Nba nerd

Tyler Cowen on the NBA and Cable TV

Tyler Cowen posted an article on Bloomberg View about how the decline of Cable TV subscribership might affect the NBA.

That shift is likely to favor the stars and the most athletic players, because they are more likely to be featured in very short clips. As for the incentives, player salary will matter less, and the desire to become famous on the internet -- and thus win lucrative endorsement contracts -- will discourage team play. Expect more attempts to produce spectacular sequences, even if that doesn’t always translate into wins. “Boring” but fundamentally sound teams -- which are better to watch for a 2.5 hour game -- will be disfavored by this trend. Sorry, San Antonio!

I think there are a lot of unknowns about how all this will shakedown, and Mr. Cowen makes good points, but I disagree with this point in particular. The myth that revenue is driven by the "flashy" stars, not the 'boring" wins has a long history in the NBA, and indeed, many NBA executives subscribe to it (how else do we explain the $50+ million that Kobe got for his final two seasons, when he was but a shell of his former self?).

Yet, a large number of studies indicates that *winning*, not *personalities*, drives both ticket revenue and TV ratings. It's also fairly well known that elasticity is low, which means that fan behavior "lags" a bit and takes time to adjust to trends -- this is why the Chicago Bulls sold out every game for quite a while after Micheal Jordan, Scottie Pippen, and Dennis Rodman left the franchise.

And, of course, it's all proportional to population -- the fact that national ratings are lower for San Antonio than for New York isn't because San Antonio is "boring" and New York has Carmelo Anthony. It's because New York has 8.5 million people, and San Antonio 1.5. And that ignores surrounding areas, which are much more densely populated in New York than Texas. Nationally, many more people are likely to identify with the Knicks, because they live there, used to live there, know someone who lives there, etc.

So the relevant question is: would even more New Yorkers watch the NBA if they didn't have Melo, but won 55 games? Would more people pay to watch the Knicks play if they were "boring", like San Antonio? And I don't think the data supports Mr. Cowen's likely answer to this question.

For what it's worth, the NBA's most obvious endgame here is pay-per-view or on-demand subscriptions, either through its own service or through a partner. Right now, NBA League Pass is a terrible joke of a product, both because of its technical limitations (the app crashes frequently, has a poor UI, has very ugly ads with prominent placement, etc) and because of all the blackouts. Even aside from the ESPN/TNT/NBA TV blackouts, which account for nearly half the games, many games have "local" blackouts that extend for several hundred miles from the local market -- Portland games are blacked out in northern Washington, Wolves games are blocked out in Bemidji, etc, even though no local cable channels are actually broadcasting in those areas.

I can't help but wonder how much money could be made by a company like Amazon or Netflix if they had rights to EVERY game, with no blackout nonsense. And would the NBA be better off selling to a company like that, versus keeping it themselves and turning League Pass into a service worth paying for? How many more subscribers would be willing to shell out $199 a year for NBA League pass if it didn't have its current limitations?

"price elasticity is high, which means that fan behavior "lags" a bit and takes time to adjust to trends "

I think you mean low elasticity here Patrick - limited responsiveness in demand to changes. And I think you mean "winning elasticity of demand" rather than the usual default assumption that "elasticity" means price elasticity. Or maybe I'm missing your point entirely.

I also think that Cowen is arguing that the factor that determine demand for a team will change if the way we consume basketball changes.

So, at the moment, fans mostly watch whole games and value winning. If we move to consuming more snippets of games, via gifs, youtube, etc, then we will value the ultimate outcome less and the aesthetic appeal of the best sequences within a game more. That's Cowen's argument, as far as I can tell, and I don't think "currently, fans value winning" really responds to it.
It's premature to say that fans would only view games in internet highlight snippets if they didn't have cable. Highlight clips are available now on an almost unlimited basis, yet fans still watch whole games. Steve Balmer has said that he plans to set up a streaming channel for the Clippers, so a team stream may be one path for a future sans cable.
Actually, NBA league pass does broadcast all the NBA games without blackouts but only to non-Canada international markets. So you only have to take a look at how many people pay for that (i'm unsure of the fees internationally but probably higher) in international markets.

Yes, I meant low, silly mistake, and yes, you're right, it isn't the effect of price on demand, but winning, silly mistake #2.

To your other arguments -- there simply isn't very much evidence that people value snippets over games, or that it's trending in that direction. Mr. Cowen just kind of jumps to the conclusion that highlights are what will really matter, and then assumes it's obvious.

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