Discussion:
ESPN fires back at critics of ‘MNF’ deal’s price tag
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TMC
2011-09-20 07:06:06 UTC
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http://www.sportsbusinessdaily.com/Journal/Issues/2011/09/19/Media/ESPN.aspx

By John Ourand, Staff Writer
Published September 19, 2011
ESPN is hitting back against critics who publicly accused the media
company of wild, indiscriminate spending with its eight-year, $15.2
billion deal to extend its rights to “Monday Night Football.”

Sean Bratches, ESPN’s executive vice president of sales and marketing,
said he fielded calls earlier this month, shortly after the deal was
announced, from several video distributors who expressed concern over
the nearly $2 billion annual price tag. He said he allayed their fears
that ESPN would seek to fund the deal through increases in their
affiliate fees.

But some critics took their concerns public last week, pointing to
ESPN’s NFL deal as an example of a sports rights landscape that is
becoming too expensive for the average fan. Matt Polka, who heads an
association of small cable operators, publicly called for Congress to
take a look at the cost of sports rights. Polka complained that
consumers ultimately would have to pay for the contract through higher
cable fees.

“We’re accustomed to his refrain,” Bratches said. “It’s unfortunate
that these types of allegations are made without any conversation with
us to explain the thought process behind our investment.”

Financial analyst Craig Moffett of Bernstein Research also questioned
the size of the deal, concluding that “sports fans are overwhelmingly
being subsidized by non-sports fans,” and suggesting that an
opportunity exists “for an entertainment-only offering, at half the
price of a sports-included offering.”

But Bratches said the distributors who contacted ESPN don’t share
those same fears. Bratches promised that ESPN would not try to force
them to pay an “NFL Tax.” He also explained how much more TV,
broadband and mobile content ESPN was getting through this deal. On TV
alone, ESPN is planning to roll out 500 new hours of NFL-related
studio programming, which is the highest-rated programming on TV. In
2010, for example, 17 ESPN-produced NFL games made the list of cable’s
20 most watched shows.

Executives from several large distributors confirmed Bratches’ account
and said that they were not alarmed by the size of ESPN’s “Monday
Night Football” deal.

At $4.69 per subscriber per month, ESPN already is the most expensive
channel on cable systems. TNT is a distant second, at $1.16, according
to SNL Financial. At that rate, even a small percentage increase would
represent big bucks to distributors.

“There is no NFL surcharge, and we’re not seeking to negotiate one,”
Bratches said. “The consumption of sports continues to grow on TV and
all platforms. This is the last bastion of live programming, making it
valuable to many networks. We’re confident that the price-value
dynamic is in line.”

Interviews with executives from three of the biggest distributors
suggest that ESPN’s NFL price tag was expected and is not a huge
concern. These executives said they are satisfied that ESPN does not
make its content available for free on mobile or broadband platforms,
as only authenticated subscribers can watch ESPN content on digital
platforms. Distributors also control up to 40 percent of ad inventory
during “Monday Night Football” games, which translates to significant
ad sales revenue.

Even if distributors weren’t satisfied, they would have little
recourse. It would be a huge risk for any distributor to drop ESPN
because they don’t buy ESPN as an individual channel. It’s part of a
bundle of channels that includes all the ESPN and Disney-branded cable
channels and the ABC broadcast network. If a distributor tries to say
no to ESPN, it would have to do without all of Disney’s channels,
which gives ESPN protection against any distributor trying to shed its
sports channels.

“The size of the NFL contract is notable because this is the most
expensive content on television at a time when consumers are seeing
increased pressure,” said David Bank, managing director of global
media and Internet research for RBC Capital Markets. “But I don’t stay
up late worrying in the near term that the push back will amount to
much. For distributors, it’s not about losing just ESPN. It’s about
losing the entire Disney package.”

Reaction from financial markets also has been muted. At deadline,
Disney’s stock was up slightly in the week following the NFL
announcement. And, perhaps most importantly, there’s been no outcry
inside the Beltway from Congress or regulators.

While this increase from the average cost of the current contract
($1.1 billion per year) to the new one ($1.9 billion per year) is more
than 70 percent, Credit Suisse analyst Spencer Wang said the actual
annual increases are just 6 percent.

“This implies a neutral impact on our margin assumptions and to the
extent that ESPN can grow revenues at a faster clip, we still see the
opportunity for longer term margin expansion,” Wang wrote in a
research report.
Obveeus
2011-09-20 11:15:25 UTC
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Post by TMC
http://www.sportsbusinessdaily.com/Journal/Issues/2011/09/19/Media/ESPN.aspx
ESPN is planning to roll out 500 new hours of NFL-related
studio programming, which is the highest-rated programming on TV. In
2010, for example, 17 ESPN-produced NFL games made the list of cable’s
20 most watched shows.
At $4.69 per subscriber per month, ESPN already is the most expensive
channel on cable systems. TNT is a distant second, at $1.16, according
to SNL Financial. At that rate, even a small percentage increase would
represent big bucks to distributors.
So people on a limited budget could, in a-la-carte theory, choose between
having just ESPN or they could have a package of channels like TNT, USA,
Syfy, FX, and A&E combined.
Post by TMC
“There is no NFL surcharge, and we’re not seeking to negotiate one,”
How can they claim that there isn;t an NFL surcharge when the network airing
all the NFL stuff is charging 4 times as much as the next most expensive
channel on cable? ...and ESPN is charging 4 times as much even though they
can also charge advertisers huge sums for commercial time compared to those
other channels.
Post by TMC
Bratches said. “The consumption of sports continues to grow on TV and
all platforms. This is the last bastion of live programming, making it
valuable to many networks. We’re confident that the price-value
dynamic is in line.”
It is in line...but it is also a football surcharge forced upon all
cable/satellite customers.
Post by TMC
Even if distributors weren’t satisfied, they would have little
recourse. It would be a huge risk for any distributor to drop ESPN
because they don’t buy ESPN as an individual channel. It’s part of a
bundle of channels that includes all the ESPN and Disney-branded cable
channels and the ABC broadcast network. If a distributor tries to say
no to ESPN, it would have to do without all of Disney’s channels,
which gives ESPN protection against any distributor trying to shed its
sports channels.
This is exactly why any more a-la-carte system will still end up offering
corporate packages of channels rather than specific one-off channels.
Remysun
2011-09-20 13:15:32 UTC
Permalink
Post by TMC
At $4.69 per subscriber per month, ESPN already is the most expensive
channel on cable systems. TNT is a distant second, at $1.16, according
to SNL Financial. At that rate, even a small percentage increase would
represent big bucks to distributors.
Is that just for ESPN, or is there another hefty fee for ESPN 2, and
so forth?
Obveeus
2011-09-20 13:35:28 UTC
Permalink
Post by TMC
At $4.69 per subscriber per month, ESPN already is the most expensive
channel on cable systems. TNT is a distant second, at $1.16, according
to SNL Financial. At that rate, even a small percentage increase would
represent big bucks to distributors.
Is that just for ESPN, or is there another hefty fee for ESPN 2, and
so forth?

I think that is just for ESPN. ESPN2 probably pulls in a decent fee, but
ESPN News, ESPN Classic, etc... are probably close to free. Disney and ABC
Family are likely fairly expensive channels as well in cable terms.
Remysun
2011-09-20 15:46:46 UTC
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I think that is just for ESPN.  ESPN2 probably pulls in a decent fee, but
ESPN News, ESPN Classic, etc... are probably close to free.  Disney and ABC
Family are likely fairly expensive channels as well in cable terms.
ESPN2 looks cheap at $0.54, and I watch it more than ESPN
(Beedlemania), but I'm wondering if the mother channel is a
prerequisite?
http://allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason...
I think the $4.69 is probably just for ESPN/ESPN HD.
Obveeus
2011-09-20 17:03:14 UTC
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Post by Remysun
I think that is just for ESPN. ESPN2 probably pulls in a decent fee, but
ESPN News, ESPN Classic, etc... are probably close to free. Disney and
ABC
Family are likely fairly expensive channels as well in cable terms.
ESPN2 looks cheap at $0.54, and I watch it more than ESPN
(Beedlemania), but I'm wondering if the mother channel is a
prerequisite?
I'm sure that ESPN is a prerequisite. Non-sports fans must really twist in
the wind when they read that 40% of their total cable bill is for sports
channels.

Windowwasher
2011-09-20 14:41:22 UTC
Permalink
Post by Remysun
Post by TMC
At $4.69 per subscriber per month, ESPN already is the most expensive
channel on cable systems. TNT is a distant second, at $1.16, according
to SNL Financial. At that rate, even a small percentage increase would
represent big bucks to distributors.
Is that just for ESPN, or is there another hefty fee for ESPN 2, and
so forth?
These are the reported/suggested 2010 rates:

http://allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason-why/

I think the $4.69 is probably just for ESPN/ESPN HD.
Obveeus
2011-09-20 15:17:19 UTC
Permalink
Post by Windowwasher
http://allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason-why/
I think the $4.69 is probably just for ESPN/ESPN HD.
So the bottom 75 or so channels cost the same amount as just getting ESPN.
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