SBJ/20100816/SBJ In-Depth

Tune in Tomorrow?

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 Big Ten Network is seen as a successful
blueprint for other conferences to follow.

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.”

Team-owned RSNs
Team-owned regional sports networks can add big bucks to a club’s coffers — see the Boston Red Sox and New York Yankees — but the road to TV success is littered with failures. Inability to secure adequate distribution doomed the Minnesota Twins’ Victory Sports and the Kansas City Royals’ Royals Sports TV. The team-owned networks planned by the Memphis Grizzlies and the Houston Astros never got off the ground a few years ago, although the Astros are revisiting the idea.
RSN Owners
Launched
Comcast SportsNet Chicago Chicago White Sox, Bulls, Blackhawks and Cubs*; Comcast Corp.
2004
Mid-Atlantic Sports Network Baltimore Orioles, Major League Baseball
2005
New England Sports Network Boston Red Sox, Boston Bruins
1984
Rogers Sportsnet Rogers Communications Inc. (Toronto Blue Jays)
1998
SportsNet New York Sterling Entertainment (New York Mets), Time Warner, Comcast
2006
SportsTime Ohio Cleveland Indians
2006
YES Network Yankee Global Enterprises (New York Yankees), Goldman Sachs Capital Partners, Providence Equity Partners
2002
Altitude Sports & Entertainment Kroenke Sports Enterprises (Denver Nuggets, Colorado Avalanche, MLS Colorado Rapids, NLL Colorado Mammoth, Pepsi Center)
2004

* The Chicago Cubs acquired approximately 20 percent of CSN Chicago in 2009.

Source: SportsBusiness Journal research

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?

Pac-10 Commissioner Larry Scott likes the idea
of a conference-branded network.

“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.

Turnkey Sports Poll
The following are results of the Turnkey Sports Poll taken in July. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports.
Which of the following planned networks is most likely to be around 10 years from now?
Pac-10 Network
59%
University of Texas Network
20%
Houston Astros/Rockets Network
10%
Oklahoma University Network
0%
No response/Not sure
11%
What is the biggest challenge for upstart sports networks?
Carriage fees/distribution
59%
Securing content
18%
Advertising sales
10%
Production costs
7%
Other
3%
No response/Not sure
3%
Which of the following specialized sports channels do you feel has been most successful?
NFL Network
27%
Golf Channel
18%
MLB Network
18%
ESPNU
13%
Big Ten Network
8%
Speed
8%
NBA TV
5%
NHL Network
1%
Tennis Channel
1%
Fuel
0%
No response/Not sure
0%
Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com.

“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

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