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L.A. Lakers Blackout: DirecTV Goes to War Against Time Warner Cable.

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The increasing popularity of expensive-to-carry regional sports networks has become a problem for cable TV operators.

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MINYANVILLE ORIGINAL This year there's been little love lost between cable TV companies and content providers.

DirecTV (NASDAQ:DTV) and Viacom (NASDAQ:VIA) had a contractual skirmish in the summer that resulted in a 10-day blackout of Viacom channels for DirecTV customers before a carriage deal was reached. There was also Dish Network's (NASDAQ:DISH) months-long blackout of AMC (NASDAQ:AMCX), which finally ended on October 21.

A fundamental sticking point in the Viacom-DirecTV and AMC-Dish fights was the availability of content online, and how that would impact ratings for pay TV operators. Dish, for example, was unhappy that past seasons of AMC shows such as Mad Men were available online at venues like Netflix (NASDAQ:NFLX). Cable operators argue this lessens the exclusivity and cheapens the value of the content they buy. It doesn't help, of course, that content providers are asking for ever-increasing fees to carry their channels.

While Dish and DirecTV have managed to settle these disputes, they have encountered yet another content fee battle: This time, it's over sports programming.

This conflict is being played out in Southern California, where Dish and DirecTV are balking at the demands of Time Warner Cable (NYSE:TWC), whose new regional sports channel, SportsNet, owns the rights to the Los Angeles Lakers.

Time Warner Cable is asking pay TV operators to pony up $3.95 per month, per subscriber, to carry SportsNet and its Spanish language equivalent, TWC Deportes. Time Warner is also asking for the channels to be slotted into the most widely distributed programming packages of pay TV operators, whereas DirecTV would prefer to include SportsNet as part of a premium package that subscribers would have to pay extra for.

Verizon (NYSE:VZ), AT&T (NYSE:T), Charter (NASDAQ:CHTR), and Cox Communications have signed deals with Time Warner Cable, leaving Dish and DirecTV as the remaining holdouts. It is perhaps just as well for Dish and DirecTV subscribers in Southern California that the Lakers have had a dismal start to the season.


At least one Laker fan has left DirecTV over this issue



DirecTV CEO Mike White certainly did not hide how he felt about this dispute, candidly saying to analysts in an earnings call last week that this was "another example of how broken this system is."

"People take the same content, package it up, bid it up for three times the national average on a per-game basis, and then try and stick it back to the other distributors in the geography. And I think that's very unfortunate," White added, according to Deadline.

If DirecTV included SportsNet into its basic bundle of channels, it would be "taxing most of our customers who wouldn't be willing to pay for that content," said White. "And I've said before, I think the regional sports network structure in the industry is broken. And it is."

DirectTV, which has about 1.2 million subscribers in Southern California, has also not agreed to a deal for another new regional sports network, the Pac-12 Networks, which is a channel dedicated to the Pac-12 Conference.

White said that his company will "continue to stand strong for our customers. I've got to represent the majority of our customers, not just the few that want to send me an email…. I think we're going to continue to see very, very tough discussions by all distributors with content providers, to try and mitigate these outrageous cost increases that are unaffordable to the average customer."

Time Warner Cable does not look like it will back down from this confrontation either, so Lakers fans in the Southern California region with DirecTV or Dish will have to look for alternatives or press both sides to reach an agreement. Time Warner Cable said in a statement after getting the other cable companies to sign on that if "DirecTV choose not to carry our networks, we and their customers will be very disappointed but we are confident there will be other alternatives for their customers to see this highly-anticipated Lakers season."

In all, cable and satellite operators have to pay almost $10 per subscriber per month to get the rights to all the regional sport networks, including the two from Time Warner Cable, the Pac-12 Networks, and Fox Sports Networks' (NYSE:NWS) Fox Sports West and Prime Ticket, in Los Angeles. Only the New York market, with MSG (NASDAQ:MSG) ($2.63), MSG Plus ($2.28), SportsNet New York ($2.55) and YES (Yankees Entertainment and Sports) Network ($2.99), is more expensive at $10.68 per subscriber per month, according to Sports Business Journal.

It's only going to get more expensive in Los Angeles, too. After next season, Fox's rights to Dodgers' games will expire, so there is the possibility that the baseball team might also start its own channel. And the Los Angeles/New York model of fractured TV rights to sports might even spread to other big media markets in the country with several popular professional and college sports teams.

"I'm worried that it could become a trend in other markets," Bob Wilson, the leading programming executive at Cox Communications, told the Sports Business Journal. "Everybody's watching the Lakers and the Dodgers to see what the market will absorb. We've been on this path for a long time now. We all are wondering where the breaking point is."

Twitter: @sterlingwong
No positions in stocks mentioned.
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