Business of Sports Media

Why do broadcasters buy teams?

To secure low cost content for their main business, media.

YES Network

-Actually followed through with building an RSN MSG network was dominant owned by Cablevision and had rights to every pro sports team -Partnered with the NJ Nets because they needed content year round -2002 - founded YES network from Yankees-Nets, backed by Goldman Sachs common ownership which was different guys that owned the Yankees and the Nets owned the YES network but as a separate entity, to keep from sharing revenue -Took an increased, but really below market rights fee (85 million - compared with deals today) -Fought with Cablevision but ultimately gained carriage on every systerm except DISH, who really started to push back because they wanted to stay "thrifty" (most favored nation clause) -YES went on to make 200 million a year and didn't have to share it with the league -2012 - sold to FOX for 3 billion for 49% -2014 FOX buys an additional 3 percent at a 3.8 Billion valuation -Unlocked 4 Billion of value while retaining control of the team

Why would a station not elect MC and instead elect to go the RC route?

-Affiliate fees were raised because major network is spending lots of money to show NFL games -Local station and parent went to cable operators and demanded fee for broadcast -Sports is the difference, thats when people start to not tolerate black outs

Tiers of Cable

-Basic Cable = comes with every subscription, more money comes in per subscriber. (ESPN is on basic cable) -Expanded basic cable = generally includes a few dozen more networks that are familiar -Premium = "Add on/A la Carte" to what you would call expanded basic cable, like HBO. Pay per view is on this tier as well. Sports drives pay-per-view

3 players of the simple business model

-Cable Operators = TimeWarner Cable, Comcast or DirecTV -Network owners = such as ESPN, Fox Sports or ABC, CBS, NBC, some of whom we have seen have multiple channels or networks -Content Owners = leagues, teams, Olympics. People who create their own content that will end up on network

Southwest Sports Group

-Created when Dallas businessman Tom Hicks combined ownership of the Dallas Stars and the Texas Rangers -Allowed for unique leverage, owned both a summer and winter sports -He had enormous broadcast regions for the Rangers which means that the only other team in North Texas with rights were the Mavericks and at that time, they had been the worst franchise in professional sports, making for unique leverage -He used his OTA as leverage because they had somewhere to go -Negotiated with FOX while also making start up plans, -Went direct to cable companies which was last straw for FOX which made FOX agree to a rights deal that tripled previous deal and loaned 75 million to do "other junk" -But as we will see, soon tell short of the next wave of increasing rights fees

Satellite

-Direct TV was the first real successful user -Launched in 1994 -Launched on the back of the NFL Sunday Ticket and --MLB package -Direct now has over 21 million subscribers, between ¼ and ⅕ of total subscription TV market -Business model similar but not exactly like cable

First RSN (Regional Sports Network)

-Most teams used to sell their rights -Key development in early 80's: establishment of modern "local market" territories -Owners were getting upset because of the nationally broadcast Cubs and Braves. Because they could be seen on nationally, they were implicating their fan base and having to compete for allegiance

Soon Fox had all the leverage with Teams

-OTA couldnt compete because of climbing rights fees -FOX already has channel position in an increasingly crowded dial -Any single team was just itself, only half the necessary programming (summer vs. winter) -Counter leverage was created by starting their own RSN -SSG kicked this next wave off

Satellite Business Model

-Sell subscriptions to customers; sell NFL type packages to customers as exclusives -Pays Networks/Leagues for content

Where does revenue come from?

-So we have revenue produced for operators by subscriber fees that are paid by the consumer -We have revenue produced for Networks and Content providers paid by Subscriber fees paid by the cable operators. (The Network pays a Rights Fee to content providers as noted previously but ultimately this is payable by the Network based on the sub fee it gets) -Advertising / Sales which can be measure. They advertise and sponsor because Sports generates a lot of ratings and shares -Ratings and Share determinations have significant value in the advertising world. By shows delivering certain results, the buyers of advertising and sponsorships validate their decision

MC and RC Conclusion

-Very few exceptions -Court challenges: in 2010 Supreme Court took up challenges to Must Carry law -Court declined to overturn Must Carry Law Example: -Fox and Dish Network and Fox and Cablevision had difficult negotiations. -Several Fox channels went dark on Dish for a month -Fox broadcast channels went dark on Cablevision during the month of the MLB playoffs Today: Study in 2011 by Nielsen company reported that for the first time since 1992 the number of US households with a TV actually decreased by over a million Viewership of TV channels going down; the most stable TV programming is.. SPORTS

Inner Market

-generally 75 mile radius (NBA/NHL) from home arena, exclusive broadcast nights within this area -league owns rights outside of this radius

Outer Market

-typically out to 150 miles, but less precise depending on geography. Non-exclusive because the league owns rights outside of inner market

Consolidation: First Wave

1988 - Prime TIcket (LA Based) partnered with Liberty Media and founded Prime Sports Rocky Mountain then started to go around and buy up existing regional sports networks, like Home Sports Entertainment in Texas and Sunshine Network in Florida. Started to share all the content and national ad sales across the networks. It was really efficient to rebroadcast ______Key point: cable companies launching sports channels to keep programming costs low and drive distribution. Smart guys buying networks.______

Comcast/NFL Network startup Carriage Disputes/Issues

2009, NFL Network was only a couple of years old, Comcast did not want to pay for it. Comcast then had 10 million subscribers. Comcast was willing to put NFL Network on what it called its premium sports entertainment package. A subscriber to comcast would have to pay extra for this

Cable

Broadcast TV was first and it is still here early 70's - Cable first used as we rough understand its use today Basic cable = first station was WTBS in Atlanta, home of the atlanta braves (ted turner). It is generally the cable service that includes those TV networks that come to a viewer without additional payment. Money goes to cable operator. All local broadcast stations are on Basic Cable Many networks are on Basic Cable; most on basic cable are local broadcasts, PBS, free or cheap public type channels (C-Span)

Consolidation: Second Wave

By 1994, they used their cable footprint to help buy or build RSN's. 8 RSN's Also, ESPN was growing like a weed. Launched ESPN2 in 93. By the time Disney bought them, they were in 70 million homes, almost full penetration. Got there on the back of sports and was getting paid alot, $3 per sub. Sports and cable television was a lucrative deal. On one hand you had Liberty Media with their huge footprint then you had ESPN with all the revenue, all the advertising money and subscribers FOX is the perfect example of launching something off of sports. Took 7 years to have programming all 7 days of the week, still didn't have the scale. So then they bought the NFL rights. FOX was able to get people to tune back in with advertising and promos, paying nothing because they owned it. Cable Industry was changing, originally dominated by a plethora of small local/regional systems. Cable Act of 1984 deregulated the industry making sure people had access to all the new programming, then big money came in. Led to consolidation and rise of the MSO (multi system operator) Leverage was changing, small cable operators used to need programming to get people to pay, now big operators has such large footprints that channels need them to survive 1996 Liberty sells 50% of Prime Sports to News corp to create Fox Sports Net could go after the big money ESPN was making could sell national advertising create competitor to Sports Center Share programming to reduce costs National footprint gave them better negotiating power with the MSO KEY POINT- Key point = Leverage demands counter-leverage

RSN

Regional Sports Networks

What is the Business Model of Cable and Satellite?

Simple business model

Must Carry

Since the 1970s the Federal Communications Commission (FCC) has required Cable Television systems to dedicate some of their channels to local broadcasting stations. For many years cable operators did not challenge the constitutionality of these "must carry" provisions, believing that compliance was necessary to obtain operating licenses. With the dramatic growth in the cable industry, however, cable operators argued that they should be able to use these channels for more profitable programming. In the late 1980s, as a result of challenges by cable operators, the courts struck down must carry rules as a violation of the First Amendment. -- Came from The Communications Act; said that cable operators had to carry the local commercial OTA stations and non commercial PBS type stations in a given market area -Such local stations could ask for positioning and a particular number on the cable network. First channel listings are the better positions No fee received by the OTA stations if they elect Must Carry but they get visibility and they got money from ad sales 1990's - there was a change in the law and basically OTA stations could make a carriage election every 3 years, (2 choices) Either these stations have to tell the Cable Operator they electing MUST CARRY for the next 3 years, or Elect what is called the Retransmission Consent route

Sports Media

Taken on all forms and characteristics -Digital isn't the future necessary, TV is just becoming the new television.

Rights Fees

a fee received by a team from a broadcasting network -Certain amount of money paid by an entity to a third party (league, conference) to take content and broadcast it somehow and somewhere.

Difference between NSN (national sports networks) and RSN (Regional Sports Network)?

is that NSN are broadcast nationwide while RSN are local/regionally based

Retransmission Consent

means that the OTA station negotiates a deal with the cable operator (or satellite operator) as to the terms and conditions under and by which the Operator can carry the channel.

TBS

the only anchor network and first basic cable network.