MLB considers verticality: The next stage of baseball’s broadcast drama

I have about $14,000 left in student debt from my master’s, and the payments are due on the 20th of every month. In the most perfect example of “if you owe the bank a thousand dollars, you have a problem; if you owe the bank a billion dollars, they have a problem”, if I were to be late on a payment, it would be flagged on a credit report, and I would receive a reminder text, email, and phone call.

Diamond Sports Group, the Sinclair Broadcasting subsidiary responsible for baseball regional sports networks, has taken a different tack. They announced this week they will simply skip their $140 million interest payment for the month of February, triggering a 30-day grace period that will likely end with a bankruptcy firing. Fourteen of the 30 MLB clubs have a Diamond channel as their regional sports network, and as the company loses about a billion dollars per quarter, those teams find themselves in limbo as we head toward televised baseball.

The immediate risk is the possibility that Diamond will also skip their rights fees payments to those 14 MLB clubs and the chance that bankruptcy proceedings will prioritize other creditors ahead of the 14 MLB organizations, allowing those creditors first claim on remaining assets. In short, a club like the Tigers could end up short the revenue owed from their TV contract — the largest revenue source that MLB teams have — and also have limited ability to recover from the bankruptcy of their broadcaster.

Rob Manfred expressed particular concern about this possibility this week, the first time that MLB’s commissioner made more than a generic “we’re monitoring the situation” type of comment since news of the process broke earlier this year. The big piece from his commentary though, was the possibility of all-out vertical integration; that MLB may sidestep this mess by offering a direct-to-consumer television model.

I love this idea, and I think it’s something that MLB should do regardless of the Diamond outcome. Vertical integration, the ability to bring “in-house” different steps of your value chain, can allow you both to reduce middle and switching costs as well as develop innovative strategies. Think about when Amazon switched from outside logistics to internal logistics services, and how Prime immediately became a huge part of the company’s value proposition. Alternatively, Netflix exploded once they moved away from solely distributing someone else’s content and began producing their own.

Particular to the Netflix example, let’s be honest that Netflix is not what it once was from a user experience level. Its own popularity was its undoing, as once other companies like Disney and Paramount realized that paywalling their own material and producing exclusive content rather than selling distribution was a sustainable model, Netflix was forced to rely on more and more original content rather than the balance that made it so strong circa 2013.

MLB won’t really have this problem, thanks to that good old antitrust exemption. Nobody can provide an MLB, or other professional baseball, cable network, because nobody else can start a professional baseball league in the United States. A “Disney+”-esque threat doesn’t exist — MLB is already competing for eyeballs and attention with Disney+, but nobody else would be able to produce and distribute American professional baseball.

MLB kind of already does this with MLB.tv, a streaming-only service, but Manfred seems to be leaning at least in the short run toward focusing on cable broadcasts as well. This would likely work as a significant reorganization of MLB Network, of which the league owns a 67-percent share. Manfred admitted that MLB would see an economic retraction in the short run, as teams would realize less revenue than they are owed by groups like Diamond as well as assuming greater cost as they scale up MLB Network from the current slate.

Even assuming those short-run costs, an expanded and integrated MLB Network—or MLBTV+, let’s say—makes sense on my end. A network with regional focuses that would eliminate blackouts on both the cable and streaming end is a huge part of an appealing baseball package. We’ve seen that Sinclair cannot responsibly operate 14 RSNs while the major media players like FOX and Disney have already divested. There’s a growing vacuum in baseball broadcasting, and who better to fill it than the administrators of the sport itself?