Editor’s Note: This story is the product of years of off and on research by Osceola subscriber CFLnole. Nick is a retired partner from an international accounting firm and he has spent several years studying the evolving development of conference alignment and the creation of separate conference networks. He has been tracking media reports and news articles since the introduction of the Big Ten Network in 2007, the launch of the SEC Network in 2014, and now the upcoming launch of the new ACC Network. We know that this is a topic of great interest to our subscribers; our intention is to help give you not only a better understanding of the ACC Network, but also the roots and formation of various league-specific channels.
The ACC Network will debut on Aug. 22 at 7 p.m. Just a few days later, FSU soccer will play the first live game on the channel and hundreds more games will follow – from FSU’s home football opener against ULM to the first ACC road game with Virginia through basketball season and spring sports.
As we mentioned in previous stories on the Osceola, agreements between Disney and individual carriers are critical. The ACC Network will go live in a few weeks on DirecTV as well as streaming services like Hulu Live, YouTube Live and PlayStationVue (CenturyLink and Frontier must choose to “opt in” and carry the channel). Noticeably missing are deals with Comcast and Charter, which service millions of households in the Southeast and Atlantic coast.
How did we get here? Why are deals tough to make with cable networks? Nick answers these questions and much more through his research in the paragraphs ahead.
A GUIDE TO UNDERSTANDING A SEPARATE CONFERENCE NETWORK
The purpose of this document is to provide the necessary background to understand the market forces, and organizational challenges, which led each of the Power 5 conferences to separately pursue opportunities to monetize that specific segment of its sports programming inventory which they believed was undervalued. It will also describe how monetizing a separate conference channel is a very different process from the standard contract that each conference has with its networks. In addition, this document will explain the role of the end consumer in this process and what they will need to do to view this content, and what the consequences are if they do not have access to a separate conference channel that they want to view.
SUMMARY POINTS AND CURRENT STATUS
1). All of the Power 5 conferences (P5) have separately negotiated network contracts with the major broadcasters to televise its sporting events. These historically have been long-term contracts (over 10 years) with little opportunity to negotiate significant changes to the revenue stream during its term. After the contracts are signed, the networks then enter into “carriage agreements” with cable and satellite companies so that they can market these events to the TV audience, usually through monthly fees. Recently, streaming services (or “over the top” OTT) services such as HuluLive, PSVue and YouTube TV have also negotiated carriage agreements with the networks. So the conferences receive revenue from the networks, the networks receive revenue from the carriage providers and those providers receive revenue from the viewing public. All the sporting events of each school is generally categorized as Tiers 1, 2 and 3.
2). Tier 1 inventory is specific programming of a conference or team where one network has the first rights to broadcast those events. Tier 2 inventory also represents good quality events that a network owns after Tier 1 is selected. Tiers 1 and 2 represent the bulk of the sporting events that are popular on a national level and are accessible with every carriage provider. Tier 3 generally represents all the other sporting events. Tier 3 inventory is generally football and basketball games that have only a regional interest, as well as sports such as baseball, lacrosse, soccer and others. Historically, Tier 3 events were only found on regional and independent local broadcasters, and later on a digital platform. Or they were not broadcast anywhere.
3). Tier 3 historically did not generate much TV revenue for the conference or team. In an effort to better monetize its value, some conferences contracted with a network to establish a separate linear channel that can show these sporting events, with additional access of this inventory on digital platforms.
4). Three of the P5 conferences have entered into separate conference channels agreements. The Big Ten Network (BTN) is owned 51 percent by FOXSports and 49 percent by the conference, the SEC Network is owned 100 percent by ESPN and the ACC Network (ACCN) will also be owned 100 percent by ESPN. For these conferences, fans can’t purchase the linear channel separately – it is presented as part of a bundle of sports channels. The success of a conference channel is directly dependent on the ability of the network to close the carriage arrangements with the cable or satellite companies (and the new OTT providers) and have them offer the channel. Traditionally, the revenue stream for Tier 1 and Tier 2 inventory for the existing non separate conference channels is driven by long term contracts that are somewhat fixed in amount (with some opportunity for adjustment under certain circumstances. In contrast, the revenue stream from a separate conference channel is much more variable. The amount of revenue that a conference receives from the carriage provider for this new separate channel fluctuates on a monthly basis, depending on actual subscribers who pay for it to the carriage provider. The amount of monthly revenue per subscriber is general higher if the subscriber lives in a state in which that conference has a member. Since the new channel is part of a “bundle,” the only control that the viewer has to buy that channel is to buy the whole bundle … if it’s offered. To be clear, the viewer is not paying the conference directly for access to this channel.
5). The viewing fan will have no access to the linear channel unless the provider offers it. There is no web stream version of it. Prior to the launch of a separate conference channel, fans had found ways to watch content digitally if it wasn’t shown on TV. That will change. All digital content on the ACC Network for live games that are shown on the separate linear channel (and specially produced shows) will be only available if you subscribe to the new channel. This is true even if you had access to the digital content prior to the launch of the new separate channel. Also, ESPN+ (a new separate ESPN streaming service) does not have any content that can be found on any ESPN linear channel. ESPN+ is not an option to see ACC Network if the carriage provider does not offer it.
6). The Big 12 did not follow this format. Each member owns its own Tier 3 inventory. Texas separately contracted with ESPN to create the Longhorn Network (LHN)
7). The PAC 12 decided to own its own conference network. However, it is handled through a variety of mostly regional carriage providers. It does not have the same high level of success as the BTN or SEC Network. Furthermore as the 100 percent owner of their network, they are responsible for all the production costs.
8). The ACCN will launch on Aug. 22, 2019 at 7 p.m.
THE BASIC REVENUE STREAM
The business of broadcasting college sports represents a series of one-on-one contractual relationships, which begin when a sporting event is held and ends when the end consumer watches it on TV or with a digital device. Here are the basic steps:
1). Each of the 65 members of the Power 5 (P5) conferences separately manage and create their own products (sporting events). The consumer demand to watch these events is dependent on the sport involved and the teams that are playing. Currently, college football and men’s basketball create the most demand.
2). For all the major revenue sports, the P5 members do not historically create the actual broadcast. All of the P5 members (other than Notre Dame) are in a conference where the conference leadership individually “markets” all that conference content with one or more networks (ESPN, FOX, CBS, NBC, etc.). These networks actually create the broadcast product.
3). Each of those networks then market the content they contractually acquired from the conferences with various OTT, cable or satellite companies – the carriage providers. (CBS and NBC can broadcast their content directly over the air, or they can also be part of a carriage provider). Both ESPN and Fox bundle their sports programming into a series of monthly packages. For sports programming, each package may have a bundle of channels.
4). The cable, satellite and streaming companies then sell the end product to a consumer, who generally pays a monthly fee for a package which may include several bundles of channels. Currently, the end consumer can choose from a series of bundles but they cannot individually choose the content within a bundle. The Osceola previously detailed some streaming options that will carry the ACC Network, including Hulu Live, YouTube Live and PlayStationVue.
This four-step process is generally how it has worked since the conferences began negotiating their contracts.
THE CONFERENCES ATTEMPT TO MAXIMIZE THE VALUE OF ALL ITS INVENTORY
Why were the separate channels created? With 65 P5 schools, plus another 65 schools in the Group of 5 conferences, plus the lower divisions that have a championship series, there is a huge amount of inventory that has to be managed to create the most revenue. It is very challenging to coordinate this effort as all the conferences have separate network contracts. Ever since the process was created in this fashion, there has been some perceived value “slippage” of some of the sporting events created by each P5 member. Nearly all of the non-revenue sports and some of the football and basketball games were never broadcast on a national channel. There weren’t enough separate channels to handle all the games.
This was handled in a variety of ways. Sometimes the network never bought the rights to broadcast certain sporting events from the school or conference. In those cases, the school or conference retained the right to sell that content to a regional network (which also handled the production). In other cases, the lead network did actually buy the rights but they then sold them to regional networks. Years after this process was created, some of this content might be found on certain digital platforms (such as WatchESPN). Many of the regional broadcasts were of poor quality, and many fans of the P5 schools couldn’t find where the broadcast of certain sporting events could be seen. The networks were paid little revenue for the amount of content that represented this slippage, and many schools that owned their own content struggled to generate significant revenue.
In 2006, the Big Ten challenged its network partner (ESPN) to find a way to better monetize this content. The result was a new channel called the Big Ten Network (BTN) where a new linear channel was created (and is now owned 51% by FOX and 49% by the Big Ten). The new linear channel was created within the bundle of FOX channels that is part of the monthly subscription fee paid by the consumer. But this can only happen if FOX could negotiate to have that channel added with the bundle that is already offered with each satellite and cable company. If the carriage provider did not agree to add the channel, the consumer had no way to access it. There was no way to separately purchase the channel either from the carriage provider or through the web. The launch of the BTN was rather slow as few carriage providers agreed to do it. Its slow start is what led the SEC, and subsequently the ACC, to decide not to pursue their own conference networks. After the BTN started showing a profit, the SEC changed course and pursued its own network (now known as SEC Network and owned 100% by ESPN) with an August 2014 launch that was very successful. After that happened, the ACC announced that it would pursue its own network with a launch date of August 2019.
SO WHAT CONTENT GOES INTO A CONFERENCE NETWORK?
In order to understand the issue of “content,” one has to have a correct understanding of what is “Tier 1, Tier 2, and Tier 3” inventory. Tier 1 inventory is the specific programming of a conference or team where one network owns all the rights to broadcast that specific inventory. “Tier 2” inventory is generally good quality football and basketball games that is broadcast nationally after the Tier 1 inventory has been claimed. The cleanest examples of Tier 1 inventory are the CBS football contract with the SEC, and the NBC football contract with Notre Dame. CBS gets first choice for one SEC football game to broadcast each Saturday. NBC owns all the rights to Notre Dame home football games. In contrast, the ACC has contracted all of its content to ESPN. Any ACC content that is deemed to be only suitable to a regional audience was sub licensed from ESPN to Raycom. Raycom would then produce the product and sell the broadcasting rights to a host of local stations. Technically, there is no Tier 2 and Tier 3 inventory in the ACC, because no one owns it other than the owner of Tier 1 (ESPN).
Conference networks, such as the ACC Network, are pushing a significant amount of football and basketball programming to their channels. Although a good portion of separate channel content is considered Tier 3, some very good content will be put there to encourage viewers to subscribe (The SEC Network started in August 2014 with Texas A&M vs South Carolina; the ACCN will begin with Georgia Tech at Clemson). ESPN owns 100% of both the SEC Network and ACCN. This is where the Big12 is different. In that conference all the Tier 1 and Tier 2 rights have been contracted to Fox and ESPN. But Tier 3 inventory is owned by the schools. This is what makes up a good part of the Longhorn Network (LHN) for Texas. Texas contracted its Tier 3 content on its own with ESPN to create the LHN linear channel. Other schools in the Big 12 have done the same, but not to the same success at Texas and not as a linear channel. It has been reported that the LHN generates about $15M a year for Texas. OU gets about $6-7M a year, but through various arrangements with regional networks that is handled through Fox’s “Sooner Sports Network.”
When the SEC initially decided to not pursue a conference channel, each school was on its own to create its own separate arrangements with regional networks. When the SEC changed course and decided to go ahead with SEC Network, each school had to buy back any inventory that it had sold. It took over a year. But the ACC had a different issue as all the content (including Tier 3) was owned by ESPN and ESPN signed a contract to sub-lease the Tier 3 content to Raycom until 2027 (this was agreed to beforehand by the ACC). That contract was renegotiated in order to get the content back and, in March 2019, ESPN contracted with Raycom to produce a lot of the content for the new ACCN.
For the SEC and the ACC, each conference member was responsible for upgrading their TV production facilities to “ESPN Standards” so that all the content would meet the HD broadcast quality that the ESPN required. Significant investment was made for production of digital content and, for the ACC, they also invested in linear channel production. FSU was well ahead of the curve here as Seminole Productions was handling the production of linear broadcasts of games in sports like baseball and softball years ago.
As mentioned above, both the SEC and ACC put in small amounts of Tiers 1 and 2 content to entice fans to get the channel (or more correctly, to entice fans to call their carriage providers to have them offer the channel). The ACC is also moving some conference basketball games to before the holidays and it kicks off with UNC and Notre Dame. Because ESPN owns these channels 100%, these conferences have flexibility to move games to promote their separate channels.
HOW DOES THE REVENUE STREAM WORK FOR A SEPARATE CHANNEL?
This is critically important to understand as it impacts the conferences with a variable revenue stream and it also impacts how a conference may view future expansion.
Generally, for the B10 and SEC, they get a certain amount of revenue each month depending on how many subscribers there are, and where they live. In 2014, it was reported that the SEC would receive $1.30 a month for any subscriber that lived in the 11 states which had an SEC school, and $.25 a month for subscribers in all the other states. At that time, it was reported that the Big 10 received $1.05 and $.05 respectively for its subscribers in its resident and non-resident states. After 2014, the SEC generated the most per member revenue of any P5 conference. In 2017, the B10 renegotiated its contracts. They took about half of the Tier 1 and Tier 2 that ESPN previously owned in the prior contract and then contracted it to FOX. Presumably the subscriber fees for the BTN were adjusted (as FOX owns 51% of the BTN), but it wasn’t disclosed. Recently, it was reported that the B10 per member TV revenue has greatly increased and it is the most of the P5. The BTN was credited for contributing to this. It’s not disclosed at this time how much per subscriber monthly revenue ESPN will pay for the ACC Network, and, if this is a figure that will vary based on location and provider. To be clear, getting the carriage providers to offer the separate channel is only the beginning of the analysis. Certainly not getting the carriage providers to offer the channel is a serious issue, but even if they all sign on, the end game is getting the revenue from the viewer, to the carriage provider, to ESPN, and then to the ACC.
WHAT ABOUT CABLE CUTTING AND “AL A CARTE” PRICING?
The cable and satellite industry is going through a transformation of how the consumer pays for its access to TV channels. The term “cord cutting” generally refers to TV viewers cancelling their contracts, or reducing the amount of the channels they receive, and switching to a variety of web streaming offerings. Currently, this has not specifically impacted the market for the separate conference channels. Those single, linear conference channels remain part of a sports bundle that the consumer cannot separate. The impact of this is critically important to the revenue stream. Although the Big Ten and SEC (and potentially the ACC) receive more revenue from “in state” subscribers vs. “out of state,” because of “bundling,” each conference with a separate channel receives significant revenue from subscribers who are not fans of their respective conferences or teams. Many ACC fans have been paying for the Big Ten Network and the SEC Network for years. There is no way for a fan to buy a monthly subscription only to the ACC Network – it must be done via a package with a cable, satellite or OTT streaming provider.
THE IMPACT OF DIGITAL – CURRENT STATUS
Part of the separate channel inventory for the Big Ten, the SEC and the ACC is only broadcast through the internet, usually as part of a digital channel of FOX or ESPN. Prior to the establishment of the linear channel, access to these digital channels was free if the user can validate that they are a paid subscriber to the respective provider via cable or satellite (or OTT). As an example, anyone who subscribes to ESPN via cable or satellite can access WatchESPN on the internet by signing in with their cable or satellite user name and password. When the separate linear channels are launched, all access to that specific conference channel on the net will only be available for subscribers to the separate channel. If your carriage provider does not offer the separate channel, you cannot purchase it separately anywhere. The content will not be on the new ESPN Internet channel of ESPN+. The ability of the SEC to sign up all the major providers (albeit very close to the launch date) was impressive, considering that CBS owned the Tier 1 football inventory. The SEC effectively used the potential loss of digital content as a fear tactic to its fan base.
RECENT DEVELOPMENTS IN DIGITAL OFFERINGS
Having a separate conference channel with digital content has allowed the Big Ten and the SEC to find new ways to reach their fans, and perhaps create even more revenue. As noted above, conferences with a separate linear channel had each of its members invest in technology on every campus. Recently, the Big Ten offered BTN Plus and BTN2Go. This represents live broadcasts of non-football Big Ten sports, much of it produced by students. None of the inventory is available on TV. More importantly, you do not have to have access to the Big Ten programming from a carriage provider in order to sign up. There is a separate fee for this content, and you can purchase content for a specific Big Ten member or the whole conference. No one is calling it “Tier 4” inventory yet, although it sounds like it as this service can only broadcast content that is not being offered anywhere else. So, the Big Ten has been able to slice into another level of programming for sporting events and create another revenue stream.
The SECNetwork Plus is additional digital content that basically represents the overflow of sporting events for which there are not enough channels to carry them. There is no charge (yet) for subscribers of SECTV, but only subscribers can get access to it.
ESPN+ is a new streaming channel offered for a monthly fee by ESPN, and it has confused some customers. This digital channel does not offer streaming of any content that is shown on the regular family of ESPN linear channels. It does not function like HBONOW (the HBO web streaming channel for viewers that have no cable or satellite service). It has no impact on the SECTV of ACCN.
However, with technology, there is always a chance that the landscape can change with regard to bundling, and with separate channels in general. This year, ESPN purchased a select amount of Big 12 football and basketball games up to 2024, including the Big 12 football championship games in the odd number years in the same time period. And this will only be on ESPN+. This is not enough inventory to actually call it a separate Big 12 conference channel, but it does appear to be a critical change in direction from the linear channels of the Big Ten and SEC. Upon a deeper review, this arrangement was created largely due to the small amount of revenue that ESPN was willing to pay for it. In other words, the Big 12 was unable to create a separate channel for this (albeit small) amount of content. In addition, the new ESPN contract with the American Athletic Conference announced in March 2019 will also include a lot of content on ESPN+. The total revenue package is significantly less than any P5 conference.
These new deals with the Big 12 and the AAC do not represent a significant change in direction from the separate conference linear channels (yet), but the technological advances of digital streaming must be monitored by the P5 to ascertain if it can lead to a surge in the unbundling of cable and satellite offerings. The Big Ten did a great job with BTN2Go, but some fans may wonder why this process can’t be used for other inventory, and therefore accelerate the cord cutting process.
WHAT’S NEXT? IS 2024 A YEAR OF SIGNIFICANT CHANGE?
Mark Twain once said, “It’s difficult to make predictions, especially about the future.” And Yogi Berra famously said, “If you see a fork in the road, take it.” Only a fool would try to predict how college football will look 10 years from now…or shorter. The constant talk about potential playoff expansion, and, the discussions about making potential changes to how conference divisions work does not necessarily mean that anything will really change. But if there is one thing that can cause change…whether it is desired or not… is money. And these conference network contracts, both the basic long-term contract and the separate conference channels, are all about money. Consider the following renewal dates for conference contracts. Keep in mind that negotiations for network contracts begin well before they expire.
1). The CBS contract with the SEC for Tier 1 football inventory ends after the 2023 season. The SEC contract with ESPN ends almost ten years later, but if ESPN wants to bid for the Tier 1 football that CBS currently has, the whole SEC-ESPN contract may be subject to renegotiation.
2). The Big Ten shockingly only agreed to a 6 year contract with FOX and ESPN when it was signed in 2017 (instead of 12 years). The current contract ends after the 2023 season. (What are they planning?)
3). The NBC contract with Notre Dame ends after the 2025 season.
4). The Big 12 contract expires in June 2025.
5). The PAC 12 owns its own Tier 3 inventory and its own unsuccessful network, but its contract with FOX and ESPN for its Tier 1 and 2 inventory ends after the 2023-2024 season.
6). The ESPN contract for the college football playoffs ends after the 2027 season.
7). The AAC, in its new contract which ends in 2024, did not sign a GOR. It had too many members that refused to sign.
As always with college football, money and “independent” conferences, change is always possible.