Not all imitators succeeded, but idea took rootPublished April 30, 2012
Soon after the Yankees launched YES Network in 2002, cable operators’ worst fears were realized when two small-market teams — the Minnesota Twins and Kansas City Royals — tried to launch their own local cable channels.
At $2 per subscriber per month at launch, YES Network was the most expensive regional sports network in the country. (Interestingly, it’s no longer in the top five, according to research firm SNL Kagan, which says that YES’s rate, now $2.99 per subscriber per month, is the industry’s sixth highest for RSNs.) Distributors worried that imitators in other markets would hurt their bottom line.
The Royals set up the Royals Sports Television Network after the 2002 season, and the Twins rolled out Victory Sports One after the 2003 season.
Neither venture gained enough carriage deals to be successful. The Twins venture folded after about six months, and the Royals limped along until 2007, when the team sold rights back to Fox. But for the cable industry, the genie was out of the bottle. Rights holders — teams, conferences and leagues — now had another option for their rights, which meant their costs were certain to rise.
“When you’re a rights holder, you need to control your own destiny,” said Bedrocket Media Ventures co-founder and CEO Brian Bedol at a recent industry conference. “For many years, you had a limited number of channels, so your best deal was to go and make a deal with ESPN or the regional sports networks. Once the rights holders discovered that they could actually have a direct relationship with their fans, with their audience, the game was changed.”
YES Network executives, and others, see the launch of YES as being directly responsible for this rise in sports channels, from league-owned channels like NFL Network and MLB Network, to college conference channels like Big Ten Network and Pac-12 Network, to team-owned channels like the Mets’ SportsNet New York and the planned Los Angeles Lakers channels.
YES Network was not the first team-owned regional sports network. New England Sports Network launched in 1984 and is 80 percent owned by the Boston Red Sox. But, partly because of its backing by Goldman Sachs, it was YES Network’s 2002 launch that started the trend of team- and league-owned channels. Rights holders started to understand the amount of money that could be made from launching their own networks.
|"I don’t think you would have ever had these networks owned by leagues, had not YES succeeded. I’m not sure NFL Network would have come to be."
YES Network CEO
Said media consultant Mike Trager: “It set the foundation for everyone else to look at a new model, both in large and smaller markets, and increased rights fees dramatically even for teams that didn’t want to set up [regional sports networks].”
Why did the early imitators fail in Kansas City and Minneapolis? Dolgin, who worked at Fox at the time with Ray Hopkins, now YES Network’s COO, said it was because those teams tried to apply the strategy that YES Network used in the New York market to their smaller Midwestern markets. Dolgin and Hopkins were intimately familiar with the Royals’ and Twins’ plans because, at the time, Fox had held local TV rights for both teams.
Dolgin believes the teams made critical mistakes at the outset by not tailoring specific strategies to their markets.
“Their thought process was that to a Twins fan, the Twins are the Yankees. Minnesotans care as much about the Twins as New Yorkers do about the Yankees,” Dolgin said. “You can’t be stupid about it. You can’t just say, ‘They did this, so I’m going to do this, too.’”
But the teams didn’t consider how their market size would affect negotiations with big, public distributors, like Time Warner Cable, Comcast and DirecTV, Dolgin said.
“It’s one thing to be in a dispute in New York or Los Angeles,” Dolgin said. “It’s another thing to be in a dispute in Minneapolis. It’s not going to affect the [distributors’] stock prices. It’s not going to affect Congress.”
Smaller teams did not have the finances or leverage to withstand the same bruising carriage battles that YES Network faced. As a result, their local rights strategies shifted and some began to seek out distributors as partners. Distributors such as Comcast, Charter, Cox, DirecTV and, now, Time Warner Cable have launched local sports channels. Comcast, in particular, began offering clubs ownership stakes in their networks.
This added competition is the main reason why local sports rights have become so expensive recently.
|"It just got people thinking more about what these rights could be worth and the formula of team-owned media instead of media concerns owning teams."
DirecTV TV executive and
former YES Network executive
YES Network executives are quick to credit the strength of the Yankees brand in New York for the channel’s success in convincing cable and satellite operators to cut carriage deals.
The power of that brand, YES Network executives say, makes them feel a responsibility to innovate faster than other regional sports networks. For example, YES Network was the first regional sports network to launch its own HD channel in 2005. It was the first to launch an in-market streaming service in 2010. And it was the first to produce games in 3-D.
Dolgin and Hopkins say that’s a trend they plan to continue.
“Going by the history of the first 10 years, what does the next 10 years look like?” Hopkins said. “I’m sure there’s five or 10 things from a technology standpoint that we can’t even conceive today. I am pretty confident saying that with the Yankee brand that YES will always be a leader, wherever this industry takes us.”
Staff writer Terry Lefton contributed to this report.
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