Extra Innings in the Digital Game

Digital rights looked like peanuts in 2000. Now some Major League Baseball owners want a bigger share

At a meeting of Major League Baseball owners in Naples, Fla., on Nov. 14, one important topic wasn't on the official agenda: digital rights. But in the corridors of the Ritz-Carlton, the Boston Red Sox and Baltimore Orioles were leading a campaign to get a bigger piece of baseball's online action for themselves.

The digital game looked pretty simple for team owners in June, 2000. The Internet was shaping up as a great promotional medium, but no one figured it would be much of a moneymaker. So when Commissioner Bud Selig offered up a low-risk way to tap the Net, owners quickly agreed to plunk down $1 million apiece to promote the sport online and to share equally in whatever money might come their way.

That was before broadband became common in many homes. Now the league's online operation, Major League Baseball Advanced Media (MLBAM), is the envy of pro sports, this year generating revenues of roughly $360 million. It earns a lot of its money from subscription fees (which are as high as $99 a season to watch games online) and service charges on tickets to games (the site sells one-third of all tickets to the ballpark).

Some owners, including the Los Angeles Dodgers and Los Angeles Angels of Anaheim, want to be able to stream videos of their games to the hometown fans and keep the advertising and other revenue for themselves. "We want MLBAM to continue to grow, but the local markets are ours," says TV producer Thomas C. Werner, the Red Sox's chairman. The Angels and the Dodgers did not make executives available; the Orioles did not return calls and e-mails.

The online financial potential isn't easily estimated. But "if there wasn't money to be made, they wouldn't be fighting in the first place," says Josh Bernoff, a principal analyst with digital media consultant Forrester Research (FORR ).

The baseball teams are not the only ones asserting their digital rights. Today, video content is the media and entertainment world's buzz phrase. Hollywood writers are fighting over it, eager to get a cut of iTune downloads and shows on mobile phones.

Selig faces a particular dilemma. He has long tried to level the playing field within the league. Among the advantages a few teams have--including the Red Sox and Orioles--is that they own lucrative cable channels, which give them more money to lure the superstars. Werner believes those TV rights extend to digital streaming. MLB executives reject that idea.

But Selig knows that he has to find a digital peace. In September he wrote a letter ordering MLBAM's board of directors--made up mostly of team owners--to "break the logjam" and find a way to let clubs get a share of the revenue from local online broadcasts. MLB President Robert A. DuPuy says he hopes to have such a plan in place before Opening Day next spring.

That might not be enough. Where digital riches are concerned, matters can easily get contentious. The New York Rangers hockey team has already taken its grievances to the courts. When the franchise couldn't reach an agreement with its own league about digital rights, it sued to sever all its financial ties with the National Hockey League's Internet company. That battle is wending its way through federal appeals courts.


A legal test of where traditional media's rights end and those of new media distribution begin is in the courts now. Liberty Media (LCAPA ), owner of the Starz pay TV channel, has sued Walt Disney for allegedly violating a 1993 agreement to secure "exclusive" TV and Internet rights to Disney's movies. The Web site Swik.net is following the case as both sides scurry to put together their pleadings.

By Ronald Grover, with Tom Lowry

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