is a business and will continue to act as such. Objections to the MLB's plan that read along the lines of "This is a bad business decision for MLB..." (or DirecTV) are quite unlikely to be correct unless thoroughly researched. I think it's lousy that people's access to something they genuinely love is governed by competition for profits, and that relationship is unlikely to change absent an overthrow of the now globally-governing episteme that misrepresents humans as homo oeconomicus.


At 10:37 AM, Blogger bet 911 said...

With the trades and acquisitions made going into the draft, plus the bulk of the team that is carried over from last season, and the trades and draft picks made during the draft, it sure seems like the Pats are going to be the team to beat in the AFC this season, and perhaps in all of the NFL.

Considering the Pats were almost in the Superbowl last season with a pathetic receiving corps and that they've added very talented players into said receiving corps this season, barring some nasty injury(ies), they look to be the team to take it all.I say injury(ies) because I think they could survive an injury or two to some positions, but if they lost Brady they'd probably have a hard time recovering.

I wish I could say that the Redskins did well in the draft and/or in free agency but so many holes still exist that I'm not sure they'll be significantly better than last season. I suppose on face they should be if they can keep their corners healthy. With Landry (argh, hard to type that name as a Redskin!!) back there with a healthy secondary they might be able to cheat up more and put more pressure on opposing QBs. Might.

They still have what should be a lot of talent in the receiving positions, and Campbell should be better, but they don't have the quality on either line (offense or defense) that I wish they'd have, so it could be yet another year of .500 at best, or worse.

Still, the NFC East looks to be the NFC Least again this season. None of the teams there look like they'll be that good, and none really look ready to step up and take the division.

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