Get ready to read a whole lot more about cable than you have probably ever read before. And a qualifying statement before we get started. While I feel like there are some aspects of this topic about which I am somewhat informed, please know I could be making assumptions of varying sizes (which I will try to call out at least), so take this with as many grains of salt as required.
First, the news from yesterday and some other important links:
- Sports Business Journal got their hands on how much the SEC Network is hoping to charge carriers
- Clay Travis had some thoughts on this, as he does on most things
- Team Speed Kills talked, back in May, that the likely split of monies will be 50/50 between the SEC and ESPN
- Cable Map. We will come back to this
- AT&T U-Verse Map
- Verizon Fios Map
What Does the Addition of Dish Network Mean?
In short, this is another major step for the SEC Network, and one that new networks do not and are not often able to make at this early an hour. When the launch of the network was originally announced, the SEC had already been able to line up AT&T, which many saw as a strong first step in obtaining full carriage (especially in the somewhat recent wake of the Longhorn Network debacle, also an ESPN property). Yesterday's news of Dish Network getting on board means MANY (but maybe not quite all) customers in market and certainly a large percentage of out of market may now have two options (of a possible four) when it comes to selecting service based solely upon whether or not they carry the SEC Network. This will also likely bring additional pressure to bear on DirecTV, who is the leader of the satellite providers (as Dish is). All the while, with AT&T and one of the two satellite providers having already jumped on, there will be pressure on the cable companies as well, though they typically do not negotiate deals until closer to launch time.
"Of a Possible Four"
Allow me to quickly qualify the above statement. When I say "of a possible four", I am speaking in the traditional sense of current TV carriage. This does not reference folks who are streaming TV through their internet and associated devices (RoKu, AppleTV, ChromeCast, whatever else there might be). The possible four, in this case, refer to:
- Dish Network
- Either AT&T U-verse or Verizon Fios (but not both in most cases)
- One cable/MSO (multiple system operator) company
In MOST areas, these are the options afforded to a customer. However, keep in mind that as areas become more and more rural, AT&T or Verizon may not service it and cable/MSO's can struggle with properties a good distance from their lines. Also, do not forget about line of sight issues that the two satellite providers can have. Anyway, sometimes it comes as a surprise to people, and this is where I want to refer people back to the Cable Map (as also linked above), cable/MSO's (Comcast, Time Warner, Charter, Cox, etc...) do not (and CANNOT) compete against one another. The entire country is broken up into franchises, and there is no overlap between these companies. A customer will never be able to choose between Comcast and Charter in the Twin Cities area, though their friend one town over may have Charter and they themselves can only get Comcast (as their MSO). From what I understand (and my knowledge is a bit limited), AT&T and Verizon are never in competition with one another, with evidently an exception being somewhere in the Dallas area. There could be more, but not that I could easily find. DirecTV and Dish are obviously in competition with one another, and therefore are both available as options.
Let's Go to the Map(s)
So, we already know that AT&T U-Verse is going to offer the SEC Network, and they are QUITE prevalent in the SEC footprint, making that initial announcement of their participation all the more important. We now know Dish Network is in the mix, and assume they can service almost anyone (barring the direction their house faces trees or whatever). But none of the MSO's are on board yet. Who are going to be the biggest names to keep an eye on?
Looking at the Cable/MSO map again (which I know is not a great visual representation, but is the best I could find), we see the saturation among the top-10 MSO's is pretty high (as compared to the upper midwest and really, most area to the west before the coast). Comcast (dark blue), Time Warner (red), Charter (light green) and Suddenlink (maroon) look to be the most common, with Brighthouse (gray), Mediacom (yello) and Cox (dark green) also having some decent footprint (especially Cox who evidently has some of the major markets that do exist in the south). If you take a look at this list, it is easy to determine that Comcast and Time Warner are the two biggest prizes for the SEC Network (even though Time Warner has significant footprint outside, a point we will come back to) as it pertains to total subscribers.
What Tier/Level of Service/Package Will I have to Buy?
This is a pretty interesting question, and I believe it will ultimately come down to where you live and not necessarily who your provider is, but what TYPE of provider you use.
ESPN has commented that they would like to see the SEC Network have similar carriage numbers to that of ESPN U, which currently has about 75 million subscribers across the country. If you look at the placement of ESPN U in major packages, it typically exists in a package which is a step up from the "basic" level of service. Because the SEC Network will be considered more regional than ESPN U, here is where what type of provider you have will matter.
If you have a satellite provider or AT&T/Verizon, their offerings and packages are a bit more national in nature, and from what I have been able to find, ESPN U is in most packages above the basic. AT&T has it in their U-200, their middle package. Dish and DirecTV have it just up from the basic package. Can we expect the SEC Network to land in a similar place?
If you have a Cable/MSO, then this is where your location could end up determining package placement. Let's take the Big Ten Network as an example to illustrate this. In St. Louis, MO, which has been determined to be a Big Ten market (because of Illinois), the BTN is placed in the "expanded basic" package. Though the name implies that it is above the bottom, at Charter (and I know this from experience), it is the base package. However, if you are a Charter customer in Trumbull, CT, which is not a Big Ten market, you can get the BTN by ordering an addition tier. I believe this is likely to be the setup for the SEC Network. If you are within the 11 states which make up the SEC (and there has been some discussion about North Carolina being included because the studio will be there and it evidently rates well for SEC sports), and you receive your TV through a Cable/MSO, you are likely to expect to see it added to your base set of channels. However, if you live outside the footprint, you may need to ultimately subscribe to a sports/additional tier of channels.
Earlier in the piece, I referenced Time Warner and their having most of their footprint exist outside of the south. So while it will be important for the SEC Network to get TWC on board as a provider to service their in-market customers, getting them on board and having the channel available out of market will be ALMOST (but not quite) as important, as there is money to be made in out of market subscribers which can certainly augment total revenue nicely.
Alright...what about the Money?
Here are the big numbers that people are kicking around:
- 30 million subscribers within the 11 state footprint (and adding North Carolina would move the needle a decent bit because of their population). This is a confirmed number, or at least a very close approximation used often
- $1.30 monthly subscription fee in footprint. This is a confirmed number from the SBJ article.
- $0.25 monthly subscription fee out of footprint. This is NOT a confirmed number, but a decent approximation based on what other similar networks may be receiving
- $350 million annual guarantee from ESPN to SEC (similar in nature to what UT gets from ESPN for the LHN (10 years/$250 million), though much larger). This is NOT confirmed, but approximated by Travis in one of the pieces
Let's bring Clay Travis back in at this point. The piece linked here (and above) starts throwing some serious numbers around. And while I think Clay has his positives, I think sometimes he forgets about stuff he has already written. In that first piece, I think he does a better job of outlining how the money might work, which would include a guarantee and then 50/50 of remaining profits. So let me try to use these numbers (many not confirmed) to see what this might look like. Here comes the math, and I am going to show all my work.
- $1.30/month fee X 12 months = $15.60 per subscriber in market per year
- $15.60/subscriber X 30 million subscribers = $468 million per year in market
- $0.25/subscriber X 12 months = $3.00 per subscriber out of market per year
- $3.00/subscriber X 45 million subscribers (ESPN U is at 75 million, so the 30 in market would need 45 out of market to get there) = $135 million per year out of market
- $100 million from advertising (NOT a confirmed number, but another approximation from Travis)
- $468 million + $135 million + $100 million = $703 million per year
- $703 million - $350 million (guarantee from ESPN to SEC) = $353 million in profits
- $353 million / 2 (ESPN and SEC evidently have 50/50 split) = $176.5 million additional for SEC
- $350 million (from guarantee) + $176.5 million (additional) = $526.5 million for SEC
- $526.5 million / 14 (member institutions) = (approx) $37.6 million per school
So while I think Clay's piece yesterday was not ultimately all that clear (based on what he has offered in the past), I think the number potentially stands up pretty well. Now, will the SEC Network get full carriage with ALL the providers? I'd like to believe so, but we know that it probably wont. Will it get 40-45 million more people out of market to subscribe to it? Probably not right away. Could the guarantee be $300 million and not $350 million? Sure. Conversely, will the SEC Network eventually get more than $1.30 in market and $0.25 out of it? Absolutely. And this is ONLY the SEC Network we are talking about here. It does not account for CBS's deal, which obviously adds some more money.
Back in May, the SEC announced about 21 million to each school in TV revenue. That was impressive not because it was a record amount per school (up about 600K, but because it was and the conference added two more schools anyway. This coming May, we will no doubt see that number rise, and then next May (2015) will come the first involved with the SEC Network. So while all of this seems very present, the payoff is still a couple of years away. But it sure is fun to think about how this money may potentially impact the AD (additional facility upgrades, expanded recruiting budgets, expanded coaching salary pools, Hearnes renovation/replacement).