SBJ/20091109/SBJ In-Depth

Industry wonders who will challenge ESPN

Much of the talk in the sports media world last fall centered on whether an effective competitor would step up to compete with ESPN.

ESPN had just outbid Fox by $100 million to secure the rights to college football’s Bowl Championship Series through 2014, thanks mainly to its dual revenue stream that has cable and satellite operators making a monthly payment of more than $4 per subscriber for the channel.

At the time, some sports league executives were fearful that ESPN would become a de facto monopoly that eventually would wind up driving the cost of sports rights down.

If a competitor were to emerge, it would have to do so between 2011 and 2014, when the TV deals for the NFL, MLB, NASCAR, NHL and MLS expire.

Yet a full year after ESPN scored the BCS rights, that national sports competitor still has not developed, and most network and league executives contacted by SportsBusiness Journal are skeptical that anyone will come forward to compete head-to-head with ESPN.

Network and league executives are skeptical if
anyone will come forward to compete head-to-
head with ESPN.

“But I see lots of competition around the fringes for ESPN,” said one league executive.

That means ESPN should expect to see lots of competition from various entities, including the broadcasters, national cable networks, regional sports networks and league-owned networks.

Broadcasters have a multi-pronged approach for competing with ESPN for sports rights, starting with using retransmission consent rules to charge cable operators as much as $1 per month to carry their local stations (see story, page 1). Networks plan to use some of that money to compete with ESPN on sports rights.

But ESPN could see competition from some national cable networks. Some of these networks, like FX and Versus, have a surcharge clause in some of their contracts with small- to midsized cable operators (ones not named Comcast or Time Warner Cable). The surcharge gives the channels the right to charge an additional fee if they pick up rights to high-profile sports programming such as the NFL or the Olympics.

FX and Versus included these clauses in contracts when they were considering bidding on the NFL’s Thursday night package, according to several cable sources. NFL Network ultimately was awarded the package, but the surcharge language remains in many of the contracts.

ESPN and NFL Network tacked on surcharges when they first acquired NFL programming; Versus charged cable and satellite operators a surcharge in 2005 when it obtained rights to the NHL for the first time.

In NFL Network’s case, it increased rates from about 25 cents per subscriber to about 70 cents. Versus pushed for a smaller surcharge amount, though it demanded to be moved to better tiers. Cable operators that didn’t agree to the surcharges had the live games blacked out on their systems.

Versus has clauses in some of its distribution
contracts that call for higher fees from cable
systems should the network pick up rights
to high-profile sports programs.

Other competition could come from the league-owned networks, even though all of them insist that they are not set up to be competitors to any of their broadcast partners.

“We’ve always said that we’re not in competition with the rights holders,” said Tim Brosnan, MLB’s executive vice president of business.

He pointed to MLB’s postseason as an example. “If you look at our network right now, it is nothing more than an infomercial for the Fox and Turner broadcasts,” he said. “I say that in a generous way. We are a barker right now for our two networks.”

The NFL’s head of new media, Brian Rolapp, sees his league network in similar terms. “I don’t really see a competition,” he said. “I don’t see anybody complaining about the ratings. It’s all good for the football fan.”

Others, however, believe the channels have the potential to be strong competitors.

“You can see college conferences and league-owned networks continuing to create new packages and new opportunities for networks to bid on their games,” one cable source said. “You can slice and dice this in such a way that everything doesn’t have to go to a mega national sports network like ESPN.”

Who will step up?
Broadcasters: They still command the biggest audiences and still have deep pockets. As CBS and Fox begin charging cable operators for retransmission consent, they will have more money to bid on sports rights.
Turner Sports: David Levy rose through Turner’s sports division and now oversees all of Turner’s sales and distribution. Does that mean TBS and TNT will be more likely to increase their sports portfolio beyond MLB, NBA and NASCAR?
Cable networks: USA has retreated from sports; FX doesn’t hold any sports rights; and Spike only dabbles in it. But they all have dual revenue streams that are key to bidding for sports rights. Could one of them step up and pick up a TV package?
All-sports networks: Other than ESPN, Versus is the only player in this space and given the size and scope of its owner, Comcast, it has enough money to afford just about any rights package. Meanwhile, News Corp.’s Chase Carey said Fox isn’t planning to
League-owned networks: Leagues own their own rights; leagues own their own networks. Sure, they don’t want to give up on the rights fees that networks are paying. But it makes sense for them to grow their channels through packages of live games.

While John Skipper, ESPN executive vice president, sees more competition in the sports media space, he says the added competitors are not causing ESPN to change the programming strategy it has employed for the past several years.

That means ESPN still plans to bid aggressively on high-profile sports rights that encompass cable, broadband and wireless rights.

“We feel like the most important couple of things for us to do are to acquire rights that allow us to move content around,” Skipper said. “We don’t buy games; we buy content — both the games themselves on multiple platforms, the highlights around them, and the rights to do other shows.”

As Skipper picks up rights, he will make a renewed push to convince leagues that the difference between ESPN and ESPN2 is diminishing. ESPN2 still lags ESPN significantly in ratings, but Skipper says the difference is becoming lessened as ESPN puts higher quality programming on ESPN2.

ESPN’s affiliate team also has been trying to get the two channels placed next to each other on cable and satellite systems.

“My goal is to have that be 48 hours of ESPN,” Skipper said. “We used to say that we’d never move ‘SportsCenter’ to ESPN2. Now, we do sometimes.”

With so many major sports rights coming due before 2014, Skipper says ESPN will have to decide which rights to bid on and which to ignore. But he said that does not represent a change from the past several years.

“We already have to pick and choose,” Skipper said. “There are lots of things that we’d like to have that we don’t have.”

He specifically mentioned baseball’s postseason as something that is “disappointing, in some ways, that we’re not there.”

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