Wednesday, September 20, 2006

The NFL Network – The Anatomy of how to generate hundreds of millions of dollars

Ten years from now where will the National Football League be when it comes to television? The league is in the first year of a series of six year agreements with Fox, CBS, NBC and ESPN that will generate $3.7 billion annually for the league. Each NFL team on average can count on $106 million in revenue each year of the agreement. The current network agreements are limited to Sunday and Monday night games, the foundation for the vast majority of NFL games. Initially quietly tucked away were a series of late season Thursday and Saturday evening games. The NFL Network is now home to the games – and cable operators are not very happy.

The NFL Network was launched November 4, 2003, only eight months after all of the league's 32 team owners voted unanimously to approve its formation. The league invested $100 million to fund the network's operations.

NFL Films, which produces commercials, television programs, feature films, and documentaries on the NFL, is a key supplier of NFL Network's programming, with more than 4,000 hours of footage archived in their library. Thus, much of the network's highlights and recaps feature NFL Films' trademark style of slow motion game action, and sounds of the game and the talk on the sidelines.

Last fall after the NFL secured network television revenues collectively that are greater then the sum total NASCAR, NBA. MLB, NHL, the NCAA and the last two Olympic Games combined, the NFL understanding that they were dealing from a position of strength looked at a number of different options for the eight late season games the league hadn’t sold the rights for.

The league's decision to build the NFL Network with regular-season games comes nine months after it completed deals with NBC Universal Sports on a six-year, $3.6 billion deal to carry Sunday Night games and with ESPN on an eight-year, $8.8 billion contract to show ''Monday Night Football.'' In November 2004, CBS and Fox extended their Sunday deals for six years, with CBS paying $622 million annually and Fox paying $712 million. DirecTV extended its contract for $3.5 billion over five years.

''I never thought eight games would be so valuable,'' Jones, the owner of the Dallas Cowboys, said before his team defeated the Eagles, 21-20, in Philadelphia on Monday night last November.

''I get up in the middle of the night to watch international news, and then I turn to the NFL Network,'' Robert K. Kraft, the owner of the New England Patriots told The New York Times. ''I watch it all the time, and many real fans do the same.''

In November there was a great deal of speculation the NFL would either use the eight games as leverage to create a national cable sports network or sell the games to Comcast who would in turn put the games on OLN. OLN, which reaches 65 million homes, secured national cable rights for the National Hockey League.

''We hope our potential programming partner can help us get more exposure, even without putting games on the NFL Network,'' Jones said.

Kraft added, ''If we can have the new multisport platform, and the NFL Network continues to grow, that would be the ideal solution.''

For their part, both Comcast and Turner Broadcasting (TNT) made it clear to The New York Times (at least in November) they were very interested.

"'We would love to have the NFL,'' said Jeff Shell, the president of Comcast Programming. ''We're thrilled to still be talking.''

Greg Hughes, a Turner spokesman, said, ''At the right price, we're interested.''

Ten weeks later, on January 27, 2006 the NFL realized they weren’t going to receive what they believed was fair market value for the eight games and announced the NFL Network would host the games. At least for the short-term (six years) Comcast and Turner weren’t interested in investing hundreds of millions of dollars in helping the NFL move the league’s in-house network forward.

The NFL Network was a ‘fledging’ operation at Super Bowl XL, reaching 33 million homes. For a league that over the last two weeks established record ratings for the first two weeks of Monday Night Football on ESPN (in excess of nine million viewers each week), ESPN’s 95 million homes offer the NFL the cable partner it needs to deliver ratings that can justify billions of dollars. The NFL Network didn’t have the reach or the awareness to deliver significant ratings to the NFL when the league decided to make what at best was an ‘interesting’ decision.

''They'll be able to build the NFL Network into something far more significant,'' said Marc Ganis, a sports industry consultant in a New York Times report last January. ''On the 357 days when games are not being carried, N.F.L. programming will be going into people's homes.”

NFL owners for there part, where pleased a broadcast venture they had invested $100 million in start-up funds three years earlier was ready to make a dramatic step forward.

Dan Snyder, the Redskins' owner, who is on the league's broadcast committee, said by telephone, ''The games are ultimately so powerful that we could propel this into a major network.''

Robert K. Kraft, the owner of the Patriots and a third member of the committee, said by telephone, ''In some ways, I had hoped that we would be able to do a deal with Comcast.'' But, he added, ''we're into the development of our sport, and our network is 24 hours a day, 7 days a week, 365 days a year.''

Nearly eight months later, the NFL Network is nowhere near their self established goal of being in 65 million homes when the NFL Network offers their first regular season live broadcast on Thanksgiving Day, November 23 when the Denver Broncos travel to Kansas City to meet the Chiefs at Arrowhead Stadium. Key television markets: Los Angeles, New York, Buffalo and Cleveland – markets with Time Warner and Cablevision as their key cable providers believe the NFL is holding a gun to their heads in attempting to force the cable providers to offer the NFL Network.

Time Warner, which until taking over systems from Adelphia Communications Corp. never carried the NFL Network, will be dropping the league-sponsored channel Friday from several markets.

Time Warner made it clear to Los Angeles Business their decision was based largely on cost, the NFL demanding a king’s ransom for the right to offer the NFL Network to their subscribers. They say the NFL Network wants to charge Time Warner $137 million annually to carry the network -- a 250 percent increase from what Adelphia had been paying. That translates to a per subscriber cost increase of 80 cents to $1 per month, officials say.

"The last thing we want to do is to come into a new community and drop things, but we have no choice," said Keith Cocozza, Time Warner spokesman.

The NFL announced at the start of training camp, they had collected a war chest in excess of $100 million, money they fully intend to use to battle any cable provider who wasn’t prepared to pay top dollar for a network that offers eight live NFL games a year.

The NFL Network offers replays of games, live coverage of team press conferences, a nightly NFL magazine show, focused Super Bowl coverage and a handful of “B” level college football bowl games. The only real hook beyond diehard football fans are the eight late season games that can’t be seen unless you have access to the NFL Network.

“People will go nuts on Thanksgiving when there's a game on and they can't watch it,” says Seth Palansky of the NFL Network. Forcing its way into another 25 million homes this season will bring the NFL Network two-thirds of the way toward its goal of matching ESPN's distribution of 91 million homes.

“The full weight of the NFL marketing machine will be used,” vows NFL Network spokesman Seth Palansky in an oft repeated line.

Can the NFL pull it off? Don't bet against this country’s most powerful and popular league, says cable TV expert Jimmy Schaeffler, a senior analyst with the Carmel Group consultancy. “They don't have leverage with individual operators, but they have leverage where it counts the most: with consumers. Who else gets in so many homes in less than three years? They're a one-of-kind entity.”

“There is no more powerful content on television,” says John Rash, senior VP for media-buying agency Campbell Mithun. “The NFL is well beyond sports: It is a national phenomenon, and it can drive distribution.”

One of misnomers the NFL isn’t reminding fans, the two teams’ home markets that appear in those late season NFL games will have the games televised by over-the-air television carriers (subject to NFL blackout rules) in each market. Clearly the NFL Network has set their sites on Time Warner, the second biggest cable provider, and New York’s Cablevision.

“We think it's asinine that Time Warner (the nation's No. 2 cable provider) carries 12 shopping channels and 50 other channels you don't want — but can't find room for one dedicated to the most popular sport in this country,” Palansky says. “We're replacing the kid gloves with bare knuckles.”

One ad aimed at Time Warner says, “Don't let Time Warner ruin your football season. You'll miss NFL games if you don't call and demand NFL Network now.” Another targeting Cablevision, a provider in metro New York, warns, “Don't let Cablevision shut you out.” The ad lists the channel's games and a toll-free number for NFL Network.

Time Warner and the NFL Network agreed had an uneasy ‘truce’ that ended Friday. Gone from homes in key NFL markets: Los Angeles, Cleveland and Buffalo was the NFL Network, with no negotiations (peace talks) scheduled.

NFL Network spokesman Seth Palansky told The Cleveland Plain Dealer Monday he isn't optimistic the dispute with Time Warner will be resolved soon. "We'll never have a deal with Time Warner under their current demands," Palansky says. He says the NFL Network won't agree to Time Warner's desire to offer the channel to local subscribers as part of a separate sports package - for an added monthly fee - rather than include it in Time Warner's basic subscription service. "That's totally unacceptable to us," Palansky says

“To suggest that anybody’s season will be ruined for missing eight games is ludicrous,” said Fred Dressler, the executive vice president of Time Warner Cable, which is feuding with the NFL Network.

The NFL Network was in 33 million homes on January 27 when the league announced the eight games where heading to the NFL Network. Today, they’ve managed to find their way into eight million additional homes, largely a result of agreements with DirecTV and Dish Network. DirecTV offers NFL games on their season ticket package. The difference between being in 41 million homes and 65 million homes is daunting, especially when you consider the NFL Network remains on the outside looking in, in key television markets.

When you ‘add’ it up, it becomes apparent immediately how much revenue the NFL believes they can generate from a handful of games on the NFL Network. The NFL charged cable operators 20 cents per subscriber before the NFL believed it was in their best interests to keep the games’ in-house. According to many media reports (The New York Times, Los Angeles Business, The Cleveland Plain Dealers among others), the league is now demanding anywhere between 80 cents and a dollar.

Pat Bowlen, the chairman of the league's broadcast committee and the owner of the Denver Broncos offered a very different understanding of how he believed the NFL would handle any rights fee increase early last February when he announced the NFL Network was ready to move forward with live NFL games on the leagues owned managed network.
''The question is whether 100 percent of our subscribers should have to pay for the interests of a smaller minority,'' Bowlen told The New York Times.

Surprisingly, Bowlen said, ''the last thing on my mind is raising the fees.''

Needless to say the NFL has done a complete about face in. The New York Times in a report Tuesday, using a 70 cent per person carrier charge fee from the NFL to cable providers determined that the NFL Network would amass $756 million in annual revenues if it were fully distributed to 90 million cable homes. The 90 million distribution figure is the NFL Network’s long-term goal; the 65 million subscriber goal is where the NFL Networks wants to be at by November 23.

Dressler, of Time Warner, said, “The NFL Network keeps the pressure on because it believes we will ultimately end up charging all our customers to satisfy the few who want these games.”

It remains to be seen if Time Warner, Cablevision and other key cable providers will give in to the demands the NFL Network is making for this years game. The NFL reportedly will consider offering the Thursday/Saturday night eight game package in two years. The eight game package isn’t about today, it’s much more an opportunity about where the NFL Network wants to be in six years time, the NFL Network is clearly thinking long-term.

“Long-term strategic, it's very smart on their part,” says Dick Ebersol, chairman of sports and Olympics for NBC Universal, which this year begins spending $600 million annually for a Sunday-night football package it hopes will revitalize its slumping primetime. “Who knows where our world will be in six years? Will there be four aggressive network bidders, and if not, why not find out what kind of business you can develop on your own as a potential home for more than just those eight games.”

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The New York Times, Broadcasting & Cable, Los Angeles Business and The Cleveland Plain Dealer