Entertainment, Sports Looking to Pay-Per-View

It may not be surprising that two pillars of 1980s-style, high-rolling investment--major league sports teams and movie studios--are declining in value today.

But it’s fascinating that experts in both sports and entertainment see fresh promise for their businesses in pay-per-view television.

“Pay-per-view will be great for events, like the Super Bowl and World Series, and you’ll see athletes making $40 million a year,” says Bob Woolf, head of Bob Woolf Associates, a leading firm of agents for athletes and entertainment stars.

“Pay-per-view will increase revenue sources for movies once again, and bring the industry into a new era,” says a smart film industry veteran.

Such enthusiasm may fly in the face of the public’s indifferent response to NBC’s pay-per-view coverage of the Olympic Games on three cable channels for $125. NBC and Cablevision have invested $100 million in the Olympic venture, but have signed up only $6 million worth of viewers so far.

However, with advancing technology, NBC’s Olympic idea could work in future years, and there’s no doubt that a new system is needed if sports and movies are to regain vibrant prosperity.

Nor is it superficial, in a time of serious unemployment and larger concerns for the U.S. economy, to look at the fun and games business. For what’s happening there can tell us a lot about pressures affecting all business and investments these days.

In looking toward pay-per-view, sports and entertainment companies are recognizing that the mass market has given way to the fractional market--that small groups of individuals, rather than great numbers, watch any game or feature.

That’s most evident in Major League Baseball and the National Football League, where billion-dollar television contracts based on attracting giant audiences have incurred huge losses because the viewers weren’t there in sufficient numbers. The outlook is for those contracts to be renewed next year at much lower prices--at least 30% lower.

As a result, appreciation in the value of sports franchises, which had run 20% a year for the last decade, has come to a halt. The Houston Astros baseball team reportedly is close to being sold for $90 million, despite the owner’s loud claims that the team, which comes with valuable real estate, is worth $125 million.

The Seattle Mariners baseball team, sold recently for $107 million to a syndicate including the owner of Nintendo, is estimated to be worth only $79 million by Financial World magazine.

In addition, Financial World finds more than 20% of the teams in big-time baseball, football, basketball and hockey to be losing money. The losers are mainly teams in smaller markets that can’t afford to keep up in the salary derby that has seen wages of average ballplayers quadruple in the last decade, to more than $800,000 a season.

Times are tough. Even the World Series champion Minnesota Twins are reported to be losing money and up for sale.

The gloomy trend is less apparent in the movie business, where a leading film such as “A League of Their Own,” about women’s baseball, can take in $11 million at the box office in a single weekend.

But costs are high. “A League of Their Own” cost $50 million to make and advertise, so it will have to take in more than $100 million before Sony’s Columbia Pictures can break even, because theater owners get half the ticket price. The studio may have to wait for foreign sales or even videotape revenues to show a profit on “A League of Their Own”--which, unlike most films, is a big hit.

The result of such cost pressures is that fewer films are made and there is unemployment in Hollywood.

All of which builds enthusiasm for pay-per-view, which has shown impressive numbers in a few ventures so far. The market will be there for big events, like the Super Bowl. Championship boxing has brought in more than $50 million for a single fight. Perhaps more significant, however, is that baseball’s San Diego Padres, charging $7.95 a game for a televised showing of 50 home games, have drawn 20,000 customers and earned a tidy $7 million a season--a sum equal to 45% of their regular box office revenue.

This fall, college football will be available on pay-per-view at $8.95 a game, $9.95 for a choice of four games.

“And NFL football, with 16 weekly games, will be ideal for pay-per-view,” says Paul Much, a managing director of Houlihan Lokey Howard & Zukin, a franchise evaluation firm. “That’s like 16 weekly special events.”

The trend makes sense for the customer. Paying $10 or so for a family to see a game on TV is cheaper than going to the ballpark--or to the theater for a movie, play or concert. The economics of show business will change with pay-per-view--not to mention the economics of advertising.

Franchise values will rise once more thanks to the new source of steady and expandable revenues. Indeed, Walt Disney Co. is now being mentioned as a potential buyer of a sports team; Paramount Communications, Tribune Co. and Turner Broadcasting already own teams.

To be sure, technology must advance. Two-way interactive TV is needed to allow more choice and differential pricing. NBC’s pioneering but costly venture with the Olympics would benefit if a fan had the opportunity to pick and choose, and pay for only what he or she wants to see.

In sports and entertainment, as in so many other businesses in this new age, the market is fractional, and each customer is different.