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Is the Sky the Limit for Live Sports Television?
Several companies are looking at ways to obtain the broadcast rights to provide major-league entertainment for weary -- and mostly wealthy -- air travelers tired of the usual retreads.
by Warren Cohen

Wednesday, September 05, 2001

Forget cramped seats, lost baggage and endless runway delays. The real scandal of air travel these days is the horrible state of in-flight entertainment. Ninety percent of domestic commercial flights are so short that they don't even show a video. Those lengthy trips that do, tend to subject passengers to the cinematic work of Saturday Night Live cast members or features from network TV newsmagazines.

That's why no fewer than five companies are pursuing the market to provide the world's airlines with live event in-flight programming. These entrepreneurs say the 1.5 billion trips taken in a year worldwide represent an important -- largely upscale -- audience to reach. According to market researchers Frost & Sullivan, the in-flight entertainment market is expected to grow to $7.4 billion by 2007 -- the total comes from a combination of services fees paid by the airlines for the technology, advertising and user payments for broadband internet use and telephone calls.

Most of these entrepreneurs believe that the key to satisfying travelers is through broadly popular programming, such as news and sports. As a near commodity product, there certainly is no shortage of news to go around, but sports rights are a trickier proposition. On the ground, broadcasters pay extravagant fees for the leagues with large global audiences, such as soccer, basketball and American football. While the air represents a potential new market that could command yet another set of rights fees, existing terrestrial rightsholders could object. Neither sports leagues, broadcasters or the in-flight programmers are quite sure how it will all work -- they're not even sure if the consumer will pay extra or if the airlines will absorb the costs.

Today, LiveTV, a company based in Melbourne, Fla., is the only live in-flight programmer currently in operation -- it has a deal with small carrier Jet Blue. LiveTV offers 24 cable networks from a DirecTV feed, including ESPN, which televises professional baseball and football games, and the Golf Channel. Connexion, which is owned by Boeing, is not yet running but the venture plans to offer programming on Delta, American and United with the help of Eurosport, a leading European sports broadcaster that shows soccer, cycling and tennis.

So far, these services work by transmitting sports events that their partner networks have already purchased the rights to. But AIRIA, a company headquartered in London that plans to launch a service next year, believes that the key to long-term success is owning those rights themselves. It's not just an issue of besting its rivals. To sell their own advertising during the games at rates that might command a premium in front of a well-heeled audience stuck on long flights -- AIRIA needs to own the rights. In contrast, rebroadcasts of cable programming come with the original advertising. LiveTV is only able to place commercials it has sold before and after the programming bloc. (The company makes money from those advertisements and the installation of the necessary equipment. There is also the potential for revenue from pay-per-view broadcasts and interactive shopping opportunities that haven't been fully implemented even on the ground.)

AIRIA also wants the rights so it can offer the live games that fit its own schedule -- the plane's schedule, that is. While the other services would be restricted to the start times of the cable feeds, AIRIA will have much more flexibility. "We would assemble our own sports feed so we get the best looking match at that time," says Berman, "and not fill up our air with things going on in the other side of the world."

AIRIA is working with TWI International, the television arm of sports management giant IMG, to negotiate with leagues to secure the necessary rights. "No one else has negotiated sports rights but we tell leagues that we're going to pay them for it," says David Berman, a former vice president of CBS International and AIRIA's CEO. "Most of the other guys haven't even thought about the rights."

LiveTV executive vice president Glenn Latta disagrees. He says that sports rights are difficult to secure and quite expensive, which is why the company partnered with DirecTV and sacrificed potential ad revenue. "We leverage the ability of DirecTV and their position in the marketplace to negotiate those rights," says Latta. So far, none of the major broadcast networks, which pay huge sums for sports rights, or the sports leagues themselves, have objected to the arrangement. "We are very respective of contracts with our rights holders [and wouldn't retransmit] if we thought for a second there was a problem," says Matt Murphy, vice president of alternative technologies and new media sales for ESPN.

Will the sports leagues accept AIRIA's pitch? It's too early to tell. One concern is potential conflicts with existing rightsholders, even though there is no danger of cannibalizing the market since passengers don't have the option of seeing the game on any other network. For instance, the NBA has broadcast relationships in 210 countries. There are seven different television partners in China alone.

However, a source at the NBA notes that the decision to sell exclusive air rights could conflict with satellite rights already granted to networks like DirecTV. "There could be a similar rationalization that our deal already covers that," says the source. Brian McCarthy, director of corporate communications at the National Football League, thinks that to avoid conflicts, the league may prefer to license filmed footage rather than live broadcasts. AIRIA is pressing ahead with its negotiations in order to launch its service early next year. But in such a novel market, it's difficult to forecast how much the rights may cost and whether the parties will have to go to court to settle it all. AIRIA hopes to convince leagues to license it much like cable outlets provide rights to bars and restaurants, based on the number of seats. "A 747 is like a 400-seat restaurant," says Berman. "If we pay per airplane, then leagues can get more if more planes adopt the service.