Thursday, June 28, 2007

David Stern works his magic once again – inside the NBA gigantic TV deal

With the final piece of the National Basketball Association season to be put in place tonight with the league’s annual player draft, NBA Commissioner David Stern as he has done since he became NBA commissioner in 1984 delivered a new rights agreements again raising the revenues of the NBA. The key to the agreements which signify a significant increase in revenues for the NBA – Stern selling both ESPN/ABC and Turner on the big picture, where the industry is going and how the NBA and their media partners are going to a part of that move forward.

According to Mediaweek: the NBA has agreed to a new eight-year, $7.4 billion television rights agreement with ESPN/ABC and Turner Broadcasting System, with the amount of television coverage consistent with the current agreement, but giving all the TV rightsholders new, expansive digital rights.

Sources familiar with the negotiations told Mediaweek the NBA will receive a total of $930 million annually, up from the $766 million it currently receives. In the current deal, which expires after the upcoming 2007-08 season, ESPN/ABC pays $400 million annually, while Turner pays $366 million. The new agreement represents an increase of more than 20 percent – dramatic given the state of the television industry.

The $930 million total also includes a fee from NBA TV, the network owned by the league and in which Turner owns a small portion.

Under the terms of the new deal, according to Mediaweek ESPN gains the rights to air NBA content across 17 platforms and also covers all new media platforms that ESPN creates or enters into partnerships with through 2016.

That includes distributing content on ESPN MobileTV, ESPNU, ESPN podcasts, ESPN Radio, ESPN.com, ESPN360, ESPN International, and ESPN Deportes, in addition to ABC, ESPN, ESPN2, ESPN Classic, and the networks’ respective high definition channels.

ESPN will have the rights to stream not only highlights and shoulder NBA programming, but also NBA games on a live, delayed and on-demand basis across all of its platforms. The ESPN agreement falls into line with similar recent sports properties rights agreements ESPN has signed. What has become a hallmark of ESPN content agreements they give ESPN the right to use that content on all of their various media platforms.

Turner/TNT according to Mediaweek gets the rights to deliver NBA content across multiple Turner and Time Warner platforms, including NBA games on a live, delayed and on-demand basis. Turner also gets exclusive broadband and other content, including highlights and studio shows for distribution on its digital platforms.

“We have an extraordinary partnership with both companies. At the end of these deals, we'll have been in business with them for an extraordinarily long period of time. We have very much profited in the growth of our game and the quality of our telecast during this last deal that we're concluding next year, and we expect enormous growth in the future nine years that are now covered by these deals.

“The broadcasting landscape in terms of these will look very much the same with respect to what appears on the networks and our scheduling, and our releases will deal with that. And the contracts that we have entered into provide for an additional robust grant of digital rights to enhance the experience of our fans in ways that ESPN, ABC and TNT have done to some small degree with our properties, but will do to a much greater degree and to which they bring enormous experience based on their expansion and utilization of technology for other properties.

“So we see this as an extraordinary affirmation of the value of our programming, the state of our game, so that the most important experienced and growing and digitally adept media companies in the world have expressed this degree of confidence in our players and in our game.” Stern commented.

And as they made clear – both Turner and ESPN couldn’t be happier they’ve secured long-term agreements with the NBA.

“It's been a priority of our company to extend and expand our partnership with the league and required the dedication and teamwork of a number of my colleagues at Turner who helped make this deal possible. And while I can't thank everyone, I'd like to acknowledge Phil Kent, the chairman and CEO of Turner Broadcasting; Mark Lazarus, the president of Turner Entertainment and Jim McCaffrey, the executive vice president of operations and strategy for all of their support.

“We also look forward to once again collaborating with our ABC, ESPN, our partners to help further promote the NBA.

“This is truly a landmark television interactive and marketing partnership which extends Turner's successful 23-year affiliation with the NBA for next nine years and hopefully the Commissioner and I will both be around to negotiate this next deal.

“From our exclusive Thursday night regular season doubleheader to All-Star Weekend to our postseason coverage, the NBA continues to be one of the foundations for Turner Sports and for TNT. This long-term partnership exemplifies our commitment to the quality of sports programming that matters to our audience, advertisers and cable operators. This partnership goes to the strength of our company as we partner with the NBA to deliver programming and content on a variety of branded platforms. The desire for sports content has not changed over the years but how fans consume it has. Now more than ever, viewers have sports content and information at their fingertips due to the growth of digital platforms, such as wireless and broadband.

“Over the last few years the media landscape has evolved, and the real opportunity for media companies is how to reach and surround consumers across many touch points in every day life. The way sports has changed the television business, all these digital platforms will have significant impact on the sport marketplace and why this agreement will have even greater significance as we move forward.

“Above all, I think this endeavor speaks volumes about what we have accomplished together and about the trust and respect that exist between Turner and the NBA.” Turner President David Levy announced.

“This deal is a major step forward in our burgeoning relationship with the NBA. We've worked together with the NBA and their staff. Really, our interests are aligned if you think about it. We are interested in serving fans; great NBA product globally as is the NBA and our growing international businesses led by Russell Wolff are going to be primary beneficiaries of this deal, as well as this deal embracing our digital future which we'll go into together with the NBA.

“It's really a very extensive package that we have negotiated here. It's really setting a -- it's really a prototype deal for sports media deals going forward, and I'm proud that we were able to achieve that in partnership with the NBA.

“It fuels over 17 ESPN platforms which is detailed in our press release and really understates it because it counts ESPN International as one, and anyone who knows our business know that is our growing business throughout the world is certainly not one entity; 17 is a bit of an understatement.

“I'm of course pleased with the eight-year commitment. We are in this for the long term with the NBA. Sports is cyclical; they go up and down; you get short series; you get long series, this and that. But it's an incredibly consistent property for us, and to make an eight-year commitment between the two of these is significant and speaks to the comfort we both have with each other. It's an extraordinarily strong performer and I know it's going to enhance ABC, ESPN and all of the ESPN International businesses, as well.” ESPN President George Bodenheimer offered.

The NBA’s $930 million annual TV rights agreements (remember that’s national cable and over-the-air rights, teams still own their own local cable and over-the-air TV rights) represents an increase of more than 20 percent annually over the previous agreement. With the media focusing so much attention on the poor ratings the NBA playoffs generated – were the NBA falling ratings stories much to do about nothing?

“I think that there is a new dashboard that is going to be used to examine viewing, and we use it now ourselves with respect to some of the aforementioned rights that I talked about.

“You know, there's currently no place to put the 30 million streams of NBA -- of NBA highlights, and that's just on NBA.com. That doesn't include NBA 360 or ESPN “Overtime or ESPN.com and everything else. Let me say that we are seeing a spreading of our engagement across a broader view.

”That said, we also understand that increasingly it's going to be compared to what when you look at broadcast viewing; even in our historical context, they were a little bit low but they were the second and third most-viewed programs of the week, and actually, for three hours plus. So that's rather extraordinary. And then though we had a Finals sweep, each of those four games was very, very successful up against the competition.
So I think that we and our broadcast partners and our cable partners here think that there is ratings growth still in the NBA while at the same time, there will be robust growth in the digital assets; and that eventually there will be an erosion that in one -- but ultimately if we remain on our toes, an expansion of interest when viewed against all other lines.” Stern said.

“Let me weigh in. The question was specifically about The Finals. In the course of our overall digital, 27 of the 28 Finals' games have won the night for ABC and 22 of 28 games have won the overall night for ABC. So we are quite pleased.
“David is quite right. It has to be put in the context of overall ratings and other programming. We do believe there's upside in the ratings and it's been a tremendous and consistent performer for us.” John Skipper, executive vice president of content said.

“For our purposes, since the last year of our prior contract, our regular season ratings have grown 17 percent in households and playoffs have grown 19 percent over the life of that contract.

“And as David articulated, it's going to be -- this is a long, nine-year deal, and when you start aggregating all of the NBA viewers and the consumer, you're going to see far more people enjoying this sport within the TNT brand not just on a linear channel, but all of the digital aspects. That's how we are looking at this, as the aggregation of the eyeballs, people, viewers and consumers. We do see growth in this property.” Turner Entertainment’s David Levy related.

More importantly when it comes to ratings, what the numbers really mean to the NBA and its media partners, the theme(s) of a new TV landscape was echoed throughout the media conference.

“So non-Nielsen, we have -- I go down to the basement to check our servers. And we get these extraordinary counts that demonstrate that in the month of April, 30 million fans streamed NBA highlights; that on ESPN.com, some additional millions of fans were tuning in; that on Airplay (ph) and Amp in a wireless way, fans are engaged with us. We have fans on video games but actually and growing will be online and not just on cartridge and ultimately on their handheld devices so that -- and I haven't exhausted the list.

“We've gone in sort of a beta test for our own purposes the dashboard we talk about to begin to collect the data about the way fans view us. And in an interesting kind of a way, I think that ESPN with its multiple platforms and TNT with its NASCAR, PGA, PGA of America, CNN Pipeline have more experience than we do in sort of how they harvest those viewers, and that's why working with us, they were so intent on making sure that they could reach all of those viewers and fans across the array of platforms that don't currently get particularly well measured or incorporated.” Stern offered.

“Let me pile on with a couple of statistics. Throughout the playoffs we averaged over a million unique visitors to ESPN.com per day to get NBA playoff content. We had 700,000 wireless visitors a day to get NBA content. We had 32 million video starts of NBA highlights on ESPN.com.” ESPN’s Skipper said.

One interesting question from the assembled media and via teleconference, does David Stern believe the NBA remains the trend setters when it comes to establishing new multi-media rights agreements?

“Actually this deal was crafted as a tripartite vision of Turner, ESPN, and the NBA, which was really dictated by the moving opportunities that were presented to us collectively. In fact, what we have learned more from what our partners have begun to do in the quote digital space, than we could possibly learn by just doing it ourselves; and we in turn add our store of knowledge to what we are doing to their store of knowledge and collectively we came up with this deal. So this is not an NBA vision; this is a TimeWarner, Walt Disney, NBA vision of how future rights deals will be done.

“But I do believe that we could sit down with our partners because all of our rights are housed centrally, and they know what to ask for, and who to ask. And given our relationships, we know when we should say no but when we should say yes and we heard a lot of yeses here.”

One issue both ESPN and Turner made crystal clear – the melding together of digital and broadcast rights was a key to the agreements and one would assume the dramatic increase in fees of more than 20 percent.

“I would, one compliment the league on their flexibility of thinking on this. In our last deal we have launched seven now platforms, and every case the NBA has been willing to work with us to get content on those platforms. What we have acknowledged in this deal is that we will probably launch five or ten new platforms during the course of this deal and we are going to work together on those platforms. That's acknowledged in the deal going forward.” ESPN’s John Skipper said.

“They are much more complex in the sense that there is a lot of things to discuss as far as rights, timing, when to get on, when to get off, VOD, broadband, wireless. The complexity of these deals when it used to be talking about the linear only has expanded the conversations dramatically and obviously kept our lawyers working to the hours that they have to work.

“But I will tell you, again, complimenting David, he realized it's an important part of all new sports rights. So while timing would have been longer and more integrated, it was necessary to get the deals done.” Turner’s Levy offered.

Given that so much focus was put on digital rights, how does Commissioner Stern and the NBA’s media partners see as far as advertising dollars?

“I think that there is a currently monetized way with respect to the cable and over-the-air. There's a little monetized viewing and it's pretty well established from the up-front to the spot, etc.

“But with respect to these new areas, you know, yes there's online video, there's banner advertising, there are pop-ups, there are product integration. We are just beginning this long journey into the monetization into the digital space so that we are -- so that we are not involved other than being supportive and working together, we don't collect the checks that our partners sell, get, with respect to advertising and other engagements, and that's going to be the same way with respect to the digital space as well.

“We just want them to make a lot of money so that these deals become every green.” said Stern.

“I would say that the advertisers are demanding it in the sense that multi-platform marketing campaigns are something that the advertiser is looking for. They want to be attached and involved with our talent from the linear side to the digital side to the wireless side so they can extend their messaging with our brand.

“And so it's all part of the process. Again, I said sort of laughingly, if you will, or jokingly that it's only '07. Think about this and how long this deal is and what happens in '10, '11, '12, '13 of 2000 and think about what this is all going to mean for our advertisers as well as media partner.” Turner’s Levy said.

“David is exactly right. I mentioned before, we had 32 million video starts on ESPN.com. They were sold out relative to advertising and our VPN on video starts, which is quite consistent with broadcast, so this is a growing business for us.” ESPN’s Skipper said.

That said – and this could be a key to the long-term success of the agreement both media partners understand they may not generate revenue from all aspects of the $7.4 billion agreement.

“The short answer is, no, I don't see anything being a loss leader whatsoever. In fact, they are all enhancers to the overall product and the overall brand.

You know, we see this as complimentary. Meaning our linear channel will be better suited if we have digital extensions to match it. We'll also have digital people that do not want to buy the television product that are only looking for the wireless or broadband or VOD extension.

“You know, I keep going back, we are all looking at this as an '07 situation. And as you can see, and David used this before, how Hi-Def is becoming more popular. I believe, VOD and broadband and wireless will continue to grow in penetration, will continue to be an important part of all of our brands, every one of our asset base of programming and of networks.

“And so these will all in its own individual self probably be very profitable.” Turner’s Levy offered.

“I would echo some of the comments made by David Levy. You know, we at ABC have specific experience with this over the last year or so in experimenting with our ABC broadcast product on ABC.com and through iTunes, of course. It absolutely does not cannibalize anything. In fact, it shows we are driving an incremental audience, so there's a benefit all up and down the food chain of finding new ways to distribute quality content like the NBA. So I certainly expect all of this to be complimentary to our core television businesses, not cannibalize it.” ESPN President George Bodenheimer offered.

For SportsBusinessNews this is Howard Bloom. Sources cited and used in this Insider Report: Mediaweek

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