Not many NBA playoff games make it onto television in the UK; usually it’s only the finals. This year I’ve been watching over the internet using the NBA’s International League Pass service.

The technology the service uses is lousy. You can only watch the games using the RayV player browser plugin, which (for the Mac at least) is incredibly flaky. It requires admin access to my machine, it crashes my browser regularly, live streams need to be manually refreshed periodically, and the plugin seems to need re-installation every time I restart despite automatically launching a daemon at login. And in a business decision worthy of a company whose home page looks like this, they release a new version of the player every few days, hassling all their users to upgrade every time they watch a video. Despite all this, internet video is a simple enough problem that even RayV hasn’t managed to make the games completely unwatchable.

For international customers (only), the NBA offers two packages: you get access to every playoff game in “standard definition” for $24.95, or every game in “high definition” for $34.95. I only subscribed to the standard definition package this year, and the quality is comparable to YouTube: easily good enough to follow the action and read the players’ body language, but you’re not going to pick up on facial expressions in the long shots.

The price seemed pretty reasonable; much more and I wouldn’t have paid for it this year. But affordable pricing for sports packages is rare. I wanted to crunch the numbers to see whether the price makes it competitive with TV ad-supported broadcasts.

The online video is actually just a copy of the US television feed, and includes all of the US ads, so in theory the NBA could claim some of the network’s ad revenue, or insert its own ads during the breaks. But let’s assume an ad-free feed; how much would you have to charge users to make up for the ads they’re not seeing?

I have very little data at my disposal, but the few sources I’ve found quote rates around 5 US dollars per thousand viewers or 4.62 British pounds per thousand viewers for a 30-second spot. The first figure suggests that the value of each (potential) viewer of an ad is roughly half a cent. Assuming 48 minutes of advertising in a three-hour basketball game, that puts a price of 24 cents on each viewer. If the TV networks could keep the same ratings, but charge every viewer a quarter, then they could drop advertising entirely and maintain the same revenues. Their profits would go up, however, since they spend money getting all those ads sold.

The NBA playoffs include fifteen series, each with up to seven games, for a maximum of 105 playoff games per season; this season there will be between 84 and 87 playoff games. A viewer who watches every single game on television increases the networks’ total advertising revenue by about $21 this year, and by about $26 in a year when every series goes seven games.

In the simplest model, the TV networks should be perfectly happy to give up a viewer to watching on the internet (and possibly missing all their ads) if they are paid $25. More importantly, if the NBA could get $25 from everybody who watched the playoffs they wouldn’t need to sell television rights to any network at all. They’d have to get somebody to produce the game video, but the revenue they’re generating would cover that, just as TV ad revenue covers it now.

Those are the numbers I came up with. Now some thoughts:

  • Televised sports might actually lose money at current advertising rates. I’ve heard that many networks consider sports to be a loss leader that doesn’t generate profits, but allows them to raise the stature of the network. I.e. getting viewers used to watching sports on ABC makes them more likely to watch other shows on ABC in the future, and it is those other shows that make money.

  • I wonder whether 48 minutes of ads per game is accurate. Among other things, there’s a lot of promotion for TV shows and movies that the networks try to slip in for a few seconds here and there.

  • I wonder how many games the average viewer actually watches. More than half of the games are in the first round, and many are going on at the same time, so it’s clearly not possible to watch everything. I couldn’t watch more than about one game a day, or two different series in each round, which comes out to 49 games maximum. This year I probably watched at least some part of about 24 games (for an estimated ad revenue of $6), but I liked that I had the option to watch any others for no extra cost.

  • There is far more profit to be made from the same basic revenue if the NBA sells directly to viewers instead of selling rights to networks, who sell ads to ad agencies, who make ads for advertisers, who sell products to viewers. Each of those intermediaries is taking some of the profit the NBA could keep for themselves.

  • Is it better that the NBA is kept at arms length from the advertising? The TV networks have done everything they can to lace every aspect of their coverage of the game with advertising, from announcers reading promos for movies or TV shows to in-game interviews with celebrities promoting their latest project. This sets up a useful tension between the network and the NBA, who care more about keeping the sport on the floor entertaining than about advertising. The logos and product endorsements already on players’ uniforms might get a lot worse if there was just one entity managing all of basketball advertising.

  • How much does internet video distribution cost? The TV networks have certain costs related to broadcasting, but I assume that those costs become much lower than internet distriution per-viewer once there are enough viewers. How mature are the various internet multicast technologies?

  • How hard will the sports leagues push to use internet streaming to achieve market segmentation? Only hardcore fans are likely to pay to watch online, and they are obviously willing to pay more to watch games than casual fans. If the leagues decide that national television is for casual and/or regional fans and the internet is for hardcore fans, then there’s no reason to believe that prices for the two will align.

  • When will iTunes add support for streaming of live events?