Is ESPN Charging a Tax on Every American Household?

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Is ESPN Charging a Tax on Every American Household?The next time you find yourself bellyaching over your expanding monthly cable bill, don't blame your provider. Blame Tim Tebow! Curse LeBron James. Hate on Tiger Woods. You're a bum, A-Rod!

Even though your cable, satellite, or broadband television provider may be despised for completely legitimate reasons, when it comes to your ever-rising bill, the providers are mostly just passing along the scaling programming costs of networks.

Taxing Sports

ESPN is perhaps the biggest offender when it comes to basic cable. Media tracker SNL Kagan estimates that ESPN alone sets distributors back $4.69 a month for every subscriber.

You can expect that figure to continue to inch higher, and some in the industry are more than a bit concerned.
Speaking at a media conference earlier this month, Liberty Media (LMCA) CEO Greg Maffei suggested that there will come a point when ESPN's escalating fees will become a "tax on every American household."

We may already be there.

Fumbling the Handoff

Your cable provider points to Disney's (DIS) ESPN, but the original 24/7 sports network doesn't want to take the fall. See, it too is passing on the costs of larger sums of money that it has to shell out to sporting leagues with every passing year.

The NFL is reportedly on the verge of finalizing an eight-year programming extension with Fox, CBS (CBS), and Comcast's (CMCSA) NBC that would keep pro football on the air of the major networks through 2021. The league wants a deal that averages a combined $3.2 billion a year, and that's a sharp 60% increase from the current contract.

The only silver lining there for consumers is that Fox, CBS, and NBC are free over-the-air channels. You can kick your pay-TV provider to the curb and get a cheap HD antenna to catch all three networks for free. Advertisers will likely pick up most of the bill, and the broadcasters will eat the rest.

However, this doesn't mean that other networks are paying through the nose for pigskin rights. ESPN and NFL Sunday Ticket home DIRECTV (DTV) recently inked extensions that also dramatically marked up their licensing fees.

So the next time you hear someone claim that overpaid athletes aren't your problem, show them your cable bill.

Bundling Is the Bomb

I'm paying $4.69 a month for ESPN, apparently, and I don't mind. I get enough entertainment out of the sports network to make it worthwhile. Maybe you feel the same way. Maybe you don't. However, my aunt -- who doesn't know the gridiron from a baseball diamond -- can't be too happy subsidizing our sports viewing just so she can watch Mad Men on AMC.

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Then again, I have no need for The Weather Channel or QVC. C-SPAN? Hallmark Channel? Please. Why can't I cherry-pick the channels that I am presumably paying for? Why do folks pay for both MSNBC and Fox News when really they will only watch one or the other?

Here is where the fingers point right back at the cable companies. They're the ones with loosely bundled packages that find couch potatoes paying for hundreds of channels, 90% of which they will never watch.

The downside to customized options, beyond the logistics of making it happen, is that cable bills wouldn't necessarily get any cheaper. If ESPN loses half of its subscribers, it would have little choice but to double its rates. These are companies with set expenses to cover. The denominator doesn't change, even if the numerator contracts.

You don't have to like it, but you can vote with your feet.

Pass Interference

No one is demanding an ESPN tax out of you. Comcast -- the country's largest cable provider -- offers a "digital economy" package that sidesteps the costly sports programming. Smaller providers have similar packages.

However, that value-priced bundle doesn't have many basic cable staples, including CNBC, FX, and Nickelodeon. If you want a regular dose of Jim Cramer, American Horror Story, or SpongeBob, you're going to have to take ESPN with that.

The future may very well change that. Whether it's out of economic need or inspired by the notion of liberating freedom, more and more "cord cutters" are cancelling their cable subscriptions and opting for streaming options. Smart televisions are making it easier to connect to Web-served programming on demand, putting consumers back in control.

"No taxation without representation" was the slogan of one revolution a couple of centuries ago. It may be time for another go, only this time on a much smaller scale and for a much different playing field.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Disney and Liberty Media. Motley Fool newsletter services have recommended buying shares of Disney.



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