May 3rd, 2013 09:00 AM║ Posted By: John Pennington ║ Permalink
║ Schools: Alabama, Arkansas, Auburn, Florida, Georgia, Kentucky, LSU, Mississippi State, Missouri, Ole Miss, South Carolina, Tennessee, Texas A&M, Vanderbilt
Tags: ESPN, Mike Slive, SEC, Time Warner
Take the freshly unwrapped SEC Network as an example. As soon as yesterday’s press conference finished in Atlanta, the MrSEC.com email box filled up with a hundred variations of the same two questions:
“How much money will the network mean for SEC schools?”
“How much will I have to pay to get the network?”
The answer to both? You’ll have to wait to find out.
That’s not because the SEC is playing coy, mind you. It’s because all the tumblers haven’t quite clicked into place just yet.
First, some background and then we’ll attempt to answer those questions for you.
The Wall Street Journal reported last evening that a source had told that publication that the new SEC Network will be owned entirely by ESPN, not the conference:
If you read our story from April 17th, that news shouldn’t surprise you one bit. After close inspection, it became clear that the SEC usually doesn’t “own” much of anything and that ESPN had already cut the exact same type of deal with Texas for the Longhorn Network. So we’re not shocked to learn that the SEC passed on ownership. The league has done so to protect itself on the front end.
If the network — which currently has one provider on the hook — fails to gain carriage on several of the biggest cable and satellite providers, the SEC will still get paid. And if the network booms past initial projections, the league’s built-in escalators in the contract will ensure that it’s always making a certain percentage of the network’s profit. In terms of safe bets, this type of deal was the safest.
This type of deal also means that Mike Slive and company do know the minimum amount of money they’ll make from ESPN in Year One. Slive just wasn’t talking about that number — or the network’s ownership plan — yesterday at the presser. That means we’ll have to wait for those digits to leak out at some point.
But the new SEC Network isn’t the only thing that’s going to increase SEC schools’ revenue in the next few years.
First, there’s the SEC’s share of the new College Football Playoff. That will be a considerable chunk of cash in its own right. The league will also kickoff the new Sugar Bowl, which it co-owns with the Big XII. Such a partnership has never been done before and it figures to create another fat, new revenue stream for the SEC. Additionally, the league will soon start reworking all of its bowl deals. Perhaps the SEC will try to take over another bowl or two. Or maybe it will just partner up with whichever bowls are willing to kick in the most cash. That’s another wad of money to toss into the overall pot.
Finally, there’s the overall partnership with ESPN to take into consideration. As we wrote on April 16th, the SEC Network is just one part of much larger partnership. As was pointed out again and again and again during yesterday’s presser, ESPN will now own the rights to just about all things SEC outside one CBS football game per week and each school’s local radio broadcast rights. Seriously, the partnership runs that deep. If the SEC and ESPN were in bed together before, they’ve now been sewn together into an 18th century bundling bag.
And the keyword there is “bundling.”
ESPN will now sell the SEC’s biggest corporate partnership packages. Controlling so much SEC inventory across so many different platforms will allow the ESPN sales team to bundle properties together when selling those corporate packages. “Wanna buy some spots in SEC Network football? Then ya gotta buy spots in SEC Network basketball and on the SEC Digital Network online, too.” Bundling will bring in much more revenue in the long run. So toss that loot into the SEC’s kitty as well.
As you can see, there are a number of new spigots that are about to be turned on at the SEC office in Birmingham. Some will pay dividends before others. Some will grow faster than others. Some will do better than projected. Some will do worse than projected.
With all that in mind, you can now see that the question “How much money will the network mean for SEC schools?” is tad overly simplistic. The SEC’s recent deals — including the ESPN partnership — are about more than just a new television channel. And since all of these streams will be pouring in over time, there’s no definitive way of saying, “SEC schools will make this in 2014, this in 2015, and this in 2016.” Instead, we’re forced to talk in ballpark figures.
Last fall, we spoke with an industry source familiar with the SEC’s plans to buy back its Tier 3 broadcast rights and hand everything over to ESPN. As we wrote at the time, our source felt that SEC schools would eventually make $10-15 million more per year when all of the new revenue streams are up and running. With league schools making around $20 million now, we wrote that by 2015 or so SEC schools should be making $30-35 million per year with enormous growth potential moving forward from there.
In January, USA Today conducted a study and they arrived at darn near the exact same numbers. Their analysis projected that league schools would likely make about $34 million per school per year starting in 2014-15.
So if you’re wondering what the network will be worth to SEC schools, broaden your thinking. With the network and several other new revenue streams kicking in, SEC schools will likely see their annual checks from the home office spike 50-75% in the next two or three fiscal years with potential for much larger growth as the conference and ESPN get deeper into their 20-year deal.
Now, onto the second question — “How much will I have to pay to get the network?”
Well, it depends.
That’s probably not the answer you were looking for, but it’s an honest one. ESPN will spend the next 16 months trying to jam the new SEC Network down the throats of cable and satellite providers. Currently, AT&T U-verse is the only provider that’s signed on to carry the channel. AT&T U-verse is small and growing and it needs the pub.
Time-Warner, Comcast, DirecTV, and Dish are not small and they don’t need any added publicity. They will fight against paying top dollar for a start-up, regional sports network just as they have with every other start-up, regional sports network. (ESPN can call it a national network if it likes, at the negotiating table, the providers will initially argue that it’s regional.)
For those unfamiliar with carriage battles, here’s a simple explainer. Right now, networks like ESPN, CNN, FOX News, HBO, NFL Network and others demand a fee from cable and satellite providers for the right to air their programming. The providers then pass that cost along to you on your monthly cable or satellite bill.
The networks try to create programming that you’ll demand. We’ve all heard the “Call your local cable operator” pitch a million times.
Most providers usually hold out until the last possible second — or sometimes they allow launch dates to pass completely — before adding a new channel. If they add the channel at all. But before adding any new network, they’ll probably warn you that it’s the new channel driving up your bill, not the provider.
Basically it’s a tug of war and you, the viewer, smack dab in the middle of the rope.
Eventually ESPN will reach deals with the biggest providers because the SEC provides great football and because the league can actually put some good games on its channel. Those deals won’t all be for the same amount of money, however.
Let’s say Time-Warner’s deal with ESPN is for X and DirecTV’s deal is for Y. Obviously, depending on which of those providers you have, either part of the price of X or part of the price of Y will be passed along to you.
So how much will the new network cost you? It depends on your provider, the deal that provider cuts with ESPN, and the amount of the total cost that the provider wishes to push your way.
According to the ESPN executives on hand in Atlanta yesterday, the goal within the 11-state SEC footprint is for the SEC Network to equal ESPN in terms of cable and satellite penetration. That’s a heckuva goal. That would likely mean main-tier positioning rather than placement on a sports package, but again, that will depend on the provider and the deal they cut with ESPN.
Outside the 11-state footprint, the SEC Network was compared to ESPNU. The U gets into about 75 million homes. That would probably mean sports package-type placement for the SEC Network.
With a start-up product, we suspect cable and satellite subscribers in the SEC footprint will likely have to add between $1 and $2 per month onto their monthly bill for the channel. And that’s a very, very loose estimate for all of the reasons mentioned above.
Those outside the SEC region will likely have to kick in for a sports package if they want to see the channel.
Clear as mud, right?
Additional SEC Network links:
Additional SEC Network coverage from MrSEC.com:
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