Wednesday, November 07, 2007

The NFL Network – a game plan to get in the game

The NFL Network kicks off their 2007 schedule of live televised NFL games on Thanksgiving Day, November 26, when the Indianapolis Colts travel to Atlanta to meet the Falcons. NFL schedule makers believed they might have a good game when they drew up the NFL schedule last spring, but that was before Michael Vick was indicted on charges he participated in a dog fighting related business. Vick who plead guilty to a variety of charges is scheduled to be sentenced next month.

As was the case in 2006 the NFL Network will televise eight regular season games. As was also the circumstance in 2006 the NFL Network remains nowhere to be found – at least when it comes to America’s leading cable carriers. The NFL who at times claimed to be in as many as 44 million homes, today is in only 35 million homes – tens of millions away from where NFL officials believed the NFL Network would be 15 months ago.

Monday influential Dallas Cowboys owner Jerry Jones took the NFL’s case regarding the NFL Network to the media.

"As an ownership group, all 32, we're so unified in our basic commitment to the network,' he said in an interview with Reuters.”It's so important to our future.

"We know how interested they are in our content," Jones said. "They just want it on their terms to help build an asset. Our fans don't deserve to be building equity for a distribution company."

NFL commissioner Roger Goodell ended “negotiations” between the league and Comcast in August and Jones confirmed to Reuters nothing has happened since.

"It's not the right read to say that talks are stalled. There's no talk," he said.

The NFL Network currently has 35 million subscribers. NFL Commissioner Roger Goodell told Reuters last year the league was targeting a subscriber total of more than 50 million, possibly topping 60 million, by late 2007. Needless to say, Goodell and the NFL are dreaming in Technicolor if they believe their plans to grow the NFL Network are headed in the right direction. What began as a great idea, hasn’t quite turned out the way the Lords of the Pigskin believed it would.

The NFL Network was launched November 4, 2003, only eight months after 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.

Two years ago 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 2005 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 71 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 televise 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 years established record cable TV ratings for Monday Night Football on ESPN (in excess of nine million viewers each week), ESPN’s 100+ million homes offered the NFL the cable partner it needed to deliver ratings that justified billions of dollars ESPN agreed to pay the NFL ($1.1 billion annually)

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, ''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, ''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 claimed in various media reports they where 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. (NFL Network officials claimed their subscriber base grew to close to 45 million at one point last year, before the reported current 35 million total)

What the NFL doesn’t seem to appreciate (better than to suggest the NFL doesn’t understand) the basic math cable careers have done when it came to the value they saw I the NFL Network,.
All one needed to do was compare the value (and fees) associated with what ESPN offers cable careers to what the NFL Network continues to demand.

The NFL Network continued 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 last 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 issue the NFL is having with selling the NFL Network will force the NFL to consider a number of options when the current broadcast agreements end in four and a half years. The NFL who rarely fail at anything have to be ‘concerned’ about the distribution issues the five year old cable network continues to face. The NFL Network was in 35 million homes when the NFL training camps a year and a half ago, and with little if any real growth with those numbers that 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 to their regular lineup.

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. But if the NFL looks beyond how their currently operating there are workable solutions whereby the NFL Network can televise as many as 34 games a year – a package the cable carriers will be forced to televise.

The NFL owns Sunday’s, but having a weekly money making series 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.

Last month the NHL Network began offering their programming to Americans. The NHL Network had been a Canadian operation until this year. The NBA Network is alive and well and continues to grow. If the NFL Network didn’t believe it has it hands full, Major League Baseball will debut The Baseball Channel in 2009.

According to a report and release from MLB.com: The broadcast unit is projected to launch the MLB Network into 47 million cable and satellite homes on Jan. 1, 2009. It will be 66.6-percent owned by MLB with the remaining shares to be held in partnership with Time Warner Cable, DirecTV, Cox and Comcast.

There is still a year before the MLB Network makes its debut, plenty of time for the MLB Network to grow by another 10 to 15 million homes. There are many reasons why the MLB Network has come so strongly out of the gate, with two of them being: their cable and satellite carriers are partners and the MLB Network will offer a 26-week Saturday Night Game of the Week.

The NHL Network televises a handful of regular season games. Those games however use available broadcast feeds. NBA TV, doesn’t offer games to the American market (games are available via the NBA League Pass). Raptors TV, the NBA’s Canadian version of NBA TV does show NBA games (Raptors, ESPN and TNT games) but again none of the games are produced by the NBA.

For what its worth – Jerry Jones and the Lords of the Pigskin want to take their battle to the political arena, an interesting decision.

"I know firsthand that if instead of the NFL Network it was called Versus or the Golf Channel, you don't have to have any guesswork what (carriage it would have)," said Dallas Cowboys owner and NFL Network committee Chairman Jerry Jones, referring to two channels owned by Comcast.

"The company we are talking about here (Comcast), I guess I should go ahead and say it, is a company that depends upon privileges at the government level. And they shouldn't use those privileges to keep fans here from seeing the NFL."

According to American Business First, as part of a new political lobbying effort, the NFL network wants the Federal Communications Commission to let a third-party arbitrator solve the four-year carriage disputes by determining if and how operators should carry the channel.

Network executives are hoping for a ruling as early as next month.

"We're just trying to get the dialogue started so people will look at it," said NFL Network COO Kim Williams. "It is truly almost impossible (to get carriage) if you don't have the leverage of vertical integration (that Comcast and Time Warner have), which clearly we don't."

The cable industry made it clear to the American Business First they aren’t very impressed with the latest tactic the Lords of the Pigskin are taking in trying to force the NFL Network on cable carriers.

"We don't believe the FCC has the authority to delegate responsibility to adjudicate program carriage disputes to an arbitrator," said David Cohen, Comcast executive vice president.

"Even if the FCC were to give them, we would challenge that in court and we would fully expect that a court would agree with us that the FCC was exceeding its authority."

However, the NFL Network, in its October 12. 2007 comment, stated that, "The Commission's rules, adopted at the direction of Congress, aim to protect competition and diversity in the video programming marketplace."

"It's ironic that the NFL is pursuing this when they exclusively sell Sunday Ticket to DirecTV," said Melinda Witmer, Time Warner Cable's senior vice president and chief programming officer. "The claim that they need assistance from government for fair treatment is ironic."

Jones belief that content will drive subscribers to the NFL Network is a logical assumption, but not based on only eight games annually. There remains one viable option for the NFL to consider if the Lords of the Pigskin really want to see the NFL Network, increase the number of games the NFL Network televises.

There are two ways that objective can take place (assuming the NFL’s political football fails), expansion or by adding a 17th game to each teams’ schedule and earmarking those games for the NFL Network. When the NFL Network has a complete schedule of NFL regular season games (25 to 32 regular season games) will the NFL Network have the necessary leverage to negotiate with the major cable carriers. Until that takes place the Lords the Pigskin can make as much noise as they’d like, but it will mean little if anything.

For Sports Business News this is Howard Bloom

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