The SEC channel through the eyes of sports media consultants
By Jon Solomon | firstname.lastname@example.org
BIRMINGHAM, Alabama -- The Boston Marathon bombings delayed today's SEC/ESPN announcement of their joint television channel. The much-anticipated deal is being watched throughout college sports, largely because the relationship combines college football's most successful conference with America's most popular and powerful television sports network.
"ESPN knows the market," said media consultant Neal Pilson, former president of CBS Sports. "(SEC Commissioner) Mike Slive and his people are knowledgable, smart, sophisticated executives. I don't think they would launch without a relatively high probability of success."
The deal will increase the SEC's revenue and change some viewing habits once the network launches in August 2014. Multiple SEC football games each week are expected to be on the channel. That will include some high-profile games, CBSSports.com reported today. The goal: Provide ESPN with leverage in distribution negotiations that tend to be contentious when creating these types of networks.
It's clear the SEC will make a lot more money off its new TV deals. Exactly how much depends in part on the structure of the SEC's relationship with ESPN.
Three different models have emerged so far with college TV networks. There's the Big Ten Network model with shared risk and reward between Fox (51 percent ownership) and the Big Ten (49 percent).
There's the Pac-12 model in which the channel is wholly-owned by the conference through a new business enterprise. This puts all of the risk -- and potential rewards -- on the Pac-12.
Finally, there's the Longhorn Network model, which sees ESPN fully own the channel and pay the University of Texas a rights fee of $300 million over 20 years for Longhorns programming. If ESPN owns the SEC channel in its entirety, ESPN would accept the financial risks and potentially align its economic interests with its goals, not necessarily the conference's, said Chris Bevilacqua, a college sports TV consultant who helped design the Pac-12's media rights deal and negotiated the Rose Bowl's contract with ESPN.
Buying back TV rights
To start this new channel, the SEC bought back third-tier TV rights from IMG College, Learfield Sports and CBS Collegiate Sports Properties, the rights-holders of the SEC's 14 schools, according to the Sports Business Journal. Those third-tier rights -- one football game, eight basketball games and other sports and programming not picked up by ESPN or a syndicate -- will air on the channel.
ESPN also will own the SEC's digital and sponsorship rights, meaning live streaming of the SEC on ESPN products and the end of the original SEC Digital Network. XOS Digital created the SEC Digital Network in 2009 as the SEC's new Web site and helped build new and archived content.
Bevilacqua said he believes the SEC missed a big opportunity several years ago by negotiating longterm deals with ESPN and CBS that everybody now knows were fairly under-market deals.
"At the time, they looked like they were fully-valued deals," he said. "But it's fair to say the market accelerated forward and has changed quite dramatically. As a result of those deals, the SEC has to deal with ESPN in a non-free agency matter. It's very difficult because ESPN has the leverage of 15 years worth of future rights to have the preferred structural outcome."
The SEC signed 15-year deals in 2008 with ESPN and CBS worth a reported $2.85 billion. The SEC considered its own network at the time but opted against it, citing distribution headaches for the Big Ten Network and the revenue SEC schools would have lost by having to eliminate their own multi-media agreements.
Pilson said he thinks the SEC could have successfully launched a channel in 2009 without adding Texas A&M and Missouri, but bringing them aboard increases the likelihood of success. "That opens up two additional states with 28 million and six million people," he said.
The more people in a conference's geographic footprint, the higher the rate of subscriber fees the channel earns. Subscribers get charged a fee by their cable or satellite provider for each channel, although viewers never see those fees on their bill.
The Big Ten Network earns about a dime per month for cable subscribers outside the Big Ten states and about $1.10 a month inside the Big Ten footprint, SI.com reported last year. Several media analysts expect similar sub fees for the SEC channel.
"The SEC is as gold-plated a property as there is," said Adam Chase of the Washington-D.C. sports and telecommunications law firm Dow Lohnes. "On the one hand, what does someone in Los Angeles care about watching SEC football? But the Big Ten Network has gotten fairly good distribution. People want to see the best players, best coaches, best teams. Looking at the SEC's high national ratings is a really good indicator of what the demand will be."
There is often nothing easy about distribution negotiations, although analysts say it's possible ESPN already has some deals in place for the SEC channel. The channel could benefit in distribution by being associated with the Walt Disney Company, which owns ESPN, Bevilacqua said.
"The SEC brand would be subordinated to the ESPN brand, and there's a healthy rights fee that goes with that," he said. "The SEC wouldn't have to be on the front line of distribution battles that are sure to come with a network rollout like this."
The largest distributors in the country are Comcast (24.4 million subscribers), DirecTV (20.1 million), Time Warner (14.5 million), and DISH (14 million). Cox, Charter, AT&T and Verizon each have around 5 to 6 million subscribers.
Comcast can be seen in 39 states and every state in the SEC geographic footprint. Time Warner is in 29 states, including SEC states Alabama, Kentucky, Missouri, South Carolina, Tennessee and Texas.
Pac-12, Longhorn Network distribution struggles
The Pac-12, which created a national network and a series of regional networks last August, has deals with four of the top five distributors. DirecTV customers missed every Pac-12 football and basketball game shown on the Pac-12 networks this past season.
"We anticipated the possibility of it," Pac-12 Commissioner Larry Scott told reporters in March. "But I'm delighted with the number of distributors we have and the reaction I'm getting from fans who can see it. But I know it's frustrating for our fans, it's frustrating for us, and we won't stop working until we have everyone (showing) it."
The Longhorn Network has struggled to get distribution even in Texas. A major difference for the SEC channel: ESPN owns the rights to almost every SEC football game from 14 universities, not one or two football games from one university. Live programming that fans clamor for drives distribution.
"The SEC will come up against the same market forces as any program service is up against," Bevilacqua said. "You've got a louder drumbeat around the increasing cost of sports. But they'll have a whole lot more content power than the Longhorn Network."
The SEC channel will be led by Justin Connolly, who in February was named ESPN senior vice president of regional college networks. He also now oversees the Longhorn Network and will be based in Bristol, Conn.
Connolly has experience in distribution, having negotiated long-term affiliate deals in the past year with Comcast, Cox, Charter, Cablevision and AT&T. But he's also going to be in charge of scheduling and content acquisition at the Longhorn and SEC channels. Connolly started at ESPN in 2003 in the affiliate group after working in Disney's corporate finance group in Burbank, Calif.
What's the channel worth?
The great unanswered question from media reports so far: Exactly how much are this channel and the Texas A&M and Missouri additions worth to the SEC in the short term and in the future?
The SEC's new TV revenue could be worth $22.9 million per school in 2014-15, Chicago-based media rights firm Navigate Research estimated in January to USA Today Sports.
Navigate Research, which isn't part of the SEC talks, came up with $21.4 million per school from the new ESPN and CBS contracts that can be renegotiated due to expansion and $1.5 million per school from the SEC channel. The estimate was based on the SEC channel being 100-percent owned by the conference and with one primary channel.
CBSSports.com cited a television source today not directly affiliated with the deal as estimating the SEC's eventual television worth from ESPN and CBS at $400 million annually. That would be $28.6 million per school in TV revenue alone, not counting other payouts, including increased postseason football money.
SEC members averaged $20.4 million from their total conference payout in 2011-12, according to the league's nonprofit filing. The Big Ten, which started a conference TV network in 2007, paid out about $25 million to each member last year, according to published reports.
The Big Ten Network was profitable by its second year. Big Ten schools received about $7.2 million from the Big Ten Network last year, in addition to about $10 million per school from other TV networks.
"The SEC is noted for the loyalty and support from its fans, who are a passionate audience," Pilson said. "The conference initially pledged all of its video assets to ESPN, but now I think they see there's a lot of extra programming available that the only place where it can find a home is on a conference channel."