Imagine famous football coaches and professional athletes taking a 50% salary cut. University of Alabama football coach Nick Saban's annual salary would be a mere $3.5 million or so. Angels baseball star Albert Pujols would earn just $8 million a year. And the Lakers' Kobe Bryant would have to be satisfied with a yearly $15 million. Not by chance, if this came to pass, you the consumer would reclaim control of your rapidly rising monthly subscription TV bill.
This is not just idle speculation. Something like this will probably occur when the forced bundling of television channels ends and the consumer is given meaningful choices about which channels to purchase. As increasing numbers of viewers simply forgo subscription TV, demand alone will ultimately force change to this dysfunctional, highly unfair and ultimately doomed system. But it may take a while: Powerful broadcasting interests are fighting to preserve a business model that rewards them and their clients, chief among them the American sports industry.
The dispute over telecasts of Dodgers baseball games exemplifies the problem with the current setup. Time Warner Cable wants to charge Southern California subscribers slightly less than $5 a month to watch the games on a Dodger channel. Area TV distributors (such as DirecTV, Cox Cable and AT&T U-verse), fearing a consumer backlash, are resisting. If Time Warner and the Dodgers win, it's a lucrative deal — for them. Not so for those who don't care to watch. Even Dodger fans, blacked out now, aren't really winners. The system denies all of us meaningful choices. All subscribers end up subsidizing programming we never watch.
Monthly cable TV bills are expected to rise to $125 from a current average of $90 in the next few years, with most of the increase due to sports television. The roughly $5 monthly charge for the Dodgers channel is just the beginning. The ESPN channels cost an estimated $5.50 a month; the Lakers broadcasts are said to add $4 a month. Then there's college sports. The Pac-12 network, a relative newcomer, charges $2 a month. For this basic slate of sports television, the monthly tab has already reached $16.50, and that's without the fees for the sports networks of Fox, NBC and CBS, or for other regional and specialty sports broadcasters.
In effect, because of the way channels are bundled, all pay-TV subscribers (roughly 100 million households) are subsidizing sports. The subsidy is substantial. The Pac-12 conference estimates it will receive $3 billion in TV revenue over a 12-year period. For ESPN, it's much more. If roughly 90% of pay-TV households purchase the bundle that includes ESPN, that network alone will receive just short of $6 billion in revenue in a single year.
That's a major subsidy, and, given a Cox Cable representative's estimate that only 15% to 20% of viewers regularly watch sports programming, it's paid mostly by viewers who neither watch nor wish to subsidize ESPN programming. These viewers swallow the bitter inflationary pill in order to watch other channels in the bundle.
Both college and professional sports teams benefit from the subsidy. The winners include UCLA and UC Berkeley, taxpayer-supported institutions, and USC and Stanford, preeminent private, nonprofit institutions that also benefit from federal money. UCLA alone reportedly received $14.5 million in TV revenue over the last year. Americans are accustomed to college athletic programs that make money, but do we really want these revenues to be generated on the backs of angry consumers who must pay a sports subsidy every time they purchase subscription TV?
There are ways to speed the destruction of this system: antitrust enforcement, FCC policy changes and, if necessary, congressional legislation. For consumers, the advantage will be in regaining control of our television dollars. In Canada, where consumers do have choices to design more customized bundles, the average subscription TV bill is roughly $30 a month less than in the United States.
Not everyone, however, will save money. The average price per channel will go up as viewers customize their viewing package. Those who purchase a large number of channels will probably pay more, while those choosing a small number will pay less. What is certain is that consumers will gain control and that competition, not powerful broadcasters, will determine market outcomes.
Change will create winners and losers in the sports industry too. Some newer, lower-cost sports may find it easier to gain TV coverage. A channel that televises women's pro basketball, for example, should have lower costs that would allow it to reach a small but loyal audience. On the other hand, padded sports budgets at both the professional and college levels will have to adjust. That's unfortunate for some players, coaches, owners and administrators, but it's also just as it should be. Sports, like any other product sold to the public, should be disciplined by competition.
Consumer choices should dictate which TV programs survive and which do not. Consumer sovereignty is what competition is all about.
Warren Grimes, a fan of Pac-12 sports, is a professor of antitrust law at Southwestern Law School. He was a consultant in an unsuccessful lawsuit that challenged bundling practices.