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High UFC PPV Prices, Bellator Unavailability On DirecTV Highlight Struggle Between Providers, Networks And Promotions

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Your cable and satellite providers took as much as 60% of the money you paid to watch this guy put on a show at UFC 148. (Photo: Mark J. Rebilas-US PRESSWIRE)
Your cable and satellite providers took as much as 60% of the money you paid to watch this guy put on a show at UFC 148. (Photo: Mark J. Rebilas-US PRESSWIRE)

One of my favorite fighters to watch will step into the Bellator cage on Friday night when Paul Daley makes his debut for the promotion. But I won't be able to watch the action as I am a DirecTV customer and DirecTV is locked into a struggle with Viacom which resulted in Viacom stations such as Comedy Central, MTV, Nickelodeon..etc. being pulled from the DirecTV lineup.

Both Viacom and DirecTV have launched campaigns targeting the other side, both being quite misleading about the truth of the situation. DirecTV is pointing out that Viacom wants DirecTV to pay 30% more for their stations and that the cost has to be passed along to the customers. But, they're making it sound like everyone's bill would go up 30% instead of a few bucks a month since those Viacom stations only make up a small percentage of the packaging you're paying for.

Meanwhile, Viacom is acting as though DirecTV is intentionally depriving you of programming at a small expense. A 30% increase is a pretty big deal, regardless of the relatively small impact to customers.

And the whole DirecTV vs. Viacom battle has obvious echoes in the continued struggle to have Fuel picked up by other providers.

This is all symptomatic of the current climate with the battle between networks, service providers and companies like the WWE and UFC. This little bit ran in the most recent Figure Four Weekly newsletter (subscription required):

According to a cable company representative, his call center has seen a big dip in people ordering pay-per-views over the last few years. He said when people do call to order they complain about the high prices. He said other reps have to tell the callers that it's not the cable companies that set the prices but rather WWE, UFC and boxing. That is true, though every company raises its prices to try to offset declines in orders, and the price has to be high given the cable companies take a 60 percent cut. "It's now to a point," this person said, "where cable reps work as money managers of sorts, actually trying to talk people out of buying PPVs, worried they won't be able to afford them on top of their current cable bill." One person had a friend at a call center who actually told fans at times to save their money and wait for the DVD to come out. "Of course, in the end they can't refuse people if they really want to buy. They can only strongly suggest not to."

Beyond the strangeness that is cable company reps telling people to not order programming, is the truth about pay-per-view pricing.

Cable and satellite companies take 50-60% of the money from pay-per-view orders. It's ultimately one of the biggest problems in the game right now.

The example I like to use is based on what I know from my time working as a manager at a movie theater while in high school, and later working as a "customer service manager" for a company that made point of sale software for theaters to use (meaning a lot of trade show time). I'll let How Stuff Works try to explain...well, how stuff works in the theater business when it comes to ticket prices and the role of the movie distributors:

Theater A is negotiating with Distributor B over a new movie. The theater has figured that expenses, the nut, are about $4,500 per week. The net percentage to go to the distributor is set at 95 percent for the first two weeks, 90 percent for week three and 85 percent for the final week. The gross percentage to go to the distributor is set at 70 percent for the first two weeks, 60 percent for week three and 50 percent for the final week.

You can see that during weeks one, two and three, the gross percentage is higher. The net percentage is higher for week four. So the distributor would take gross percentage on one through three then net for week four. The theater breaks even the first week, loses money the second and makes a profit on weeks three and four.

The movie itself is considered a loss leader by the theater owner: It is meant to get people into the theater. The theater makes its money selling refreshments to the movie audience. That's why concessions are so expensive -- without the profits generated by things like popcorn and soda, most theaters could not afford to stay in business.

So, the next time you complain about high movie ticket prices, realize it's the distributors forcing the theaters into it. But one of the biggest issues was always the last part. Concessions are where theaters make their money, but because people are paying so much for tickets (because of the distributors) they either don't pay for concessions or they sneak stuff in. Which ultimately means that ticket and concession prices can't go down without crippling a theater, which guessed it, even more sneaking in of food.

Boxing, WWE, UFC..etc. all have pay-per-view prices that are pushed up because they lose so much to the providers. The prices being forced up means more people can't afford to order them (or at least order the sheer number of shows available). More people can't afford them but still want to see them results in more people taking to illegal streams and the like. Because the promoters are already losing viewers just based on normal market fluctuation and then the cable and satellite companies drive prices up more with their percentage and then customers take to illegal streams, promoters can't afford to lower their prices. This keeps the cycle going.

Assuming a $50 PPV price (splitting the difference between a $45 standard def UFC PPV and $55 for high def), a 60% cut means the UFC walks away with $20. Given 16 pay-per-view events (the number in 2011), that means the UFC makes $320 off everyone who orders every pay-per-view (given our $50 price). You could lower the price by ten dollars to $40 ($35 standard, $45 high def) with a 10% decrease in the cut going to providers and the UFC would make the same amount. Or, leave the price alone and reduce the provider cut by 10% and the UFC would make $5 more per order, or $80 more per person who orders every show, per year.

For the sake of simple math, let's say the UFC has 200,000 people who buy every show (roughly their basement for a buyrate). That means that $80 extra, per person multiplied by 200,000 would be $16,000,000 in extra revenue for the UFC every year. The 50% cut (rather than 60%) for the providers at a $50 price would still mean they'd walk away with $80,000,000 every year just on those 200,000 base orders ($64 mil if we assume a 40% cut to the distributors). That seems like plenty for just providing somewhere people can watch an event without doing any of the promoting, paying the fighters..etc.

So, your providers are getting into battles that take away networks and relevant programming and they're taking a crazy percentage from the promoters, creating an environment that raises PPV prices and forces people to illegal streams.

The next time you want to complain about PPV pricing, remember where the complaint should be directed.