Friday, February 18, 2005

Los Angeles Sports Media Market

2. Los Angeles

5.4 million Television Households

With 6 pro teams, the LA market easily supports two RSNs: Fox Sports West and West 2. West began its life as Prime Ticket, then was re-branded Prime Sports West under Liberty. West 2 was launched in early 1997 when News acquired the Dodgers.

The most important team in this market, and the one with the highest team value, is arguably the Lakers. The Lakers are currently struggling with a legacy cable rights contract from the Prime days that only pays a small % increase each year on a relatively low base. They recently renewed their deal with KCAL 9 for all road games through the '11-12 season.

MAJOR STRATEGIC BLUNDER FOR THE LAKERS!!

The Lakers' deal with FSN ends after the '04-05 season. Prior to the KCAL deal, they had a credible threat to hold over FSN's head. They could have taken all 80 or so games and launched a new network. In my opinion, this would have been the Lakers best option for long term profits. But some owners prefer to get a fat rights check instead of bothering with management, investment, and potential risk of a TV network. Jerry Buss is one of those people.

The timing is right to launch a network - before the LA cable market gets consolidated under one dominant MSO (Kaiser Prediction: Time Warner). It is theoretically easier to launch an RSN in a fragmented market, because no one operator has enough leverage to stare you down on carriage or rates. That said, the ultimate winner of the Adelphia lotto in LA may take control of the systems before a Lakers network would have launched in September 2005, making this a moot point.

The Fox acquisition of DirecTV may have also helped the Lakers with this decision. In the past, new regionals could get distribution on DBS relatively easily because it was seen as a way for DBS to steal subs from cable systems that weren't carrying the network. But the game has changed now, and DirecTV would likely refuse to carry a new network from any of its current teams until it appeared inevitable that the network would have staying power.

So now the Lakers have lost a great deal of leverage to negotiate with FSN. They don't appear to have any other viable options. Add the fact that Shaq is gone, the team is at .500, and ratings are down and the Lakers are looking down the barrell of a loaded gun.

Kaiser Prediction: Lakers will sign a deal with FSN for all home games through '11-12 season, at lower rights fees than expected.

The Clippers signed a deal with FSN in March '03 after an effective blackout of the games for part of the '02-03 season, and some of their games are also carried on KCAL. Interestingly, this occasionally allows KCAL to air Lakers-Clippers games at a fraction of the cost when the Lakers are the "away" team. But enough about the Clippers.

Fox purchased the Dodgers in 1997 for a record-setting $311 million as a pre-emptive strike to keep Disney/ESPN from gaining access to Dodgers rights and crafting a two channel RSN strategy of their own. While this strategy worked for Fox, the team eventually became a sinkhole for cash with an estimated annual loss of over $60 million in recent years. The Dodgers formed the backbone of FSN West 2, with 80 games. Another 50 games appear on KCOP, a Fox broadcast O&O. These rights will move to KCAL in 2006. Fox finally unloaded the team for $430 million in early 2004, but retained a long-term contract for cable rights. The sale helped fill Fox's coffers for the DirecTV acquisition.

The Angels currently only have 90 games/season distributed locally. 50 games appear on FSN West and 40 broadcast games appear on KCAL ($5 million/year). New owner Arte Moreno has reportedly described these deals as "Little League" because of the low number of games he gets on air (lowest in the league?). But trust me, his total rights fees on this package are not below average.

In 2006, KCAL will dump the Angels in favor of the Dodgers at double the price. Moreno is gaining some attention from his renaming of the team to the Los Angeles Angels of Anaheim in an attempt to broaden the regional appeal (Kaiser Prediction: this name won't last more than 1 season) Arte is also doing some saber rattling about launching a new RSN. Theoretically he could do this in 2006 with the 75+ games left after the Fox games, and add the remaining games in 2009. But if memory serves, FSN has the exclusive rights to cable games meaning the team can't do two seperate cable deals. So the Angels appear to have two choices: find a broadcast partner to replace KCAL (maybe a KCOP switcheroo?) or try to sell more games to FSN (which they don't need so probably won't pay for).

The Kings are under a long term deal on West that lasts through eternity. The Ducks and Angels rights are actually under one contract with FSN (Disney wanted it that way) which is good for the Ducks from a rights value standpoint. This should be helpful to Disney as it tries to deal the Ducks away.

Kaiser Prediction: The Angels and Ducks will join forces for their own network in 2008 in partnership with Time Warner and cut out the middleman.

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