HBO, Showtime need to rethink business model
Imagine, for a second, that you’re Ken Hershman, the newly installed president of HBO Sports.
Since late 2003, you’ve been the senior vice president and general manager of Showtime Sports, and you’ve played a clear second fiddle to the industry giant that has been HBO.
Suddenly, you inherit this dream job where you oversee the boxing programming at HBO. You’ve gone from the Cleveland Indians to the New York Yankees. You have the big budget. You have enormous clout within the industry and, if you want a fight, you simply pick up the phone and make it happen.
You no longer have to hold your breath worrying if you’ll be outbid for a bout you want. You don’t need to have trusted lieutenants with an eye for the matches the super power has overlooked because, well, now you are the super power.
You have the largest budget and the most subscribers and the richest history. When many of the sport’s consumers think of a major fight, they think of HBO.
Armed with that knowledge, sitting in a seat that arguably makes you the most powerful man in boxing, do you take your money and your influence and start spreading it around to immediately land the biggest and the best fights?
Of course you don’t.
Hershman played it close to the vest with the purse strings while he was at Showtime because he had no choice. He should do the same thing at HBO because it’s the wise choice.
Boxing has entered a new era when it comes to premium cable television. In October, Hershman left Showtime to replace Ross Greenburg as president of HBO Sports. Showtime replaced Hershman by hiring attorney Stephen Espinoza, who for years served as ex-boxer Oscar De La Hoya’s personal attorney and was instrumental in the formation of his Golden Boy Promotions.
The two networks will continue to compete for the biggest fights because they’re the only broadcasters in the U.S. with the money to snap up the elite shows.
If an over-the-air network decided to broadcast major league boxing in primetime, or even if a basic cable channel opted to go that route, they’d blow HBO and Showtime out of the water.
But because there is no network television for boxing and because only lower-level shows appear on basic cable, the major leagues of boxing are essentially left for the premium cable giants.
The mistake that both HBO and Showtime have made over the years is paying far too much in license fees to land fights.
Consider this analogy: If you’re looking for a home on a certain block and 10 of the 20 have for-sale signs in the front yards, you know you can land whichever one you choose at a bargain price. You don’t have to try to outbid anybody because there is no one else bidding, and the sellers have no leverage. It’s essentially you against you.
That’s how it is in boxing. HBO and Showtime have been bidding against themselves, yet they’ve still been getting drubbed by promoters.
Boxer salaries are outrageously high in relation to the amount of revenue they produce. Few boxers sell tickets and fewer attract television ratings.
There are exceptions. Floyd Mayweather Jr. and Manny Pacquiao, the two best fighters in the sport, clearly do. But they’re exclusively pay-per-view fighters these days.
HBO got a terrific rating for its doubleheader on Feb. 4, peaking with 1.88 million viewers for the Julio Cesar Chavez Jr.-Marco Antonio Rubio middleweight title fight. It was HBO’s most-watched bout since at least 2010.
Chavez Jr., though, is one of the few exceptions. Saul “Canelo” Alvarez is another. There may be a couple of more.
But there are a lot more boxers who have been earning $250,000 or more per fight than those who sell tickets.
The problem from a fan’s perspective, of course, is that far too often the boxers earn exorbitant purses for fighting ordinary, at best, competition. And that gives them less incentive to take on a stiffer fight in the future.
Espinoza has reportedly been given a budget increase that will allow him to compete for fights on more even financial terms with Hershman and HBO. He showed that by landing the rematch between Victor Ortiz and Andre Berto that most had all but conceded to HBO (That fight was supposed to be on Saturday, but was canceled when Berto suffered a ruptured biceps earlier this month. The plan is to reschedule the bout in the summer, possibly June).
HBO landed an attractive fight on Thursday when it signed a deal to broadcast the rematch of the super lightweight title fight between Lamont Peterson and Amir Khan on May 19 in Las Vegas.
Their first bout was a compelling battle, diminished only by Khan’s post-fight whining about the result.
Still, neither fighter is a ticket seller and you can rest assured that the Mandalay Bay Events Center will be flooded with free tickets on the night of the fight.
That is a 100-percent guarantee.
Yet, Khan and Peterson will each make substantially more than $1 million for the bout.
I’d suggest that less than 20 percent of the general public could identify their photos in a lineup. They will generate very little ticket revenue.
Still, they’ll be paid like stars and that will ultimately make it difficult to get other fights done.
It’s up to the networks to make you want to watch by putting on consistently compelling bouts that mean something, and in an interesting manner. HBO is already developing a magazine show that should help to introduce fans to the fighters and perhaps create new fans. Espinoza said Showtime is looking at ways to tweak how boxing is broadcast on television.
In the U.S., people aren’t watching in the same numbers they were 15 or 20 years ago, largely because they’ve lost interest. Over the last decade or so, the quality of the matches on premium cable has declined, viewers don’t recognize the names of the boxers and if they don’t recognize them, they won’t watch.
If HBO and Showtime want to attract subscribers and then make them boxing viewers, they need to help the promoters get to know the fighters. They need to make the fans feel that they’re on the inside of the sport and that they know what is going on.
Handing out money hand over fist to fighters who can’t sell tickets while charging $15 a month for a premium cable network is a losing business proposition.
Hershman and Espinoza ought to keep their money. They need to take advantage of the fact that they’re the only ones shopping.
Only pay the fighters who are willing to take tough bouts; who perform when they get those big matches; who sell tickets on a regular basis.
Then, whatever money they save in salary, they can pour back into the sport by developing support programming that will actually help fans identify with the athletes and want to watch them compete.
Espinoza and Hershman each have a ton of money to offer, but they shouldn’t be in a hurry to throw it around to impress their new bosses.
Their exclusive focus should be on making compelling matches with meaning and developing stars.
And when you do help make a star, you’ll be glad you saved your money in 2012. You’ll need it to pay them their richly deserved purses.
Stars – true stars – don’t come cheap.
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