Analysis: DirecTV has plenty of reasons to be patient in Dodgers showdown
When DirecTV dropped the Weather Channel this year, it cited price as the main reason.
And yet when DirecTV subsequently struck a deal to carry the channel after a three-month blackout, it agreed to pay more for the network.
What changed was that one of the owners of the Weather Channel had something DirecTV wanted -- access to Hilton Hotels. Just before announcing its deal to start carrying the Weather Channel again, DirecTV struck an agreement with Hilton Worldwide to use the satellite service in half a million rooms.
Hilton Worldwide Holdings is owned by the private equity firm Blackstone Group, which also has a large stake in the Weather Channel.
The kind of creativity used in resolving the Weather Channel-DirecTV spat could come in handy in getting the satellite broadcaster to reach an agreement with Time Warner Cable over carriage of the Dodgers-owned channel SportsNet LA.
With the Dodgers season now into its third month, there has been no progress in negotiations between Time Warner Cable, which secured distribution rights for SportsNet LA, and DirecTV, the pay-TV distributor that has more than 1.2 million subscribers in the Los Angeles area. Both sides say they are still talking, but there seems to be little reason for optimism.
To be sure, Time Warner Cable hasn’t struck deals with any other area distributor such as Cox, Charter, Verizon FiOS and Dish either.
But DirecTV is key not only because of its size but also because it competes against everyone. As long as DirecTV doesn’t carry SportsNet LA, the other distributors don’t have to worry about losing subscribers to the satellite service.
The issue, according to DirecTV, is money. Although neither side will disclose details, people familiar with the talks say Time Warner Cable wants more than $4 a month per subscribe for SportsNet LA in the first year, with the price rising throughout the length of the contract. Time Warner Cable needs the high fees to justify the $8.35-billion, 25-year deal it struck to run SportsNet LA, according to a valuation by the Dodgers and Major League Baseball.
At the moment, Time Warner Cable doesn’t seem to have something else to entice DirecTV to carry SportsNet unless it happens to own a hotel chain somewhere.
However, Time Warner Cable is in the process of being acquired by the much larger Comcast Corp. and that could make things more interesting should this standoff continue after that sale closes. That, unfortunately for Dodger fans, won’t happen until late this year or early next year.
Comcast not only has more cards to play in negotiations than Time Warner Cable because it owns lots of national entertainment and news channels, but it also is a bigger player in the regional sports network business. It is not unusual for large programmers to get very innovative when crafting deals with distributors that allow both to claim they stood their ground.
DirecTV is also an owner of regional sports networks that Comcast might like to buy. DirecTV has a stake in a Seattle channel and also owns networks in Denver and Pittsburgh. Comcast has cable systems in all three markets. If DirecTV is looking to get out of the regional sports game, it probably won’t find a more eager buyer than Comcast.
Comcast executives privately hope that Time Warner Cable gets its Dodgers deals done before their purchase closes. If not, they will probably have to face the prospect of trying to get the Dodgers to renegotiate the deal or writing it down and lowering the fee to distributors to get SportsNet LA carried. Neither of those are pleasant scenarios.
Since DirecTV has indicated it has lost very few subscribers from not carrying SportsNet LA, its best move would probably be to exercise patience and wait until Comcast takes charge of Time Warner Cable.
The Dodgers could also help themselves by winning a few more games and closing the gap on the first place Giants.
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