Thursday, September 12, 2013

Antitrust Law & Live Streaming of Games over the Internet

As documented in the last post, Major League Baseball Advanced Media (MLBAM) consolidates all team web sites and other Internet activities including the live streaming of games under the league’s umbrella. The NBA and NHL likewise control all clubs’ Internet services and streaming capabilities. The NFL is at least as restrictive in turning over live streaming exclusively to its broadcast partners. No heed is paid antitrust law’s conceivable application to collective league action of this sort. This was the case with American Football League, which sold broadcast rights collectively on start-up in 1960, jumping the gun by two years on the Sports Broadcasting Act, and likely helping the NFL convince Congress of the Act's necessity. There is of course nothing in the 1962 SBA that explicitly recognizes league control of live streaming games via the Internet. Moreover, the Act is very specific in limiting its application to television broadcasts of professional football, baseball, basketball, and hockey only. League control of Internet and website services has been challenged by individual clubs. However, last year the television and Internet blackout policies of MLB and the NHL each became the subject of class action antitrust lawsuits filed by customer groups. In December of 2012, a motion by the leagues to dismiss the now consolidated cases was rejected by US District Court Judge Shira Scheindlin; the case proceeds.

The plaintiffs allege that the leagues have violated the Sherman Antitrust Act by unfairly restricting fans' ability to watch local broadcasts through internet streaming or satellite television in two ways. First, consumers must purchase a package that includes all out-of-market broadcasts. For example a St. Louis Cardinals baseball fan living in New York City cannot simply purchase the feeds of Cardinals games, but a more (presumably) expensive package that includes all but the games of the Mets and Yankees. Second, the packages blackout any games broadcast locally via a CATV regional sports network (RSN). Customers cannot use Internet or mobile phone feeds to watch their local team play, but must instead purchase a cable subscription and watch televised games from an available RSN. This obstruction is particularly acute in areas with no well-defined local team, such as Las Vegas. Rather than making all games available, the area is instead designated by MLB as a local market for all six California and Arizona teams. Up to forty percent of the games played on a given night can be blacked out in Las Vegas…although that city is rumored to have other entertainment options. This is likewise the case in Iowa, parts of which is assigned by MLB as the home market for the several Midwest teams from the surrounding states (and which, after the state fair packs up, has slightly fewer entertainment choices than Vegas). The complaint charges that the exclusive broadcasting policies enable the RSNs to charge monopoly prices for their much sought after sports programming and to raise the subscription fees for cable consumers. The outcome of these lawsuits is critical to the access and costs of live sports programming for consumers. The failure by the plaintiffs to have the cases dismissed means the current situation will be checked to a degree. However, the lawsuits will likely be settled by negotiation before a court ruling is ever made. MLB and the NHL will most likely be forced to yield on the most extreme of their restrictions, like those described above; yet the rights to central control, and to  blackout in a more reasonably defined local market, are likely to remain.

As noted above, live Internet streaming is available to all but local market subscribers. Yes, that’s right, exactly the subscribers who should most desire live streaming! Like the fears from way back in radio days, that broadcasts would dampen live attendance, the substitution chance between Internet and the RSNs that deliver baseball and hockey to local markets, drives the leagues’ policy. The stakes are high and growing as RSN contracts for broadcast rights become increasingly more lucrative. With consumers switching to new delivery options for television shows and movies, live sports programming is the last stronghold of appointment television viewing, and this is driving rights values and contract commitments for live sports programming through the roof. However, these values are predicated on the considerable monopoly power of RSNs, often under joint ownership with their broadcast partner clubs (e.g The Yankees and the YES network). Statutory or court ordered weakening of the league-team-RSN monopolies likely bursts the broadcast rights bubble, and the leagues will dig in to protect their cash cow.

Notwithstanding, root of this problem is the allowance of league controlled streaming rights, which should be considered violation of antitrust law, and certainly are not protected by the SBA. This policy is unquestionably bad for consumers and there is no valid reason permit league controlled streaming and the accompanying restrictions on the product's delivery. Moreover, leagues have and will restrict broadcasts exactly to the level that they are allowed by law. Witness the NFL whose restrictions on Sunday free-to-air broadcasts often leave their customers with little choice and only unattractive games. Deadspin now rightly takes the league to task over this weekly. To evaluate what is taken from consumers, simply compare the availability of NFL games to NCAA football, which is not protected by the SBA on the basis of  the 1984 US Supreme Court decision (NCAA v. Board of Regents of the University of Oklahoma).  All the big NCAA games, and then some, are readily available to all markets. Consequently, without aggressive action by the courts, MLB and NHL fans and more will be able to watch their local team only with an RSN cable subscription, which will become increasingly expensive—good for the leagues, not the fans.

Sunday, September 8, 2013

Is Baseball the New Football?

Thirteen years ago Major League Baseball’s thirty teams collectively fronted a $75 million investment and launched a vehicle incorporating all individual team’s web sites and other Internet activities under the league’s umbrella. All content delivery, including developing live steaming capabilities, became part of Major League Baseball Advanced Media (MLBAM) assets, and their format has been essentially copied by all the rest. At the turn of the millennium the Internet could be described as roughly at the same early stage of development as television technology when the Colts-Giants 1958 NFL championship game triggered the transformation of football into America’s TV game. Since, and primarily simply due to the nature of the game, baseball has been regarded by many as a dinosaur because of its (relative to football) lack of adaptability to television broadcasts. Yet now the Internet, and the associated technology and devices, is rapidly changing viewing options, as did television offer an alternative to live event attendance. Perhaps, in much the same way that the NFL thrived because of its adaptability to television broadcasts, a baseball renaissance is mounting because of the sport’s suitability to the Internet.

The Internet through its access flexibility, available through an increasing array of mobile devices, provides an environment that allows consumers to partake in other activities, sport related and otherwise, while at once viewing/consuming a game. In this case, the nature of baseball may make it the sport most apt for multi-dimensional consumption. Besides standard broadcast delivery for viewing and listening though live streaming—available to all but local market subscribers (more on this to come) on since 2003—customers can access news, schedules, standings, and statistics from around the league and detailed information on each of MLB’s teams. Additionally, comes the opportunity to create and play in fantasy leagues. As consumption options have expanded beyond the simple and passive viewing of a game, baseball's deliberate pace, a liability for old fashioned broadcast TV, seems tailor-made for complimentary consumption options, and particularly for baseball because it is arguably the team sport whose fans are most consumed by supplemental statistics and information. 

MLBAM’s impact on MLB’s revenues was quick and clear. In 1999 MLB revenue totaled a little more than $3.6 billion, similar though about one-half billion more than the NBA at the time. By 2006 MLB revenues had nearly doubled to more than $6 billion, nearly keeping pace with the TV-rich NFL who returned $6.5 billion that year; meanwhile NBA revenues had grown only a bit, to just exceed $3.5 billion. Baseball business analyst Maury Brown wrote in late 2005 that MBLAM had become a money machine, and profitable in less than three years. USA Today reported revenues reached $380 million annually by 2006. Pete Toms revealed that by 2010 MBLAM annual revenues were excess of $500 million and the estimated value of the subsidiary enterprise was $2 - $3 billion. The MBLAM subscription price in 2013 topped out at $130 for all-year, full service accessThe NBA and NHL followed MLB’s lead and each offer similar full service websites that include live broadcasts to subscribers for out–of –market games. These products are likewise popular and similar to MBLAM, and are able to charge annual subscription prices of  $150 per year, though both attract fewer subscribers than MLBAM.

The dinosaur this time around may be the NFL, ever cautious and always effective at limiting consumer viewing access for profit. Like its peers, the league maintains control over team websites and content. However they've left live steaming options to their contracted broadcast networks. For example ESPN is able to live steam Monday Night Football, but will do so only for its cable subscribers. Because of the volume of cash turned over by the networks for rights, there is for the NFL a more delicate relationship than the other league’s have with their TV partners; the networks collectively pay the NFL substantive rights fees—over $20 billion in 201112, and that amount will nearly double to $40 billion per year beginning in 2014—far and away the highest in sports.  At present, the surge in traditional broadcast revenue has kept the NFL on at the top of the heap in terms of revenue generation- as they are now nearing $10 billion in annual revenues as number two MLB approaches $8 billion. But the NFL trails the pack in internet delivery. NBC offered the first ever live steaming of the Super Bowl in 2012, but the decision on steaming in the future will be determined by the network holding the broadcast rights. General access to live steaming is controlled by the NFL’s satellite television partner DIRECTV, and before 2011 access had been limited to those only homes where that service was not available and then only to those with specific mobile devices. Live streaming of NFL games became available universally to all devices for the first time in 2012, and at a hefty subscription price of $300 for the full service package.

Traditional broadcast markets are still thriving and keep the NFL at the top in terms of revenue and value. However assuming that Internet technology develops in the next twenty years at least as dramatically as did television technology from the 1960s onward, MLB is the league best prepared to capitalize. 


Thursday, September 5, 2013

Broadcast Revenue and Competitive Balance in the NFL

The NFL receives much credit for achieving the highest degree of competitive balance among American team-sport leagues. This is after all the league that shares all television broadcast revenue equally among its teams and strictly enforces a hard salary (actually payroll) cap. Any number of methods used to assess competitive balance confirm the competitive balance superiority of the NFL relative to the other major American team-sport leagues. Yet after further review, the two primary reasons just given for the league’s success at maintaining a relatively even distribution of talent across clubs do not hold water. This post will discuss the sharing of broadcast revenue, with the salary cap’s effect to be evaluated in a future post.

Much credit for the level of competitive balance, and the assumed corresponding financial success, in the NFL is given to the decision to sell collectively and share equally all television broadcast revenue. The financial advantage is certainly the case as the league controlled sales generate considerable market power and price is manipulated by regulating output; monopoly profits result. Commissioner Bert Bell realized the economic advantages of monopoly limits on the availability of televised games through league controlled rights the 1950s. However, he was thwarted by federal antitrust law. League sale of broadcast rights was ruled a violation of the Sherman Antitrust Act prior to the enactment of the Sports Broadcasting Act of 1961. Nonetheless the upstart challenger American Football League, formed in 1960, boldly sold their broadcast rights collectively, and without a successful legal challenge. Facing a competitive disadvantage the NFL, through recently appointed Commissioner Pete Rozelle, aggressively lobbied Congress to enact the SBA as a statutory exemption to federal antitrust laws. Under the Act antitrust laws do not apply to any agreement allotting broadcasting rights made by a professional league comprising only the sports of football, baseball, basketball, and hockey. Though not required by the law the NFL and the other three major American sports leagues have chosen to split league collected revenues equally among clubs. Only the NFL has assumed full ownership of television broadcast rights at the league level.

With NFL broadcast revenues equalized across teams beginning in 1962, the first year of league sales and equal revenue sharing, conventional wisdom suggests that the distribution of talent would also have leveled as the advantages of media market size were significantly curbed. However, the examination of two key dimensions of competitive balance does not support this position. The frequent claim is made is that the league’s broadcast revenue distribution allows the smallest markets to compete on an even playing field with the largest.  However from inception in 1922 to 1961, the Green Bay (WI) Packers, representing the NFL’s smallest media market through all except the very early part of this history, accumulated more league championships, at seven, than any other club. (The Packers were league champions in 1962 as well.) Green Bay and other smaller market clubs have accumulated titles since, but small market success hardly parallels the sharing of broadcast revenues. Championships in the before SBA period, as they have been since, were quite well distributed. From the largest markets the Chicago Bears earned six titles and the New York Giants four championships. Among the rest, the Detroit Lions won four championships, while the Philadelphia Eagles and the Cleveland Browns claimed three titles each. For those clubs with significant membership tenures in the league during this period, only the Pittsburgh Steelers and San Francisco 49ers were denied titles.

Economists prefer a more scientific approach for evaluating the distribution of talent, with the standard deviation of win percent each season commonly employed. (Standard deviation is adjusted to account for the number of scheduled games per season by creating an actual to ideal ratio of dispersion, the RSD. The closer to one the ratio, the better the competitive balance.) Again using the more specific metric, the claim that the SBA and collective rights sales improved balance is specious. Comparing the adjusted standard deviations averages of the before and after SBA periods in their entirety does reveal modestly better balance in the latter period. The RSD averages 1.74 for forty years before and improves to 1.57 for the fifty years after the Act’s passage. However a closer look, comparing the shorter periods directly before and after passage, reveals a different story. For the eleven preceding years, 1950 to 1961—the period beginning with the merger of the NFL and AAFC—RSD for the NFL was 1.53. RSD for the eleven years, 1962-1973 following the Act’s passage measures 1.74.  Competitive balance actually became worse in the immediate aftermath of the SBA!

Of course there are several factors that potentially influence the distribution of talent across teams in a sports league. Moreover, much besides the enactment of the SBA will likely differ between any arbitrarily compared eras. Included are shifting demographics, collective bargaining provisions, league expansions and mergers, changes in post season opportunities, etc. Notwithstanding, there is no evidence that the equal sharing of the proceeds from national television broadcast rights sales improved competitive balance in the NFL.