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Several sports channels are in the middle of intense carriage negotiations with distributors.
Tops among them are ESPN’s talks with Time Warner Cable. Contracts for Disney’s entire suite of channels with the country’s second-biggest multisystem operator expire at the beginning of September, and both sides have argued their case publicly through a series of advertisements.
TNT’s contract with Comcast expires at the end of the year, sources said. Turner also is negotiating new carriage deals for CNN and Headline News.
The TNT negotiations will be Turner’s first since it partnered with CBS on a 14-year, $11 billion deal for the rights to the NCAA men’s basketball tournament. Turner completed a carriage deal with Comcast for truTV last year, before it picked up rights to the event.
Turner is certain to seek a healthy increase for TNT. The company used the promise of higher license fees as a reason for shouldering the bulk of the NCAA rights fee. Turner will begin carrying the Final Four in 2016, which is when distributors should see the biggest license fee increases.
Even with expected increases, these carriage negotiations with Comcast should stay under the radar. With its pending acquisition of NBC still under review, Comcast has been reluctant to get into public squabbles with programmers. Earlier this month, the cable operator surprised the industry by announcing a carriage deal it signed with CBS. Many did not realize that the two were negotiating.
Fox also is negotiating carriage deals for its channels with Cablevision, Dish Network and Mediacom, sources said.
Fox was embroiled in a carriage battle with Cablevision last year and threatened to pull its broadcast channel from the cable operator’s New York-area systems before Game 5 of the American League Championship Series between the Yankees and Angels (SportsBusiness Journal, Nov. 9-15, 2009, issue).
The two wound up signing a one-year extension that expires at the end of October. At the time, it was believed that Cablevision wanted to wait and let Time Warner set the market. Fox and Time Warner wound up signing a deal, which included a retransmission consent payment for the broadcasters, just after New Year’s.
Fox’s deals with Dish Network and Mediacom, the country’s eighth-largest MSO, expire at the end of the year.
We asked several executives to identify any sports brands they think could start their own network. Here are highlights of what they had to say:
“Only the UFC comes to mind. Mixed martial arts is mainstream now. It commands more in PPV [pay-per-view] revenue than any other sport and can leverage that to create a network that offers replays of PPV, a few live fights and continuous MMA-related programming. But I also think the concept of what a sports network is and does, particularly RSNs, will change as cable goes to switched digital video.”
“UFC. Given the enormous (and growing) popularity of the brand, a 24-hour channel would have strong consumer appeal.”
“MMA Network. It’s the fastest-growing sport with amazing television appeal. The young demos across various income groups provide an excellent platform for an ad-supported network. There is no shortage of mixed martial arts content, plus opportunities abound as to action sports shoulder programming to fill out the network’s programming grid.”
“FIFA — still the most popular sport in the world. The key would be a strategy to effectively hook in fans in the
U.S.at all times and not just in World Cup years.
“Dallas Cowboys — the Cowboys are the most loved and most hated franchise in sports (Disclaimer: I was a childhood fan of Roger Staubach), but their appeal is wide and strong. The hardest part will be cracking the No. 1 media market in the country where the Giants and Jets (and Rutgers) rule. NFL teams, however, don’t have the flexibility to go down this road … yet.”
“Even though Arsenal is part of the EPL [English Premier League] and all games are set through the BBC, they could make a media move in the U.S. Stan Kroenke is now near the 30 percent threshold of Arsenal’s ownership, which triggers an automatic process in the
U.K.to buy out the remaining share of the club. I see Mr. Kroenke’s support as a key ingredient to make this happen.”
“The Olympic brand could support a well-designed network, and would actually benefit from one because too many Olympic sports fall out of public consciousness in odd-numbered years. A network that assembles major national championships in Olympic sports with major world competitions, and then fills in with stories on up-and-coming (and already well-known) competitors so that U.S. Olympic team members and top world athletes are broadly familiar to casual viewers when the actual Games roll around, could be very powerful and successful.”
“If NBC renews its Olympic franchise, I think we will see an Olympic Channel here in the
USAas a joint venture between NBC/Comcast and the USOC with the blessing of the IOC. The Olympic sports need a network to grow their audience, which will then benefit NBC’s Olympic Games coverage.”
“Who should consider their own TV network? Independent ownership groups that own multiple teams and the local arena, such as Atlanta and Washington. Why? A network makes financial sense when a group owns multiple teams and the facility in which they play. It is just good business for Monumental Sports & Entertainment to consider its options, and I would assume the Atlanta group would be doing the same. Look at New York and Philadelphia; the cable outlet owns the teams, so it seems natural for teams to consider pursuing a cable network.”
“NASCAR. There are multiple series and types of NASCAR racing. Every man, woman and child has a love affair with the car, and NASCAR is uniquely situated to speak to that passion.”
Three years ago, in the middle of Time Warner Cable’s yearlong carriage battle with the Big Ten Network, the cable operator’s top programming executive, Melinda Witmer, sounded a warning that proved to be prophetic.
Witmer predicted that the Big Ten Network — if successful — would spawn a bevy of similar channels.
“What’s to stop there from being a Wolverine network next?” she asked during an industry conference in the fall of 2007.
It was a classic slippery-slope argument that quickly was rebutted by programming executives who shared a panel with her that day. To that point, no individual college had launched its own network, and the programmers said none looked likely to do so.
Fast-forward to the summer of 2010, and it looks like Witmer’s scenario has come true.
There’s no Wolverine network — the University of Michigan’s TV rights are tied up in the Big Ten Network. But Witmer and her cable and satellite brethren have to deal with a potential Longhorn channel in Texas and a Sooner channel in Oklahoma. The University of Nebraska toyed with the idea of launching a Husker channel in its home state before announcing earlier this summer that it would join the Big Ten Conference.
It’s not just individual schools that are emboldened by the Big Ten Network’s success. The Pac-10 and Big East conferences are trying to develop their own TV channels based on the Big Ten model.
It seems that everywhere distributors look, someone is trying to launch a sports channel. The most activity seems to be with college sports, but several professional sports teams, like the Astros and Rockets in Houston and the Padres in San Diego, also are looking into setting up TV channels rather than renewing rights deals with existing regional sports networks.
Distributors have seen this kind of frenzy before. In 2002, when the New York Yankees launched YES Network, several MLB teams tried to follow suit.
The Kansas City Royals tried to launch their own RSN before the 2003 season; the Minnesota Twins tried to launch just after the 2003 season.
Neither succeeded. Cable operators in Minnesota and Missouri largely refused to cut carriage deals for either network. Both were in much smaller markets than the Yankees, and the teams had a harder time whipping up public support to pressure multisystem operators to carry the channel.
The failure of those ventures emboldened cable operators to take a hard line on these types of channels, temporarily slowing down the planned launches of team or conference-owned networks.
During that time, professional league-owned networks like NFL Network and MLB Network went through bruising public battles to gain cable carriage, underscoring the difficulties new networks faced while getting launched.
Then came the Big Ten Network, which is 51 percent owned by the Big Ten and 49 percent owned by Fox. The channel waged a nasty public battle with Comcast and Time Warner Cable. It eventually gained carriage and now is widely hailed as a successful blueprint for other college conferences to follow.
“The Big Ten Network was a tipping point because it was the first conference to actually go out and cut their own network deal,” said David Levy, president of sales, distribution and sports for Turner Broadcasting. “It had more people thinking about if they should do it. Then it had individual teams wondering if they should do it.”
But it wasn’t easy. Media industry executives credit conference Commissioner Jim Delany for keeping the Big Ten schools unified during the carriage battle when some privately wanted to back out of the channel.
“The success of that channel is 60 percent the cohesiveness of those 11 schools and 40 percent Fox,” said Lindsay Gardner, who ran Fox’s affiliate sales and marketing team through mid-2007. “There were tough days when Fox was struggling to get distribution and Delany held everyone together.”
True to Witmer’s prediction, the Big Ten’s success led others to try and duplicate it.
Chris Plonsky, the University of Texas’ women’s athletic director and a leader on the school’s TV network project, cites the emergence of the Big Ten Network — and Mountain West Conference’s network, The mtn. — as a reason for looking into a Texas channel. Plus, the Pac-10 acknowledges that it wants to use the Big Ten’s blueprint as it looks into launching its network.
“The fact that there is a successful, established college conference network already takes some of the risk out of it and provides a road map for how we might do it,” said Pac-10 Commissioner Larry Scott. “The playbook’s now been written, at least in terms of a college conference network.”
These schools and conferences are doing more than just duplicating the Big Ten’s strategy. The Pac-10 and Texas, for example, have hired media advisers who have launched channels before and know how to do it — brain power that wasn’t available when the Royals and Twins tried to set up their channels. The Pac-10 is using CAA’s Evolution Media Advisors, and Texas is using IMG College.
“It used to be that you could count on one hand the number of people who could pull off this thing,” Gardner said. “Now, there’s a lot more. People have moved around. And it’s not rocket science to figure out how to secure rights or negotiate with distributors.”
A new landscape
Tensions between programmers and operators are not new. Each of the proposed channels’ business plans depend on a relatively healthy license fee that distributors pay networks for programming. That puts them in direct conflict with distributors, which, obviously, want to pay less.
“Dealing with escalating programming costs on a general basis is a significant challenge for any distributor,” said Derek Chang, DirecTV’s executive vice president of content strategy and development. “It’s not totally specific with sports. It’s much more acute with sports because the numbers are bigger.”
Some cable operators are prepared to take a hard line on negotiations, saying that some of the planned sports channels have unrealistic expectations. Even the ones that wind up with carriage will have a long fight on their hands to get it.
“There’s a perception that multichannel is the golden goose that keeps on giving,” said Bob Wilson, the top programming executive at Cox Communications, the country’s third-biggest MSO. “That’s not necessarily the case. There are consultants out there that are creating false expectations.”
Cable and satellite operators say they will focus on the programming these channels offer. If a conference or university channel is filled with noncompetitive football and basketball games, plus poorly rated Olympic sports — which, in some cases, are all the rights that schools have available — they say they won’t pay what the conferences and schools expect.
“Historically, the industry has showed that they’re willing to take on some economic pain, but that threshold is different today than it used to be because there’s a lot less room to take on that pain,” because video margins are shrinking, Chang said.
Rights holders shrug at those warnings. They believe that if the Big Ten Network can exert enough pressure for Comcast and Time Warner Cable to carry it, just imagine the outcry if cable and satellite companies were to refuse to carry a University of Texas channel in Texas. If the Big Ten Network can get carriage, why can’t a Pac-10 network or a Big East network or, maybe, a combination of the two?
“The best new channel ideas come from sports properties that have live sports rights,” said Rutgers Athletic Director Tim Pernetti. “Like-minded properties should be able to consolidate programming, leverage their value and create new options for distribution that will generate massive increases in revenue.”
Rights holders are optimistic because the TV landscape is much different now than it was in 2003, when the Royals and Twins tried to launch their network. For one, cable and satellite operators have more space on their systems to accommodate channels.
“With the age of digital, you can now have more capacity to launch more of these channels,” Turner’s Levy said.
There’s also more competition. AT&T and Verizon have launched video businesses to compete with satellite and cable. It’s tough for cable and satellite providers to let competitors offer programming that they don’t already have.
“The issue is a prisoner’s dilemma,” Chang said. “No one distributor has enough incentive to try to change things himself because, on a relative basis, he’s worse off versus his competitors. But if everyone keeps acting this way, ultimately, the whole thing could come tumbling down.”
Some distributors also are partnering with rights holders on sports networks. Comcast, Cox and DirecTV operate regional sports networks.
In Houston, for example, Comcast, DirecTV, AT&T and Fox have tried to obtain rights to the Astros. Comcast appears close to closing that deal.
Last year in Detroit, Fox was bidding against Dish Network and AT&T to retain rights to Tigers games. Sources said Comcast supported Fox’s bid in order to keep another RSN out of the market.
“RSNs are not easy to create,” said Cox’s Wilson. “There are entities out there [like Fox Sports Net] that can provide shoulder programming and wrap around programming efficiently rather than somebody creating something different and new.”
Partnering with a distributor does not ensure full distribution. Comcast’s RSN in Portland still has not signed a deal with DirecTV. Neither has Cox’s RSN in New Orleans.
Wilson said new networks have to prove that they are more valuable to his subscribers than existing networks that have similar programming. He said Cox would be more willing to cut a deal if the network is offered a la carte or on a sports tier. But rights holders can’t do those types of deals since their network business plans depend on wider coverage.
“The idea that you can drive viewership to effectively end up with more value than what’s currently being provided, that’s the main question everybody’s got,” Wilson said. “The more you create these conference channels, the deeper you have to go in content to program the channel. The deeper you go in content, the smaller the audience is that wants to view that content. That means license fees that don’t necessarily correlate to what may already be in the marketplace and value that can’t be replicated.”
Here’s the pitch
Despite the near certainty of a difficult negotiating period with cable and satellite operators, the new networks are reaping plenty of attention.
Last month, the Pac-10 hosted a party at a Manhattan hot spot that was attended by top representatives from every network.
“If a bomb were to go off in here, sports media, as we know it, would perish,” quipped Len DeLuca, ESPN’s senior vice president of programming and acquisitions.
Comcast, Fox and ESPN have told the Pac-10 that they are interested in partnering on a channel, sources said. And Scott was not shy about his desire to pursue one.
“I’m thinking about the Pac-10 as a brand and thinking about how to market ourselves,” Scott said. “The opportunity to have a branded network where you could control the programming really is attractive in terms of our overall mission and in terms of trying to get exposure for a lot of sports.”
Scott insists that the conference hasn’t formally decided to launch a channel yet. But he says the channel is a good way to offer sponsors a new platform and get recognition for Olympic sports. “I’m determined not to focus just on football and basketball,” he said.
In Scott’s view, a channel presents the best way to further the conference’s brand and control the message it wants to put out.
“When you are licensing your rights, you’re subsuming your brand for the networks’ brand,” he said. “Long term, we want to build brand equity in the Pac-10 and our individual schools.”
Meanwhile, Texas spurned overtures to join the Pac-10 this summer because it wanted to launch its own channel, rather than be part of a Pac-10 channel.
Plonsky said the school has been looking into launching a channel since 2006, when consultants Skip Prince and Joel Lulla conducted a study for Texas and Nebraska.
“It showed that both institutions had intensely loyal and interested audiences, despite marketplace size differentials,” Plonsky said. “We believe in the viability of creating one with our partner and perhaps others who see the business platform as one that is positive.”
Plonsky expects to pick up rights for the proposed Texas channel when its TV deal with FSN comes up for review after the 2011-12 school year.
“We believe the timing is right for a UT channel — we just need to get the business piece and financial piece correct so that all parties who may participate can bene