Wednesday, August 22, 2007

The NFL Network – baby steps forward

The Wall Street Journal featured a front page report on the NFL Network earlier this week. The latest edition of Multichannel News featured a report about the growth of the NFL Network. Suggestions of growth in subscriber numbers aside, the challenges the NFL Network faced when it televised its first live NFL game on November 23, 2006 Thanksgiving Day haven’t changed. And without significant strides forward the NFL Network will never reach its true potential as a broadcast entity.

Multichannel News reported that with the NFL’s pre-season schedule underway, and with the start of the NFL season less than three weeks away NFL Network subscriber numbers have hit 44 million, an increase of 10 percent over the estimated 40 million subscribers the network had at Super Bowl XLI.

“There have been continued rollouts with affiliates,” said NFL Network communications director Seth Palansky. “We added 500,000 alone with Verizon [FiOS TV], [EchoStar Communications Corp.s Dish [Network] and DirecTV in the second quarter alone.”

Those comments aside the overwhelming issues the NFL Network has faced for the last year remain firmly in place. Time Warner Cable Inc, Charter Communications Inc. and Cablevision Systems Corp. remain steadfast in the resolve to not carry the NFL Network on their basic Tier. Their rationale remains what it has been for the last year – the three major cable carriers believe there isn’t enough value in the subscriber fees the NFL Network continues to demand.

A look at the evolution of the NFL Network and the investment NFL owners have made in the NFL Network begins to offer an understanding of why the NFL and some of the Nation’s biggest cable carriers remain at loggerheads. And comments made by key NFL owners over the last four years suggest the NFL isn’t about to budge in their demands.

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 the 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 came 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.''

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, were 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.''

A year ago NFL officials declared their goal when the NFL Network offered its first live NFL telecast – 65 million homes. Last summer the NFL Network was in 40 million homes, the same total they found themselves in November and at the end of season when NFL commissioner Roger Goodell offered this tepid response regarding the NFL Network subscriber base during his Super Bowl XLI State of the NFL press conference.

“First off we're very proud of the NFL Network. It has been extremely high quality programming. We think it's been terrific in giving fans another perspective of football that they wouldn't ordinarily see, because it's 365 days, 24 hours a day. That's what we're trying to build is giving fans an opportunity to experience football in ways that they haven't been able to do in the past. We think it's going to be extremely successful.

“I think I'd point out for the fans that it's part of our building process, but we show every one of our football games on live, free television. And that's important. And we will continue to make sure that that's an emphasis going forward.” Goodell commented.

Shortly after the Super Bowl Goodell downsized the short and mid-term goals for the NFL Network suggesting being in 50 million homes was a much more realistic goal. What the NFL doesn’t seem to appreciate (better than to suggest the NFL doesn’t understand) the basic math cable careers have done. All one needs to do is compare the value (and fees) associated with what ESPN offers cable careers to what the NFL Network continues to demand.

The NFL Network continues to demand around 70 cents per month from cable companies for each home that carries the NFL Network, while ESPN charges cable carriers around $3 per month.

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 told the Wall Street Journal in November he believed 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 Senate hearings held eight months ago. "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."

Pash’s comments aside – there is nothing to remotely suggest the cable industry is buying what the NFL is selling.

"While there's a tremendous passion for NFL programming, most of that's being satisfied," says Marc Ganis, a sports consultant in a Wall Street Journal report. "The cable companies have found this weakness and are using it to push back against the NFL."

The issues the NFL is having with selling the NFL Network is going to force the NFL to expand by at least two teams in the next six years. The NFL who rarely fail at anything have to be ‘concerned’ about the distribution issues the four year old cable network is facing. The NFL Network was in 41 million homes when the NFL training camps a year ago – a year later an increase of less than 10 percent isn’t much of a success story for the National Football League. Time Warner, Charter Communications and Cablevision need more incentives before they’re going to consider adding the NFL Network.

In four years (this year is the second of the NFL six year agreements cable and over-the-air television agreements) if the NFL really intends on making the NFL Network work, the NFL will be forced to add season long Thursday and Saturday night games. There will be a number of issues with weekly Thursday and Saturday nights games, one of which will be preserving the integrity of as many Sunday NFL games as possible. The NFL owns Sunday’s, but having a weekly money making taste of Thursday and Saturday night games is just what the NFL Network needs. However to make that work, the NFL needs more teams to be able to schedule more games, thus the need to expand by at least two franchises before the next TV contract is negotiated.

The NFL’s current television agreements generate $3.75 billion dollars annually; each team is guaranteed $106 million annually from the most expensive sports rights fees agreements. It’s a given NFL owners will want at least that much (if not much more) from their television partners. It’s also a given NFL owners will want to see the NFL Network begin to reach its potential. There is only one solution for the NFL to consider – by adding two teams the league will be in a position to create a full Thursday/Saturday night schedule for the NFL Network, while keeping the number of games the NFL offers to their current television partners where it currently is. If the NFL where to consider taking games away from the current allotment they’re offering their network partners its all but certain the networks wouldn’t be prepared to offer the billions of dollars they currently are. Count on it, the NFL will expand by two teams in the next four years.

For SportsBusinessNews this is Howard Bloom. Sources cited and used in this Insider Report: The Wall Street Journal and Multichannel News

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