Sunday, August 10, 2014

Conference Networks: They Aren't All Created Equal

Over the past decade four conference specific networks have sprouted up: BTN, The mtn., Pac-12 Networks and SEC Network.  None were created with the exact same specifications and when it comes to the profitability of these networks for the conferences and any network partners attached to them, there is a lot of variability.

When you look straight up at the ownership of the four there's a fair amount of uniqueness to them:
  • BTN started out as a 51-49 partnership between the Big Ten and FOX Cable Networks with the conference originally having the controlling interest. A few years the controlling interest flipped to FOX.
  • The mtn. was a 50-50 partnership between CSTV, then later CBS and Comcast.  It was a piece of the conference's rights agreement with CSTV.  The MWC never had any equity in the network.
  • The Pac-12 Networks have no equity partners.  The conference owns the network in full.
  • The SEC Network is owned by ESPN and is an extension of their cable rights agreement with the SEC.
The controlling interest sometimes correlates to the profitability of the network and, by extension, any profits that are directly received by the conferences.  We know the mtn. had a ton of struggles when it came to the operations of the network and that is a big reason why it no longer exists, but on the surface the conference had little risk (but took a lot of criticism), much like the SEC has little risk with their network.  Granted, the two conferences and their popularity nationally are vastly different, but the SEC isn't having to invest in the major costs of studio space, paying on-air & production staff, etc.  The SEC may have one item that the mtn. allegedly did not have for the MWC and that is the ability to share in any profits of the network.

(Yes, the SEC schools do have costs to buy equipment to produce secondary events that will not be shown on TV in most cases, but the big events will be produced & directed by ESPN)

The Pac-12 has the most exposure with respect to risk, and it did come out that the conference provided far less TV money back to its members compared to other conferences.   With no partners, they have 100% risk and have to do all their own negotiations for carriage, production costs, on-air staff, streaming equipment.  And they went with the unique dual feed for in-market customers (ie. the six RSNs plus the national feed).  The network, per the LA Times, only has 11 million subscribers out of a potential 60 million available homes.  But Larry Scott says the network has made a profit and has made some unique deals that have benefited conference members when it comes to signage in arenas and becoming official conference partners.  The deals the Pac-12 did with Dish and AT&T had those unique components and I'm not sure another conference could do that when they are tied to an entity like Disney or NewsCorp.  But I think I can understand why someone like DirecTV or Verizon FIOS, as a business, wouldn't like being second fiddle.

BTN is the hybrid where the conference and the attached network (FOX/NewsCorp) both have equity and have risk & reward, and it is the network that others look at as the reason for Pac-12 Networks & SEC Network exist and why the ACC has been working with ESPN on feasibility, etc.  But BTN had its carriage issues too

Where all of these networks seem to struggle is with the content available in football and basketball.  When it comes to football, the Pac-12 takes a lot of flak for the number of non-conference duds early in the year, especially vs. FCS opponents, but that isn't very different compared to BTN or SEC Network.  Where the Pac-12 is a little bit stuck is the directive each school received regarding when they can schedule those games, and it has been used against them, in some ways unfairly.  A few years ago, the conference collectively decided that all non-conference games should be wrapped up in the first three or four weeks of the season, with the exception of games vs. Notre Dame since USC & Stanford would usually host the Irish at the end of the year.  BYU looks like they'll be filling that role as well to help out with scheduling too.  But the Pac-12 isn't unique here either.  The Big Ten wants their non-conference wrapped up early too.  The SEC has been hands-off in this regard, which is why we usually see a week in November with a load of games vs. FCS opponents.  

In men's basketball, there is also the need for good content and a lot of that gets siphoned off in the case of the Big Ten by CBS and ESPN and a fair amount by FOX and ESPN for the Pac-12.  The SEC probably will be able to shift content in basketball to the conference network, much like it will for football, though CBS will continue to get a small cut of games.  Basketball is different though as you can sometimes have a game become more important as the season evolves and the conference network has extra importance.  Where that doesn't always work is with the Big Ten where there are a few "wildcard" selections made late in the year so that CBS and ESPN can show the best available game, usually on the weekend.

So that leads me into the future and that being the possibility of an ACC Network since the Big 12 has went the route of returning content back to the schools to sell as they please.  The ACC is even more tethered to ESPN and that could certainly help from a content standpoint as a proposed ACC Network could be built a lot like the SEC Network's content board making the decisions as to which football/basketball games air on the network, but without ceding the top football game each week and a handful of basketball games to CBS. But ESPN made different deals for sublicensing and it was done at a time when the ESPN was supposedly concerned about syndication of both the SEC and ACC in common markets, so they sublicensed the both the over-the-air syndication & regional cable packages to Raycom, where with the SEC packages they only passed along the regional cable rights to Comcast & FOX. 

And it isn't just that the content was sublicensed, it was the length of the sublicensing agreement with Raycom (allegedly the entire length of the ACC's rights agreement with ESPN) compared to the SEC where the sublicense agreement length for Comcast was five years and with FOX for six years.   That provided the SEC and ESPN the flexibility to change directions on a conference network as the original deal with ESPN was to keep the SEC from moving towards a conference branded network.  For the ACC to go to a conference network, it now falls in the hands of not just ESPN, but in the hands of Raycom and maybe FOX too since FOX may have been sublicensed the control of the regional cable package.  I'm not 100% sure how the management of the RSN package works.  Supposedly the dollar figure for the ACC rights agreement would be increased if ESPN felt that the feasibility of a network was not worth the risk instead of starting a network with similar revenue distribution terms as ESPN and the SEC have (ie. 50-50 profit split).  To buy out Raycom or FOX for over a decade of future content, or maybe take them in as partners, might not be desirable for ESPN.  Or maybe the cost is worth it.  I'm not sure if Raycom kicked in any additional money when the ACC rights agreement changed due to the addition of Pittsburgh & Syracuse.  Raycom did get additional games in the RSN package for football and in both packages for men's basketball.

One other item could be factored - mergers/acquisitions in the pay TV industry.  DirecTV being purchased by AT&T, Comcast purchasing Time Warner Cable, Charter re-configuring itself as part of Comcast's TWC purchase, who would negotiate for Bright House Networks (would it even exist?) and a new company being formed out of a portion of the customers from Charter, TWC and Comcast to satisfy regulatory concerns.  These are all items to be factored in.  Disney completed negotiations with Comcast in '12 and for SEC Network in '14.  They completed deals with Dish for all Disney properties earlier this year.  They are working with DirecTV right now and in the case of AT&T, they completed an agreement for Disney in '13.  What is the appetite of both parties to occupy sides of a table and make another deal?  You can look at services like WatchESPN typically not being available to providers until they sign on for a new deal with Disney and wonder if something wouldn't be five or six years down the road.

That's all I have.  More than welcome to take your comments on this one.  I haven't done many articles like these lately, so I figured it was about time to do one.  Thanks for reading.


Hokie Mark said...

Thanks for posting! Matt, I was never able to find documentation on the ESPN / SEC profit split; you mention 50 /50 in passing - is that documented anywhere? if so, could you pass on the link to us readers, please?

Matt Sarzyniak said...

I probably took some liberties on the 50/50 split, but here's the best place I found it mentioned.