Friday, December 28, 2012
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Reportedly, roughly 90% of Americans pay for cable, satellite or fiber optic television, and for that privilege they all pay what amounts to an $80 annual tax, according to industry analysts. But the recipient isn’t any government. It’s the Walt Disney Company. Disney plays the role of tax collector because it owns ESPN, the sports programming juggernaut. ESPN spends billions of dollars for broadcast rights to major sports and then passes that cost off to cable providers like Comcast, Cox and Time-Warner. Then they pass it off to you.
In fact, the Wall Street Journal reported that in 2010 about 40 percent of your basic cable bill probably went towards sports programming, with ESPN taking the biggest slice. Twenty minutes ago, you met Peter Kafka of AllThingsDigital. Well, we’re draggin’ him back to discuss this. Peter, [LAUGHS] welcome to Segment C.
PETER KAFKA: Thanks for having me, Bob.
BOB GARFIELD: ESPN is the dominant force in the industry. How did that come to pass?
PETER KAFKA: It’s a marvelous story, and if you remember back in the early eighties, late seventies when ESPN was born, they had nothing.
SPORTSCASTER: And we’re just minutes away from the first event on the ESPN schedule. That’s the 1979 NCAA College Football Preview. Then we’re gonna follow that with two of…
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PETER KAFKA: The amazing thing is people watched it, they were able to parlay that modest popularity into ever-increasing cable fees. They used those fees to go out and buy expensive programming, and, and they’ve since been able to cobble together a series of sports packages that, if you like sports, you have to have.
BOB GARFIELD: But if you don’t like sports, you also have to have, because you cannot get basic cable without ESPN. It is bundled into your service, whether you like it or not. And there have been rumblings for years on Capitol Hill about doing something about that and forcing cable providers to go a la carte. But that has been a non-starter ‘til now. Why?
PETER KAFKA: The interesting question is whether there is actually a huge demand to break the bundle apart. If you write for technology blogs, like I do, you’ll find lots of readers who will tell you they absolutely want to break up their cable bill and they, they want to just get the stuff they want to watch. But when consumers vote with their pocketbooks, they pay for cable year after year.
Time-Warner Cable and perhaps a couple of other cable operators have actually offered sort of a sports-less package and they haven’t found many buyers.
BOB GARFIELD: What happens if the sports leagues themselves bypass ESPN and start making their offering directly to individuals online? I’m talking about subscribing, as I do, directly from Major League Baseball.
PETER KAFKA: Even with those MLB rights, and MLB is, is pretty advanced when it comes to sports leagues, they have a carve-out that says that we are not going to wreck these super lucrative local TV rights. That’s where the big money is for these guys. We’ll sell you additional baseball rights to, to stuff that you couldn’t see normally in your – in, in your geography, and that’s fine too. So no one wants to break the model they have.
BOB GARFIELD: You can watch Breaking Bad in real time or time delayed on your DVR or you can get it through Netflix and you can binge on it or watch one show at a time, but that’s not how people consume sports; they consume it in real time. It’s kind of the last chance gas for the old mass audience. Is that what gives ESPN such clout?
PETER KAFKA: It gives sports, in general, enormous clout with advertisers, as sporting events and award shows, Grammys, Oscars, even things like American Idol, all have enormous import for the TV advertising ecosystem because you can still get lots of eyeballs there. That’s separate from why consumers are paying for access to sports. They’re paying for access to sports, ‘cause that’s the only way they can get it.
BOB GARFIELD: I got to tell you, Peter, the only reason I still have my cable subscription is ESPN. Everything else I do online. I’m prepared to be a cord cutter if I can get my sports a different way. Is the world going to accommodate me anytime soon?
PETER KAFKA: There are a lot of entrenched interests that want to keep you paying for cable in the way that it works for them. Your concerns are, are not really their concerns, at least right now.
BOB GARFIELD: Cable is going to survive, and maybe even thrive, because we just can’t live without our live sports. Is that the bottom line?
PETER KAFKA: When you think about how much the world has evolved in the last seven to ten years technologically, again, pre-YouTube, pre-iPad, pre-iTunes, and in cable TV world it looks exactly the same, just more expensive for the consumer - I don’t think sports is the sole culprit here. They’re the most obvious one, they take the biggest chunk, but the representative of, of a system - I would hate to think that we’re gonna have nothing but the status quo for the next decade. But the track record suggests we will.
BOB GARFIELD: All right, Peter, thank you so much.
PETER KAFKA: Thanks, Bob.
BOB GARFIELD: Peter Kafka covers media and technology for AllThingsDigital.