Tuesday, November 21, 2006

Countdown to the NFL Network’s Real Kickoff II

Thursday evening one of the grandest media experiment undertaken by a major North American sports league finally will begin to unfold. Launched November 4, 2003, only eight months after all of the league's 32 team owners voted unanimously to approve its formation, the NFL Network finally moves to that next level, where no league managed television network has ever gone before, televising game on its own network, turning away an estimated $300 to $500 million in network revenues for the right to produce and televise eight late season football games. Three short years ago NFL owners agreed to collectively invest $100 million in the NFL Network, hoping to turn their venture into a great deal more.

The cable operators who couldn’t reach agreements with the NFL Network (representing close to 60 percent of the marketplace) will indeed be on the outside looking in Thursday. Last month the NFL Network filed a lawsuit in New York State Supreme Court demanding that Comcast change the way it planned to offer the network's eight games to subscribers Comcast acquired from its purchase earlier this year, with Time Warner Cable, of Adelphia Communications Corp. In that deal, Comcast picked up a number of Adelphia and Time Warner properties.

"The NFL is currently embroiled in a public battle with the cable industry and other distributors in which the NFL is trying to force cable companies to charge many consumers for programming they don't want," Comcast executive vice president David Cohen said in a statement. "Sports-programming fees are out of control in general, and the NFL programming is very expensive."

According to a report in The Philadelphia Inquirer, the NFL reportedly wants cable companies to pay 70 cents per subscriber per month for the additional games, which would generate close to $100 million for the NFL, or $800 million annually for the league, an additional $25 million per team.

Comcast charges $5 more per month for the digital sports package. Sports tiers have small audiences, and the NFL Network wanted broader distribution. Unable to reach an agreement with Comcast, the league filed suit. The NFL Network offers a great deal more than just the eight late season games (a great package of highlights, NFL Replay replaying four of the best games each week, unparallel Super Bowl coverage, press conferences and college bowl games) but at the end of the day, Comcast may be correct, it’s a service created by the NFL Network for football fans, not your everyday consumer or sports fan.

"It's the price of a movie ticket," NFL Network spokesman Seth Palansky, comparing the yearly cost of the 70-cent-per-month fee per subscriber. "You can go see You, Me and Dupree, or get all I just described for you for a year."

The battle with Comcast has far greater implications then access to The NFL Network. In an ever increasing 500 channel cable digital universe the outcome of the lawsuit may determine how other fledging cable networks attempt to deal with cable operators and where their placed by cable operators.

At the same time as The Philadelphia Inquirer pointed out, Marc Ganis, a Chicago sports consultant believes Comcast may have opened the door to regulation that would require it to let customers pay for only the shows they watch, rather than big bundles. The cable industry has long opposed that.

"In the game of chicken that is going on right now," he said, "the cable industry has much more to lose than the NFL."

The NFL Network’s Executive Vice-President last week suggested the NFL Network is happy enough to be where they are in terms of the networks reach (this despite statements made four months ago suggesting the NFL Network believed they would be in 65 million homes by this week).

“We have to date just over 40 million homes that will be receiving the games as of next week, which is in my opinion a very good place to be. We think that we'll grow from there. We think that this will, in Comcast, who has us on a very highly penetrated digital tier, this will be a product that will be very beneficial for them to get more upgrades to digital television and digital programming which is ultimately in everyone's best interests.”

”So we are pretty pleased where we are on our distribution front.” Bornstein said.

If you read Bornstein’s comments you might never believe the NFL is suing Comcast because of where they’ve been placed on the digital tier by Comcast. How and why would the NFL be suing a business and a concept they also claim to believe in.

The battle isn’t only over the future of digital cable, but over the higher fees cable subscribers are being forced to pay providers.

"The NFL is asking a very stiff price when you consider the network is currently unrated," Time Warner Cable spokesman Mark Harrad, whose company boasts 13.5 million subscribers in 33 states told The Wall Street Journal. He adds that the NFL network would jump to the fourth-priciest channel that Time Warner carries, despite airing its marquee programming only six weeks a year. Walt Disney Co.'s ESPN is the most expensive cable network, charging operators in the neighborhood of $3 a subscriber each month. (And ESPN offers 17 weeks of NFL games, not eight games).

Last week the NFL Network appeared before a hearing of the Senate Judiciary Committee. Indeed if the cable operators may have open Pandora’s Box after the NFL filed a lawsuit in relationship where networks are placed in the growing digital universe the NFL may have created their own Congressional challenges.

"We're intrigued, to put it mildly, what the NFL has in mind," Sen. Arlen Specter, R-Pa., said.

Indeed the battle is over rates. Consider the options sports fans have. ESPN offers Monday Night Football, thousands of Major League Baseball, National Basketball Association, and NCAA football and basketball games – all for $3 per month. The NFL Network can say whatever they’d like (and yours truly happily purchases the NFL Network as part of Rogers (Canada) Cable’s digital sports package) but at the end of the day beyond the eight games the NFL Network is no more than niche programming. At 70 cents a month, compared to the value ESPN offers sports fans the difference is astounding.

NFL executive vice president and general counsel Jeffrey Pash believes the NFL should be given a pass because the league is the only sports league to make most of their teams games (except for the eight games on the NFL Network and the ESPN Monday Night Football package) available to over-the-air carriers. That indeed may be true, but the $3.75 billion dollars the NFL generates annually from their broadcast agreements exceeds the collective agreements MLB, the NBA, NASCAR, the NCAA, the last two Olympics and the NHL produce.

"There's been a mass migration away from broadcast television with one exception -- the NFL -- and we still have every game on broadcast television," Pash said. The agreements the NFL has with both ESPN and the NFL Network dictate both the packages are made available on over-the-air carriers in the home markets of the competing teams.

"For the next six years we've got contracts with the broadcast networks," Pash said at the Senate hearings. "We've got a contract with ESPN that goes out eight, so it's not like we're going to do this, this week, and next week we're going to do three times as much. This is where we are for the foreseeable future. We'll see if it works or not. We'll see if there's consumer acceptance. We'll see if there's consumer response. If these games don't get wide distribution, if they don't get good ratings, ratings commensurate with what our other games get, if they don't get strong advertiser support, we'll have to look at an alternative."

Bornstein knows how to build a sports network from the ground up, having been a part of ESPN when the then fledging cable network first acquired NFL rights.

“I'm always concerned when a fan doesn't get what he wants, but my position is that we can give the fans what they want.”

“It really is the same question that was asked to me 19 years ago when ESPN was awarded the first NFL games. You're not as broadly distributed as terrestrial networks. Well, the answer is, there's very little difference today in ESPN having the games or terrestrial network. There is still a slight difference and we think that we, along with our policy of putting the games over the air of the teams involved in the game are satisfying the fans request.”

“This isn't about eight games for us. This is about 365 days a year of what we think is the most popular programming, the most popular cultural impactful programming that we can do. And we are spending a lot of time, effort and resources putting on 365 days a year of good programming.”

“And when people sample the NFL Network, they like the NFL Network and what we are doing here, not dissimilar to what ESPN and CNN did 25 years ago, we are building a platform that will be responsive to the fans' long term interest. And when you want NFL information, you go here to be entertained and get it. And it's the same thing CNN did and they got the same criticism; you're only in 5 million homes and if anything's important, I'm going to turn over to network news.”

“The same BS we got at ESPN, that all the sports you ever wanted were on Saturday and Sunday afternoons. You don't need any information Monday through Friday and all you care about is your local teams. So if you want local teams, the local TV station is going to do it; and we proved that a fallacy.”

“What we are saying to you is, this is the perfect I think the perfect 24/7 sport because of its importance in this country, and we're excited about presenting everything we do, not just these eight games,” Bornstein related.

Bornstein carefully tip-toed around the question of if the eight games the NFL Network will televise represent the start of something much bigger – moving more if not all of their games to the league owned cable network.

“We serve as a complement to the networks. We are committed to having a broad reach and having all of our games in the local area. We have been very successful in not tinkering with that recipe over the last four years.”
”My anticipation is that we will grow, we will grow along with the NFL, but we are very happy with our three broadcast packages, our cable packages and our relationship with DIRECT,” Bornstein said.

Still you have to wonder despite Bornstein’s comments, will the NFL Network at the least offer a full slate (17 weeks) of NFL football? Remember both when the NFL first offered games on cable TV, TNT and ESPN shared a seasons worth of games.

“I challenge your premise. This, to me, again, is not about eight football games. This is about nearly 200 football games.”
“You may be aware that we now for the first time in our history have the ability to take the best games on Sunday, cut them down into 60 , 90 minute versions, add post game sound and put them on the air and call that NFL Replay. That has been very well received. We have the ability to offer this VOD product I mentioned.”
“We look at this business the only question I had three years ago when I was tapped by Paul Tagliabue to launch this network, the only question I had was, was it a six month networks, or was it a 12 month network. We proved very quickly to my satisfaction and ultimately to the ownership of the NFL's satisfaction and most importantly to the consumers' satisfaction, that we've got a 12 month sport here. I don't know whether it's the Combine, I don't know whether it's the Draft that out-rates post season games of other sports, I don't know if it's the free agency or the trades, but we have a sport that people follow 12 months a year, and that's what we are offering our distributors?” Bornstein mentioned.

There is no doubt that the most valuable sports property is NFL football. In the 500 channel cable universe cable carriers and the NFL are fighting over National League Football games represent one of the few sure things, a guaranteed ratings generator. ESPN’s viewership numbers for Monday Night Football have provided the self proclaimed World Wide Sports Leader with ratings the Disney gang (ESPN’s parent company) could only dream of. However, ESPN is in nearly 100 million homes, the NFL Network 41 million homes. Later this week the industry will have an opportunity to compare the numbers from ESPN’s Monday Night Football and The NFL Network’s first Thursday night games. It may only be two games, one week, but those two ratings numbers will send a strong message throughout the sports industry.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The Philadelphia Inquirer and The Wall Street Journal.

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