MLB, DirecTV: Apparently Run By Monkeys

By Mike McGann
Posted Friday, January 26, 2007

I've seen a lot of stupid things in the years I've covered tech, baseball and politics. I've dealt with companies that seemed hell-bent on sending themselves into oblivion, baseball officials totally disconnected with reality and politicians willing to do virtually anything to get attention. So, maybe it's being exposed to that rare combination of worlds that allows me to see what an enormous disaster the, as yet unannounced deal between DirecTV and Major League Baseball to take its Extra Innings package exclusively to the little dish is going to be.

Let's assume for one minute it's ever a good idea to tell a half million customers to get lost — for $30 million extra a year (keep in mind that won't even pay a backup middle infielder, but just play along for a minute) — why would baseball choose to make an exclusive deal that puts its vastly more valuable Anti-Trust exemption on the line? Look we know Congress isn't exactly the bravest group on the face of the planet, but pulling off this deal is like dropping a half-dozen tabs of Quaaludes, donning a rabbit suit and then informing Elmer Fudd that his mother is fat and doesn't dress him very well. No matter how clueless Fudd is, you're going to merely end up with a ton of buckshot in the butt, if you're lucky. Congress is going to fill MLB's butt full of lead and pull the plug on the Anti-Trust Exemption this time, because no matter how many lobbying dollars MLB has, bet the house that Comcast, Verizon, AT&T and Time Warner among others, have more. A lot more.

So we've established that this is a hideously bad idea for Major League Baseball. Amazingly, it is also a stupendously bad idea for DirecTV.

DTV is is already losing its shirt on its exclusive NFL package — an exclusive package that Congress is considering going after the usually bulletproof NFL over — and would probably be a healthier company without the financial burden. Sure, when it first offered Sunday Ticket, DTV was new and needed subscribers and ST was a good lever to get people to switch from cable. However, now, most folks who would switch have done so and the package has become so expensive (and the standard definition picture quality is awful because it is so over compressed) that subscribers are dropping it. Sunday Ticket has more than two million subscribers, about 1/7th of all DTV subscribers. Baseball's Extra Innings had 700,000 subscribers out of 100 million plus households with cable or satellite that offered the package in 2006. That's not even one percent.

About 450,000 people subscribed to Extra Innings last year without DirecTV. At least half can't have a satellite dish, living in an apartment or high-rise, or have some sort of obstruction. So that leaves, maybe, 225,000 people as the entire additional marketplace. What's a realistic conversion rate? I dunno, probably the Sunday Ticket number is overly aggressive, but I'll be generous and say they'll get 14.3 percent of that, the same 1/7th number. This brainstorm, on that basis, should add 32,000 subscribers. Unless all those subscribers are going to pay more than $350 a year for Extra Innings, DTV is going to lose a lot of money per subscriber (not new subscribers, mind you, but all subscribers) — for a total loss of more than $43 million a year, not counting extra marketing and infrastructure costs. Sure, you can argue that there will be additional revenue from the 32,000 new subscribers, and I suppose with enough scribbling, you can get the yearly loss down to about $30 million.

So that means DTV is going to lose $30 million per year on top of the at least $40 million per year they lose on the NFL package.

Shows you what you can do with an MBA, right? Shakespeare probably had it wrong when it said "First, kill all the lawyers." He obviously didn't know about MBAs.

You'll probably ask, "you're just mad because this hurts you."

Well, yes and no. I have DirecTV right now, although I expect to switch before Opening Day of baseball season. Why? I have tree issues living a wooded section of the Philadelphia suburbs. Already one of the three satellites I'm suppose to use is totally blocked (and while I know there are well-trained, professional satellite installers, DirecTV always manages to send people to my house who know less about dish pointing at setup than even I know) and the main satellite will be blocked once the trees have leaves in the spring. So I have no choice but to switch — other than running through a number of neighbors' yards with a chainsaw — and I will.

Unlike a lot of people, I have two other options: Comcast and FIOS (fiber optic service from Verizon). I already have the insanely fast FIOS Internet, so I'll add the TV service, slap a Mac Mini in my HD rack and watch baseball on MLB.TV (the price is lower, even if the picture quality is lousy) and move on. Because I run a couple of baseball-oriented Web sites, I have no choice, I need to be able to watch games from out of town.

But millions of other people, without broadband or the ability to put computer video on their TVs are going to be frozen out. A side note: Apple, you need to rework Apple TV so that it can stream Live TV from PCs/Macs — DirecTV and Major League Baseball's stupidity could sell millions of your product — and if you don't do it, bet on Microsoft to add the functionality to XBox 360.

Because of things like FIOS and IPTV, DirecTV is like a dinosaur chain smoking a pack of Camels. In fact, if DTV and Dish don't figure out an IP-based distribution system within five years, we'll be writing obituaries for at least one of them by 2017. So why would baseball hook its star to this group?

Greed. Pure and simple. Major League Baseball doesn't care about its fans — and while that's a pretty rude thing to do to fans who have stuck through strikes, drug scandals and ticket price gouging — not to mention Joe Buck — it is a profoundly stupid from a business standpoint and could push the game even further into the background.

Like baseball's inability to create its own TV Network (even the NHL managed to get that done) this decision is another penny-wise, pound foolish choice that could well seal the games' fate. On TV's Star Trek, it was said that interest in baseball petered out in 2027 and that the final World Series would be played in front of 300 fans.

I used to laugh at that idea. Now I wonder how baseball will survive that long.