A question of competition

A business can occasionally bring out products that are too popular for its own good. Such a product is the New England Patriots football team. Such a business is the National Football League and specifically its pay-television spin-off, the NFL Network.

It has dawned on American football fans in recent weeks that they may be watching the greatest team in the history of the sport. The Pats (as they are sometimes called) are a fascinating collection of people, too. Tom Brady, who has just completed the best season any quarterback has ever had, dates a Brazilian supermodel. The team’s toughest tackler, Tedy Bruschi, is recovering from a stroke. The Patriots’ coach, Bill Belichick, is reviled as a cheat by some football fans (for the zealous videotaping of other teams) and revered by all for his savvy.

The beloved and despised Pats have become a national obsession and a media gold mine. The top four broadcasts on US television since last summer have all been Patriots games. Their game on December 3 was the most widely watched programme in the history of cable television. Last Saturday, the Patriots, with 15 wins and no losses, faced the New York Giants with a chance to become the first team ever to go undefeated in a 16-game season. The NFL Network had exclusive rights to broadcast this historic game in the country’s largest media market in prime time on a Saturday night. That seeming bonanza has landed the league in a world of woe.

For the past two years, the NFL, which earns $3.7bn in broadcast fees annually, has withheld eight games from its usual cable and network broadcasters to air on its own network, forgoing $400m worth of revenue to do so. Is the NFL just cutting out the middleman? Maybe, but just as likely it is looking for a quick buck. Avid fans willingly buy the giant sports channel ESPN, which costs $3 a month. They will even pay $259 a season for the NFL’s “Sunday Ticket” satellite package. But the NFL Network – with a lacklustre announcer and just eight games a year – is not much of a product.

The big cable companies – Time Warner,Cablevision et al – would offer the channel on their “sports tier” to all those who want it. But the NFL insists on being included in the “basic” cable package, which would force even those who do not want the channel to pay for it. Although cable executives are reluctant to cross the mighty NFL brand, they are even less keen, with profit margins shrinking, to alienate their whole customer base with price hikes. The NFL has refused to release the games on any other terms. The resulting stalemate has caused a lot of local inconvenience. But when the Pats were scheduled to play on a network that only 8m households get on cable (many more get it via satellite), the situation got serious.

Throughout its battle with Big Cable, the NFL had lobbied for maximum regulatory advantage rather than negotiating for maximum business advantage. It had used e-mail blasts, spam-generating websites and on-air propaganda. It had sued Comcast for demoting the network to an optional tier. Jerry Jones, owner of the Dallas Cowboys, called on loyal fans to drop their cable subscriptions. And when the big Patriots windfall presented itself, the NFL Network, true to form, decided to use the game as a gun to the head of the cable companies.

It was a terrible mistake. Whether or not New England retains a distinct regional culture, it is unquestionably a distinct US sports market – and it is the only one with 12 senators in it. Several of them, led by John Kerry, the Massachusetts Democrat, began to make reference to the 1961 Sports Broadcasting Act under which the NFL operates (or believes it does), which exempts professional sports leagues from anti-trust statutes. Senators noted that the 1961 act had been passed at a time when NFL was committed to showing as many football games as it could, gratis, and that the act does not apply to paid transmissions.

The NFL was already in bad odour with the Senate. When one of its lawyers testified in November 2006 that an increase in programming costs to cable companies need not mean an increase in prices to consumers, Roger Noll, a Stanford economics professor who was also testifying, began to laugh. “The right template that we economists use for deciding whether an action such as the creation of the NFL Network is pro- or anti-competitive,” Mr Noll said that day, “is whether there is a profit-enhancing reduction in output.” The then-chairman of the Senate judiciary committee, Republican Arlen Specter of Pennsylvania, leaned towards the view that there was such a reduction. Patrick Leahy of Vermont, who succeeded Mr Specter as chairman when Democrats regained the Senate, agrees. In a letter to the NFL sent just before Christmas, both senators accused the league of “adopting strategies to limit distribution of game programming to their own networks” and urged it to put the Pats on television.

The NFL backed down, allowing the game to be aired on two national networks, NBC and CBS; 35m viewers saw the Patriots complete their perfect season. But the NFL Network had awakened a sleeping giant. What was surprising is that, while their passions were roused by the Patriots, the US sports-watching public remained sufficiently dispassionate about the business issues to side, generally, against the league that is producing the very programming it wants to see.

More questions arose, such as why US cable subscribers need to pay for so many expensive channels they do not want, why they cannot have à la carte pricing, why certain satellite programming is not made available on cable and so on. It will be surprising if next autumn’s coincidence of football season and election season does not produce a candidate eager to tackle these issues.

The writer is a senior editor at The Weekly Standard

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