Business

Time Warner Cable's Dodgers channel shutout

ColumnEconomy, Business and FinanceTelevision IndustryTelevisionMedia IndustryEntertainmentTime Warner Inc.

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.

Jarryd Gonzales, a Verizon Communications spokesman, followed DirecTV's York in taking tentative steps toward a la carte programming.

He said Verizon wants to serve the interests of both Dodgers fans and "those who have no interest in the Dodgers or sports." For that reason, he said, the company would prefer an approach "that is driven by a customer's willingness to pay for or watch the channel."

In other words, you'd pay for it only if you wanted it.

Chris Lauricella, vice president of content for AT&T U-verse, said Time Warner "dramatically overpaid for those Dodgers broadcast rights and wants the Los Angeles market to cover those costs."

He said AT&T is open to any proposal from Time Warner that lowers the cost to subscribers.

"Do we think they're going to want an a la carte discussion? No," Lauricella said. "But that's a discussion we'd like to have."

Danielle Johnson, a spokeswoman for Dish Network, said the No. 2 satellite provider "is interested in carrying high-quality content at an appropriate value." She said Dish would consider a deal for SportsNet LA only "if that balance can be struck."

This is serious stuff, potentially altering the landscape for all future programming negotiations. If the industry draws a line over SportsNet LA, pay-TV subscribers would be justified in expecting the same stance for all other deals.

Certainly, it wouldn't be an easy transition. Time Warner could end up taking a bath on its Dodgers contract. DirecTV would have to revisit its own regional sports channels in Pittsburgh, Denver and Bellevue, Wash., that aren't offered a la carte.

But cutting less-profitable deals for a la carte sports networks would be better than no profits at all.

The cautionary tale here is Comcast SportsNet Houston, featuring baseball's Astros and basketball's Rockets. The channel is co-owned by Comcast. Other top pay-TV services in the Houston area refused to carry the channel, saying its price tag was too high.

Comcast SportsNet Houston is now in bankruptcy.

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to david.lazarus@latimes.com.

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