Thursday, November 29, 2007

The Coase theorem and the NFL Network

As you are probably aware, there is a big time football game between the Green Bay Packers and the Dallas Cowboys being played tonight (Thursday), but most of the country can't see it because it is only on the NFL Network. The network is in a stalemate with the large cable companies about pricing. In short, the NFL Network charges a certain price ( about $.70 per subscriber) to the cable companies for the right to air the programming. The cable companies argue that this price is too high for a single network and want the NFL package as part of a sports tier with a premium price.

So here is where the Coase theorem comes into play. There should be a price at which the NFL Network is happy to be a part of the premium sports tier (perhaps $1.00 per subscriber). If this is the case, then an efficient solution is for the other channels on the premium tier (NBA TV, Fox Sports, etc) to make up the difference between the current asking price and the strike price. This is efficient as long as the NFL Network is as big of an attraction as the NFL says it is. The NFL argues that they are the biggest sports draw in the country. The other sports leagues and events would benefit from the additional subscribers that would accompany the NFL on the premium tier and this is worth compensation.
Yet these negotiations are not happening, nor will they. Can this be completely blamed on transaction costs? Maybe, but there are not that many other networks that need to be included in negotiations. Does the NFL Network's asking price lead to an inefficient solution? Probably, as most people don't get it and the other networks are not well served by a smaller subscription base. Perhaps there is no price at which the NFL Network is willing to be on a premium tier.

So what are the transaction costs here, and is there any other reason that this situation has not been resolved?
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