Lightshed Partners’ Rich Greenfield reported on Tuesday (April 28th) that “multiple MVPDs [including DISH Network] informed ESPN” that they believe affiliate fees do not have to be paid for the month of April “because sports content is not being delivered as specified in their affiliation agreements” (it’s unclear if said distributors are taking the same stance with the RSNs). The development supports Greenfield’s position that it’s the sports programmers “at fault” and therefore they should be the ones left holding the bag (not the cable subscriber). Unsurprisingly, ESPN disagrees. The TMT analyst said overtures made to the WWL were “completely rebuffed” setting up a potential standoff that could prompt distributors to take legal action. It should be mentioned that on Wednesday (April 29th), NY AG Letitia James “called on seven major cable and satellite television providers (including DISH) to reduce or eliminate fees attributable to live sports programming” until the games return.
Howie Long-Short: Distributors are charging subscribers between $40/mo. and $50/mo. for sports-centric channels, so it’s understandable why they would be concerned about the lack of programming being delivered while the leagues are on hiatus (particularly those in NY now under pressure from the AG). But that doesn’t mean they’re about to blow up long-term relationships with sports programmers. One high-profile media consultant explained that “it’s highly unlikely the distributors threatening ESPN – DISH excluded – are going to stop making payments and drop the network. Pro sports leagues are going to be back playing games sooner than later and the cash will once again be flowing. Many distributors have also done deals recently with ESPN and saw good value in [carrying the network]. That value returns with the game inventory (see: viewing figures for the NFL Draft and The Last Dance – both on ESPN). Destroying value creation seems like a radical response to not getting a non-contractual rebate on one month’s fees.” For what it’s worth, if every distributor withheld their April ‘20 payment it would cost ESPN +/- $650 million (of course, the Disney subsidiary would then look to invoke the remedies afforded under their contracts with the leagues).
There’s nothing wrong with a distributor posturing in an attempt to negotiate concessions from a programmer (as many of the MVPDs Greenfield referenced likely are) – particularly if the sports hiatus drags on and a significant number of games are missed, “but it’s unlikely that DISH or anyone else is going to see any sort of short-term relief from ESPN.” That’s because carriage agreements are typically tied to game inventory guarantees and it remains a possibility that programmers could still fulfill those obligations (i.e. no games have been canceled yet). The other problem distributors are likely to face is that “the contracts spell out economic remedies for lost games (think: prorated fees, extend deal).” Failing to deliver content isn’t reason to revamp the agreement in its entirety.
Distributors looking to avoid compensating programmers for the month of April can take the position that paying for games not played is bankrupting their business, but it’s going to be awfully hard to convince a court of law (remember, legal injunction is likely to be required as ESPN has no plans to waive fees) that they’ve been subjected to a force majeure without a loss a subscribers and there’s no evidence to support the notion that cord cutting has accelerated over the last six weeks. In fact, Nielsen reports that the decline in cable subs between March and May 2020 was smaller than the drop distributors experienced over the same period last year and both ESPN and FS1 added subs in April. Of course, it is somewhat ironic that DISH is the distributor making the most noise about a rebate considering they’re not offering subscribers any sort of discount after dropping the FOX RSNs.
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