Last year, Time Warner Cable (NYSE:TWC) announced plans to build a new television network exclusively for Los Angeles Dodgers' games. A billboard promoting SportsNet LA, also known as "The Dodgers Network," popped up alongside an L.A. highway this past week, before being abruptly removed just a few hours later. In a statement, the Dodgers said the ad was released too early. Did this goof just accidentally reveal the fate of the network?
The details surrounding this situation are complex. In January 2013, Time Warner Cable engaged in an $8.5 billion, 25-year agreement with the Dodgers for their TV rights beginning in 2014. By last September, the LA Times reported the MLB would approve the deal, but little was known about how many pay-TV providers would carry the station.
Most analysts expected Time Warner Cable to sell distribution rights to five major peers in the area: AT&T's (NYSE:T) U-verse, Verizon's (NYSE:VZ) FiOS TV, Charter Communications (NASDAQ: CHTR), DirecTV (NASDAQ:DTV) and DISH Network (NASDAQ:DISH).
Six weeks ago, though, rumors began to circulate that these companies were "playing hardball," as the New York Post put it, because of high fees.
Due to the inordinately large value of the Dodgers' TV rights -- it's the most expensive deal of its kind, ever -- Time Warner Cable has to charge record-high subscription fees to distributors. Sources peg the monthly fee to be $5 per subscriber, dwarfing what YES and SportsNet New York charge for Yankees and Mets games by nearly 70%, according to the Post.
What the ad goof tells us
The last reported scoop was that Time Warner Cable still hadn't reached any sort of agreement with these pay-TV providers. Conventional wisdom holds that if it can't by the time baseball season begins, it will have to cover the entire cost of the deal, equal to about $340 million a year.
The company has said it doesn't want this, so it made sense when the media began suggesting Time Warner Cable might squash an exclusive network in favor of showing Dodgers games on existing stations.
The latest ad goof all but confirms this won't be the case.
Originally reported on Twitter via Tom Hoffarth of the Los Angeles Daily News, the billboard revealed a few interesting tidbits:
- The names SportsNet LA and "The Dodgers Network" will likely still be used.
- It looks like Time Warner Cable will go ahead with the original station as planned.
- It will launch late next month.
Assuming the ad can be trusted, this implies that one of three scenarios must be true.
First, Time Warner Cable may have reached a deal with DirecTV, DISH, and the other pay-TV providers mentioned above. If this did occur, either the company lowered its subscription fees, or one or more of the providers caved to the $5 figure.
If the first scenario didn't happen, it's also possible Time Warner Cable decided it will provide SportsNet LA exclusively for the 2014 season. This would imply the company will cover the entire $340 million cost of the deal in its first year.
Third, there's also a chance no distribution agreements have been reached yet, and Time Warner Cable is still hoping to get a deal with one or more of the pay-TV providers before the start of the season.
Until the company decides to officially unveil the ad campaign that was leaked this past week, there's no way to know which of these scenarios is true. Still, the presence of the billboard implies that Time Warner Cable will not roll the network into one of its existing stations.
Regardless of what happens, the rights deal is a win for the Dodgers. The franchise will keep roughly $6 billion of the $8.5 billion for itself, with the rest going to the MLB for revenue sharing. For a club expected to have the highest payroll in 2014, you can bet ownership is happy with how the money is split. If only there were a guarantee that a high payroll could get them to the World Series.
Fool contributor Jake Mann has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.