Football
The Big Ten Network Unspun
By John PorentasThere's a show that airs on cable TV, on The Discovery Channel actually, that's called "Dirty Jobs".
The show deals with those yucky jobs that nobody wants to do. You know, like cleaning out septic tanks or any number of other noxious tasks that have to be done by somebody...somebody else. That's what writing this column became for me this week.
To begin, I'm not a big TV fan. I used to be, but lately my viewing has been reduced to movies, sports events, The History Channel, The Discovery Channel, all those nerdy channels that don't carry Reality TV or American Idol. I just have a hard time relating to current popular programming as entertainment, thus my interest in TV has diminished markedly over the years.
I was blissful in my ignorance really, but now along comes the Big Ten Network and suddenly I am required to take a crash course in how TV works as a business to figure out what all the hubbub is about relative to the Big Ten Network . It felt like a dirty job when I started the task. It still feels that way.
This column has been begun about seven different times. I threw away six of the versions. They were boring and not very informative, just a list of issues.
The problem in writing about the Big Ten network is that you can't really get many straight answers. The parties involved, the Big Ten Network and the cable operators, have so much at stake right now that both sides are desperately waging an all-out war to have their way relative to the network and how it is distributed. Talk to one side and you get passionate, compelling arguments why things should be done their way. Talk to the other side, and you get equally compelling arguments
It was confusing.
It was making my head spin. That's when it hit me.
Both sides were spinning faster than a well-punted football. I was sitting here thinking about my spinning head when it occurred to me that that was exactly the problem and exactly what somebody had to write about. Both sides were spinning so much that the angular momentum got transferred to my cranium whenever I listened too long to one side or the other. The spin made me feel like I just got off the Tilt-o-Whirl at the county fair. Subjecting myself to it was making me ill.
Chronicling all those spun arguments was in fact a dirty job, one that made you want to throw up in your mouth if you did it too long, just like one too many rides on the old Tilt-o-Whirl. Both the network and the cable operators were spinning faster than a well-punted football. That's when it occurred to me that a lot of other people were probably having trouble with all that spin, and that a constructive thing to do might be to attempt to unspin what is being said, to take a cold, objective view of the arguments on either side and unspin them one at a time.
That's what I'm going to attempt to do. I've spent the lions share of a week talking to Time Warner in Columbus, corresponding with their spokesperson, and reading about the issues. At the Big Ten Media Days in Chicago we were lucky enough to have almost 20 minutes all alone with BTN Mark Silverman to ask questions and get his side of the story.
Hit "stop" on your browser's toolbar to pause the spinning footballs. Spin I - This is about the fans.
Here's something you already knew. The whole issue is money.
That seems like a pretty obvious and unspinnable proposition. It hasn't worked out that way.
Big Ten Commissioner Jim Delany said at the Big Ten meetings that the whole issue is really about the fans and giving them what they want and what they deserve. We think that is a spin-job.
We agree that this is about the fans but only to the extent that they comprise an audience, an audience that can be sold. It is also about the fans to the extent that they can be used to leverage cable operators to do what the network wants.
The Big Ten Network has attempted to capitalize on the passion of some fans for football (specifically football, more on that later) to get them to badger cable operators to give the BTN what it wants. On the front page of their web side at www.bigtennetwork.com you can enter your zip code, fill in a few blanks and they will automatically petition your cable provider (on your behalf) to carry the network. They're hoping to deluge operators with requests to bludgeon them into doing it their way. To the extent that they need to you get their way, yep, it's about the fans. After that though, it's about the money. We'll get to that in a later spin.
Has the "rally the fans" tactic worked? According to Elizabeth Conlisk, Vice President for Communications for the Big Ten Network, it has. Conlisk told us last week that over 100,000 people have entered their zip code to make the plea. That, according to Conlisk and also according to Silverman, is a big number. But is it?
The idea that there has been an overwhelming public outcry is at best a mini-spin, at least to date. We're talking about an eight-state area that includes Ohio, Michigan, Minnesota, Illinois, Indiana, Wisconsin, Minnesota and Iowa. Those eight states have a combined population of just over 63 million people. The percentage of people who had taken the time to put in a zip code amounts to just over one tenth of one per cent of that population. Granted, there is still time to go, and there are surely others who have contacted the cable companies without using the web site, but even if you assume that the web site accounts for just 10 per cent of the total people who have contacted cable company, that's still just one per cent of the people living in those states.
We think the proposition that there has been an overwhelming outcry to the cable companies from the public is at best a mini-spin, at least to date. A one per cent response is not exactly overwhelming. That number may well change as football season draws nearer, but as of right now, 100,000 people is not an impressive number. The people who have responded are the absolute football fanatics who simply MUST have their games. They do exist, we know that, but we believe they represent a vocal minority. There are a whole lot of people out there who haven't bothered. Lets just say this. A total of something over 100,000 people have made some noise. The remaining 62,900,000 haven't said a word.
Spin II - The other side is trying to gouge you while we're just trying to get what we deserve.
Lets be clear about one thing. The cable companies are all about profit. Running a cable company is like having a license to print money. Lets take for example Time Warner in Columbus.
Time Warner has just over 600,000 residential subscribers in central Ohio. We would conservatively estimate the average cable bill to be around $50 per month. That amounts to 30 million dollars per month in sales...just in central Ohio. That's 360 million, or one third of a billion, per year. It's not exactly chump change. Sure, there's investment in fiber, programming to buy, etc. It's still a lot of money, and doesn't account for their business class customers or revenue from the sale of advertising. Operating a cable system is a great business that makes oodles and oodles of money.
The cable companies, in this instance Time Warner, don't, and shouldn't, apologize for the fact that they make money. They are, after all, a business whose purpose it is to make a profit for their stockholders. They assumed risks early on when cable was in its infancy, and now they are reaping the benefits. It's the way things work in America. They are simply doing a good job of it. That is their mission. It's what they do. They don't hide that.
The Big Ten Network has the same mission. Their goal is to make money for their stockholders. That turns out to be the Big Ten conference (51 per cent) and partner Fox Broadcasting (49 per cent). Both sides have the goal of making as much money as possible. If one side tells you the other side is greedy, it's nothing but spin. Both sides are trying to get all they can. If the cable companies label the Big Ten network as a "money grab" ignore them. Of course it is. It's their mission, just like it's the mission of the cable companies to make money.
We've posed this spin as a question rather than a statement because in fact that question is the core of the entire issue that exists between the network and cable operators, and both sides have their spin on the question.
The Big Ten Network says its programming is comparable to that of the major networks and in fact is important to the people who live in the eight-state Big Ten area. As such, they argue, the Big Ten Network deserves to be made available to all cable customers. The network argues that for that to happen, it should be carried as part of the extended basic cable package, the 75-channel package that most cable companies sell for around $50 per month. That way everybody can see their great network.
If that happens, the network will be entitled to compensation for every home in which cable operators provide service. The Big Ten wants $1.10 per month per home year-round. Additionally, the network wants 10 cents for every home with cable service in America outside the eight-state region. An article that a appeared in the June 23 issue of the New York Times put the value of that arrangement at 244 million dollars per year.
Silverman has said publicly that the 1.10 number is negotiable, but that the network will insist on being carried on expanded cable. We don't blame him. That arrangement would guarantee the network tremendous cash flow whether anyone is watching or not. Money comes in simply because the network exists as a selection on your cable box. It doesn't matter if anyone is watching, the money still comes in simply because it is a selection. Sweet deal. Too sweet say the cable operators.
The cable operators say that the Big Ten's programming does not warrant inclusion in the extended basic package. They view the network as niche programming with very narrow appeal and want to make it available as part of a sports tier. A sports tier is a grouping of sports networks that is purchased by consumers as an add-on to their cable service. The Time Warner Sports Tier in Columbus currently includes NBATV, The Tennis Channel, CSTV, Fuel, Fox Sports Atlantic, Fox Sports Central and Fox Sports Pacific. Time Warner would add the Big Ten Network to that group and consumers could opt in for a total cost of 4.95 per month. Under those circumstances the Big Ten Network would be compensated based on the number of subscribers to the sports tier, not the total number of cable customers of the operator.
Complicating the question of the value of the Big Ten Network is the fact that the Big Ten Conference has a contract with ABC and ESPN for football broadcast rights. That deal is a ten-year, one billion (That's right, one billion) dollar deal.
The problem the Big Ten Network faces is that they will not have the first choice of football games. Three weeks out of the season they will have the second choice behind ABC, for another three weeks they will have the third choice behind ABC and ESPN, and for six weeks they will have the fourth choice behind ABC, ESPN and ESPN2.
Spin Alert The cable companies say the selection of Big Ten games on the Big Ten network is second or third rate. The marquee games will go to ABC and ESPN and the Big Ten Network for the most part just gets what's left over. The Big Ten counters with a big "So what!' They argue that the games will be watched simply because they are Big Ten games and that the cable companies should shut up, put them on extended basic, and start sending checks.
The problem that we see for the Big Ten Network in this debate is the existence of the contract with ABC and ESPN, and we don't mean the fact that those networks pick games ahead of the Big Ten Network. The price tag of that contract sets the value of the best games in the conference at 100 million per year. That is a real world market price. The Big Ten is looking for 244 million for what's left PLUS their basketball programming, women's sports programming, olympic sports programming and feature presentation programming such as the 11 coaches shows, classic games, etc.
So are the "leftover" football games combined with the basketball games and other Big Ten Network programming worth 144 million more than the marquee football games? The cable companies say no, the Big Ten Network says yes, and that's the problem The cable operators respond with "Hey, it's not really a problem. If your network is so all fired hot stuff, lets put it on the sports tier and we'll let the market decide." The Big Ten Network says it simply won't accept that proposition, and that is without a doubt the biggest impasse.
The cable companies argue that people who are not interested in the network should not have to pay for it, and by extension they should not have to pay the Big Ten Network for providing a service some people simply don't want. In Ohio, the Big Ten Network probably warrants inclusion on extended basic in the Columbus market, but what about Cincinnati, Warren, Lima, Stuebenville, Archibold, Lebanon, all the other Ohio towns? If you are a Buckeye fan you may have problems with this next sentence, but I am absolutely sure my 90-year old mother could give a darn about the Big Ten Network and will never watch it, yet the Big Ten wants to collect 1.10 a month for her simply because she has cable.
The value issue over "leftover football programming" is a hot debate. The value of the rest of the Big Ten Network programming is a little more straight forward, at least in Ohio.
Ohio is a football state, period. Ohio State football is the only thing of real economic value in the Big Ten Network programming within the state of Ohio for cable operators. The network will provide plenty of men's basketball, but the sad truth is that at least in Ohio, basketball is under appreciated. We know, because we see the page views on our coverage of OSU sports.
In a year in which the Buckeyes won a Big Ten regular-season championship, won a Big Ten tournament championship, played in the national championship game, and had the first overall pick in the NBA draft, there was consistently more interest in the spring football game than there was in OSU basketball. It's sad, but it's true. The interest in basketball does pick up at tournament time, but those games are on CBS and will not be on the Big Ten Network. Basketball is probably of value if you are talking about Indiana, Purdue, Illinois, Wisconsin and Michigan State. At the other six conference schools it is a non-event.
As for Olympic and women's sports, we at the-Ozone love the concept and applaud it, but the cold, harsh truth is that that programming is of little or no economic value. Remember that part about the cable operators operating as a business? It's their job, and they are likely to see that programming for what it is, fluff.
For the record, here is what some other networks charge cable operators.
ESPN - 2.91
YES - 2.15
NFL Network - .75
NBA TV - .35
Disney Channel - .79
TNT - .89
USA - .49
CNN - .44
Nickelodeon - .41
The Big Ten Network has worked hard at leveraging the cable operators. Their "contact your cable operator" campaign is aimed at coercing the cable companies into accepting the network's demands. Additionally, they have already made a deal with Direct TV to carry the network. The cable companies run the risk of losing subscribers to Direct TV over the Big Ten Network issue. There is a lot of pressure on the cable companies, but the cable companies have a bigger picture in mind.
The Big Ten Network is just the tip of the iceberg as far as cable operators go. If the Big Ten Network is the cash cow it hopes to be, an SEC Network, ACC Network, Big 12 Network, Pac 10 Network and Big East Network won't be far behind. The SEC is already talking about a network and you can be sure they are watching the Big Ten situation very closely. Silverman poo-poos that notion, saying those are unfounded worries since no other conference could match the drawing power of the Big Ten. Hopefully, he will never utter that argument aloud south of the Mason-Dixon line or some SEC fan will have his scalp faster than you can say "southern speed".
Sports programming is expensive. Cable operators claim that sports programming represents 50 per cent of their programming costs yet just 10 per cent of their ratings. What they fear is a runaway situation not just with the Big Ten, but with all the other conferences as well. Their incentive to hold fast is large, and historically, they have in fact held out. When the YES Network (New York Yankees) made demands cable operators found objectionable they did in fact refuse to carry the network and and it was off cable in 2003.
The Big Ten and Big Ten Network have incentives too. The conference will get a 50 million dollar licensing fee annually, assuming that the cash flow is there to fund it. Additionally, the conference will have a 51 per cent share of the profits. That represents a huge windfall for each of the schools in the conference. Additionally, Jim Delany will have a lot of answering to do if the network is not on the air when the season begins. The truth is that all the games were available on TV last year. If they aren't this year, it will be because somebody decided to try and make a change in how things work. Clearly, that wasn't the cable operators. Delany and company will have a lot of hot fans breathing down their necks if the games aren't on the air.
Nobody seems to want to talk about the advertising revenue.
There will most definitely be ad revenue generated by the programming, particularly during football season. Big Ten Media Relations Manager Mike Vest told us that the network is willing to give the cable operators an inventory of commercials to sell in order to offset their costs. Additionally, the cable operators stand to sell more HD packages since 35 of their planned 38 football broadcasts will be in HD.
We wondered if the value of the ads would in fact offset the cost of the programming Here's what we found out.
The Columbus market is probably one of the strongest overall markets for Big Ten football. The ratings for OSU football are astronomical, right up there with American Idol. If you could make money anywhere on Big Ten football, it's in Columbus.
There are about 12 local ads per game in an average football game and the network usually has about four. ABC affiliate WSYX in Columbus sells those local ads for anywhere from 18,000 dollars per 30 second spot on the low end to as much as 50,000 dollars at the high end for the Michigan game. A low-profile game in a bad time slot sells for about 280,000 dollars overall. A game like the Michigan brings nearly 500,000 dollars. That's for broadcast. Cable rates run about half of that.
Assuming that the Big Ten Network were to give the local cable company (in this case Time Warner) all the ads in a game to sell, something not very likely to happen, their value would be in the realm of 150,000 per game for perhaps four games, or 600,000. That's a little less than one month's subscription fees that the network is talking about in the Columbus market. There are some opportunities in basketball and other programming, but nothing that would approach the 660,000 per month year round the network wants.
So will the Big Ten Network be on for the Youngstown State game?
Your guess is as good as ours. Somebody is going to have to give on the issue of extended basic vs. a sports tier. If that doesn't happen, you won't see the network.
Each side has great incentive to hold out, and great incentive to negotiate and get things done. The network is counting on public pressure and the threat of losing subscribers to Direct TV to make cable operators malleable. The cable operators meanwhile see this as the place where they must draw a line in the sand or be stampeded by not only the Big Ten but the other conferences as well.
It's a game of chicken being played by a couple of heavyweights really. Rationally, we think the cable operators have the stronger position. They stand to perhaps lose some business, but they won't be out of business. If the network can't make cable deals, they may be a thing of the past sooner rather than later.
What do I do to see games if its not on cable?
You have a couple of options. Subscribe to Direct TV is one, but you could also go to a sports bar or go to somebody's house who has Direct TV. After all, we're not talking about a full season schedule. We're talking at most four OSU games. That means that eight will be televised on cable either by ABC or ESPN.
The chances are that even if the network doesn't get on this year, things will be worked out one way or another by the 2008 season. That's what happened with YES. People come to their senses when they start dealing with the reality of losing money. Thats when they start ignoring their own spin and get down to brass tacks. At that point they swallow their pride, roll up their sleeves, and make a deal that maybe isn't perfect for them, but at least keeps them in business and keeps the fans happy.
It's a dirty job, but somebody has got to do it.
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