CASE STUDY: The Impact of New Media on Television Negotiations

Negotiations for exclusive telecast rights in the United States and its territories for a significant annual international golf event, the World Cup of Golf (World Cup), which takes place in Europe, were substantially under way. The agent conducting the negotiations, Sport Ventures International (SVI), has represented the rights holder, the World Cup Organizing Committee (WCOC), in all aspects, such as selling television rights, selling sponsorships, and dealing with new and evolving electronic media, for as long as the event has commanded international attention. A U.S. television network, QRS Sports, broadcast the event exclusively in the United States long before cable television was developed. Currently, both QRS Sports and the cable network SportViz have been identified as the carriers of the World Cup, and most of the material deal points—term of the contract, rights fees, decisions about which of the various rounds of the World Cup will be broadcast by QRS Sports and which by SportViz, production specifications, contingency plans for inclement weather, and so on—have been agreed upon. The open issue is the extent to which WCOC, QRS Sports, and SportViz will each be entitled to show video images of the event on their own respective Web sites. It must be noted that an affiliated company of SVI, which we will call SVI Interactive, created the WCOC’s Web site and is a financial partner in any revenues generated by that Web site.

The World Cup is world renowned and has been televised nationally and internationally for more than 30 years, but has always generated only modest television ratings in the United States. There is, however, a small and fiercely loyal audience as well as a much larger and far more casual viewership, and the fan base is growing. Contributing to the ratings problem in the United States is a timing issue: The World Cup takes place during daytime hours only, several hours ahead of any time zone in the United States, so that scheduling the World Cup for live telecast would require early morning viewing; the alternative is taped replays in the evening or prime-time hours. Daytime programming of news, talk shows, and soap operas generates much more money for QRS Television, the parent company of QRS Sports, than this particular golf event does, but SportViz is much more amenable to preempting its daytime schedule.

WCOC has granted exclusive television rights, on a country-by-country basis throughout the world, requiring each broadcaster to take all necessary steps to contain its broadcast within its borders, thus respecting the exclusivity granted its neighbors. In some locations such as Windsor, Ontario, and Detroit, Michigan, overlapping signals cannot be prevented, and both U.S. and Canadian broadcasters have learned to live with that anomaly.

It is well-settled law that news stories are not “owned” by anyone. However, although the results of significant sporting events are certainly considered news, any visual depictions (“clips”) of those events are not news and are owned by the rights holder or television entity to which the rights have been granted. Although there are exceptions, networks and cable companies generally have sharing arrangements whereby each may air news clips of others’ exclusively owned events under certain guidelines (e.g., clips are limited in length, shown a limited number of times during the 24-hour period immediately following the conclusion of the event, only during regularly scheduled news or sportscasts, or only after the specific event is off the air, and the “borrowing” network or cable company must include a credit for the “owning” network or cable company). Until the advent of the Internet, this was a very workable solution in the realm of exclusive television rights.

WCOC, through SVI, has indicated its intention to use the Internet as follows: In addition to seeing constantly updated scores, visitors to WorldCup.org could find endless facts about the World Cup, the athletes, and WCOC; read commentary about the World Cup; see interviews with players; play online fantasy games; and see real-time, streamed video of highlights of a day’s activity. Further, for a fee, users could see actual live play of certain competitions within the World Cup on their computer screens. WCOC points out that this very specific “network” would be available only on a fee basis and would show a comparatively small portion of the actual World Cup. Besides, it argues, this is not television as we know it, and the organization has granted exclusive television and exclusive cable rights, not all media rights. In their negotiations, the talks break down as follows.

WCOC’s Position as Articulated by SVI

The Internet is not television. Remember how upset you were, QRS Sports, 20 years ago when you were “forced” to share the exclusive broadcast of this World Cup with cable television, only to discover that any effect on ratings was positive and we got greater exposure for the World Cup, which, as you know, is a significant part of our goal. We will charge a fee to see limited competitions from the World Cup, which will attract only hard-core fans who will watch as much coverage as there is available. The imperfect, choppy images of streamed video on the Internet are no real substitute for the perfect resolution of television. Viewers will have an opportunity to see portions of the World Cup at work or when no part of the World Cup is on television, and that will whet their appetites for evening and weekend viewing.

The Position of QRS Sports and Sport Viz

What will be shown on your Web site are television images, which may be very unclear but certainly are close enough to television to violate our exclusive rights. For the rights fee we’re paying, which is already disproportionate to the advertising revenues we are likely to generate, we consider any visual depiction to be within our exclusive domain. Your Web site will contain advertising banners that may conflict with our television advertisers. There is a finite appetite for this sport, and fans who get their fill on their computers at work will be less likely to watch at home. What if your secure network isn’t so secure after all, and even viewers who don’t pay a fee will be able to watch visual images? Isn’t this just another step toward cutting deeper into our already weakened exclusive rights?

f. As an employee of QRS Sports or SportViz, is there some concession you want from WCOC before you agree to streamed video on the Internet?

g. Looking five years ahead, do you think the problem will grow or subside? What about in ten years?