Sunday, January 13, 2008

Understanding the Big Ten Network Controversy

Understanding the Big Ten Network Controversy

Posted Today at 12:36 PM by BasketballPredictions
I'm back with my first blog post of the new year. As you probably know, a common set of themes I've addressed have been misunderstood parts of the sports world. And perhaps no part of the sports world is more misunderstood than the business aspects, especially in college sports where we're often told "it's all about the kids". As for as business-related issues in college sports, nothing is more controversial than the Big Ten Network. Go to any Big Ten team's message board and you'll see dozens of threads where people viciously attack each other over these issues. You'll hear things like "If you care about the team just switch to satellite, it's better quality anyway" or "This is all just a failure of capitalism". In general, it seems like most people are just missing the fundamental issues. So let me try to get into this as well as I can in a single blog post:

So what is this Big Ten Network thing anyway?
Colleges and conferences have created their own tv stations before, but this is the first large scale attempt to go nationwide with a college conference-centered sports channel. Think NBA TV or NFL Network, but for the Big Ten. The station pledges to cover basically every single basketball and football game featuring a Big Ten team, other than those already on national tv. It also will have lesser sports, like soccer and baseball.

Sounds great - people in the midwest must be thrilled to have all of these games on tv... right?

Sort of. The fact is that college sports is very regionalized. Someone who lives in Minnesota is going to want to watch the Gophers. They'll care a bit about the rest of the Big Ten, and even less about the rest of the country. This was already reflected in television coverage. If you lived close to a Big Ten school, you already got basically every football and basketball game. Anytime the local school's game was on ESPN Full Court, for example, it would be showed on local cable. Of course, the Big Ten Network still provides a lot more games than people got before. If you live in Illinois, suddenly you have access to all of Michigan State's games and all of Ohio State's games. Clearly, all Big Ten basketball fans would be happier if this channel was on tv everywhere.

But this channel does give the Big Ten an advantage over the other conferences, right?

This is perhaps the most misunderstood fact. The idea that if the Big Ten Network just got on tv everywhere, the Big Ten would have a huge step-up over the other major conferences. The fact is that once the Big Ten Network succeeds, we'll probably have an SEC Network, an ACC Network, a Pac 10 Network (and so on) within 5 years. The other conferences are simply waiting to see how the Big Ten does.

So why aren't the cable companies putting the Big Ten Network on?
The price. The Big Ten Network originally asked for $1.10 per month per customer in Big Ten states, and $.10 per month per customer in the rest of the country. To put this in comparison, the average cable viewer pays around $2-$2.50 per month for the entire ESPN package (depending on which provider you have, this includes some combination of ESPN, ESPN2, ESPN Classic, ESPN News and ESPNU). To realize how absurd this price is, think about my previous point about the other conferences wanting their own channel. Whatever deal the Big Ten Network gets will set a precedent that the other conferences will want matched. Imagine someone living in Florida who would have to pay $1.10 for the SEC, ACC & Big East Networks, as well 10 cents per month for the other three. They'd be paying $3.60 per month for college sports? Compared to $2.50 per month for everything ESPN? That's insanity.

Why don't you admit that a real issue is that the cable companies want to put the Big Ten Network on the sports tier. Why can't this be on basic cable when we get crap that nobody watches like the Hallmark Channel and TruTv on basic cable?
Again, this is about the price. The Hallmark Channel gets on basic cable, but they're not paying a cent. They're putting that channel on for free, and making their money merely from advertising. If the Big Ten Network was willing to be on basic cable for free, my guess is that the cable companies would give in.

But if the price is so bad, why is the Big Ten Network on satellite? Both DirecTV and Dish Network have it... so what's the deal?
A couple issues here. First, DirecTv is partially owned and controlled by News Corp. Those are the people that run Fox, the company that also owns 49% of the Big Ten Network. Obviously they were going to put the channel on, and they probably got a deal. And once DirecTv gets a channel, Dish Network has to match. In general, however, the satellite companies are always willing to overpay for sports channels. Despite what you may here from satellite tv fanatics, satellite tv is simply lower quality than cable. A lot of people don't have physical access to it (either because of a tree in the way, or because an apartment is on the wrong side of a building, or because the owner of your building prohibits dishes). Also, bad weather can knock it out. If all else is equal, probably nobody would choose satellite over cable. So, satellite generally tries to offer really cheap basic set-ups (say, 50 channels for $19.99 per month) to try to hook people. Also, they try to get all of the sports channels. They know that if a lot of sports channels are only on satellite that a lot of sports fans will overlook everything else and go with satellite. This is why things like the NFL Network, Big Ten Network, and some of those league packages are only available on satellite. The cable companies, on the other hand, already have a huge advantage on issues like convenience. So they're not going to overpay for a sports channel.

Why was the Big Ten Network dumb enough to demand $1+ per month per customer when the cable companies would never accept something like that?
They weren't dumb, they were playing the business game. First of all, tv revenues are up for the Big Ten teams. These teams are just like major corporations - it doesn't matter how many people have access to the product, only how much money they pay. Even if less people can watch the games, the Big Ten gets a larger amount of money per customer. So they actually make more money. Secondly, I think there is an issue of pride here. The Big Ten is under pressure from the other major conferences to hold out for a good deal. The SEC will be upset if the Big Ten puts their channel on for 10 cents per month, because then the SEC won't be able to extract anything more than that for themselves when they create their own channel.

Is this going to end soon?
Stories leak about once a month about how the Big Ten Network is "getting close" to a deal with one cable giant or another, but nothing comes to fruition. The fact is that major universities have long ago decided that the bottom line is the most important factor. If they're making more money, what do they care that a majority of local residents in Big Ten college towns have no access to most games outside of sports bars? Even worse, the state legislatures have become involved. And when has any government anywhere started caring more about the people than the money coming in? My guess is that the conference will wait another year or two, and then finally drastically reduce their demands, so that they can say that they were the ones who gave ground to make this happen. To try to look like the good guys. My guess is that the Big Ten can get on basic cable in the Big Ten states if they're willing to accept something like 15 or 20 cents per consumer per month.

So is this just a "failure of capitalism"?

The opposite, it's a failure of large government interests. The cable companies, in general, are a relic of the past. Think about how quickly telephone quality improved once the monopolies were broken up. Ideally, we could purchase all of our channels a la carte. But when you combine cable company monopolies with wealthy universities and government bureaucracy, you're in for a long and painful negotiation. It's depressing, yet predictable.

We can always hope that a new deal will be in place in time for next year's football games. But don't count on it.


Anonymous said...

Overall, this blog is a good attempt to summarize the issues surrounding the Big Ten Network (BTN). Unfortunately, two misrepresentations or outright inaccuracies that portray the author's biases in favor of big cable.

First, has to do with the price of the Big Ten Network, relative to other networks, specifically ESPN. According to the June 18, 2007 issue of the New York Times, ESPN's sub rate is $2.91 per sub throughout the U.S. (citing Kagan Research) and does not include other ESPN channels such as ESPN2, ESPNU, ESPN Classic, etc. Although the specific asking price for the BTN is not known, by public statements it is less than $1.00 per sub in the Midwest. With approximately 22% of U.S. households in the eight state Big Ten region, the average national rate for the BTN is approximately $0.30 per sub, or 10% of what ESPN charges. This $0.30 per sub is lower than networks such as FX and NBA TV, and much closer to what ESPNU or CSTV are reported to charge and a very strong argument can be made that the BTN has better content than ESPNU or CSTV.

Second, is the statement that satellite TV is lower quality to cable. There is no objective data to back this up as it often comes down to personal preference. At best, you can make the statement that "some people believe that satellite is lower quality than cable." Aside from factors such as quality and customer service, satellite technology has some advantages over cable including (i) greater bandwith for HD and other channels than cable, (ii) higher reliability (I have had both satellite and cable and cable went down far more than cable) and (iii) many rural areas do not have access to cable. The fact that many sports networks are on satellite have everything to do with customer focus of satellite and nothing to do with the relative merits of satellite technology.

It is unfortunate that the BTN is not yet more widely distributed. The good thing is that almost everyone who wants the BTN is able to get it.

Jeff said...

Well you're a bit off. That $2.91 is plausible (I've read between $2 and $2.50 in different sources), but it's not just for ESPN. Different cable operators get different deals (so for example, some people don't have access to ESPN Classic or ESPN News or ESPNU on cable). But all of those ESPN channels, whatever they are, come in a package. Nobody gets ESPN and not ESPN2. And whatever they get, it's negotiated as a package. It's possible that the average nationally is up to $2.91, but that includes all ESPN programming.

As for "average national price" for the Big Ten Network, that's not relevant. What's relevant is what it is in the local areas. Because, like I said, all of the other big conferences will want their own channels. So Florida would be getting the Big Ten Network basically for free, but Floridians would have to pay full price if and when the Big East, SEC and/or ACC make their own channels.

So even if the asking price for the Big Ten Network was down to a bit under $1 per consumer (which is what I think the situation is at the moment), you're still talking about 1/3 the price of the ESPN package. And that's only for college football and college basketball from one conference. Compare that to ESPN where you get all sorts of leadings games from every national sport. As well as the highest quality analysis. The price comparison is ridiculous.

As for "quality", I don't mean whether the picture is clearer on cable or satellite. I'm saying the fact that a lot of people don't have access to satellite. That the set-up is more complicated. That it generally can't be bundled with tv & internet. And that it is more likely to go out in bad weather.

All of those factors are why satellite either has to offer lower prices or larger variety of programming in order to compete. And they offer both of those options, as you well know.

There's a reason that the satellite companies are the ones to accept the high prices for NFL Network and Big Ten Network (among other sports channels) and the cable giants are not.

Look, everybody hates big cable. But the fact that big cable looks like the good guys here shows how embarrassing the behavior of the Big Ten has been. A year ago, when they were advertising the Big Ten Network, everybody in the midwest was excited. Now, any advertisement for the channel brings massive boos. I was at a Wisconsin football game this past fall and the university president came out on the field to give an award to some alumnus during a timeout, and the entire stadium booed loudly.. All because of the Big Ten Network.

Anonymous said...

The $2.91 stated price for ESPN is only for the main channel and does not include ESPN2, ESPNU, ESPN Classic, ESPN Deportes, etc. I do not have access to a Kagen research report, but according to public statements, ESPN2 is in the $0.85-$.90 per sub range. Yes, ESPN tries to negotiate package deals for all of its ESPN channels but each channel has a different carriage rate.

Regarding comparison of programming content to ESPN, the closest analogy in the Big Ten region is to ESPN2, as the primary programming of ESPN2 is college football and college basketball (no NFL, no NBA). For a fan in the Big Ten region, the BTN has more compelling programming than ESPN2 and is asking a comparable price.

Jeff said...

How can you possibly argue that the Big Ten Network's programming compares to ESPN2? Big Ten Network has most of the games in the Big Ten, but the big match-ups are pretty much split between the two channels. Meanwhile, ESPN has great games from every other conference. Not to mention NBA, MLB, world cup, tennis, and all sorts of other sports. And superior analysis. To even compare the two channels is ridiculous.

I live in Big Ten country and I love watching the Big Ten, but I'd pay five times for ESPN2 what I'd pay for the Big Ten Network.

Remember, for about half of the year (mid-march to September 1st) there is NOTHING on the Big Ten Network. So if you're paying 50 cents per month for it, you're really paying $1 per month for the half of the year where you'd watch something. Nobody is watching that channel in July - it will get blown away in the ratings by the Hallmark Channel.

Chuck said...

(...any other BTN shills out there?)

While I'm required to embrace the bloodsucking Comcast monopoly in Minneapolis, I fully despise what the Big Ten Conference and BTN is attempting to pull off. The origin of BTN is spun with a seemingly honorable rationale by the Big Ten, but it's rather disingenuous to also explain that one of the reasons for creating the BTN is to "avoid airing beer commercials, gambling ads and infomercials."

Let's guess that maybe, just maybe, money was a little more important to the Big Ten than the high-minded ethics that eliminate some questionable advertising.

In response to the comment that "just about everyone who wants BTN can get BTN", it's true... as long as you're willing to make the wholesale switch to the Dish Network.

Switching to the Dish comes with a significant hassle factor: Make sure to allocate a half-day's vacation to babysit the installer, unbundle your cable services (and pay a premium for your standalone internet) and then install some property-value-enhancing hardware on your roof. I'm personally much more inclined to pay a premium for programming that I want.

Unfortunately, BTN won't compromise with Comcast and agree to an optional sports tier for the fans that want it.

While I don't care if I ever see Wildcat women's gymnastics, Spartan swimming or a 1995 Purdue vs Illini football game (all of which I understand would be types of programming available), I will pay for the content that I really want. Simple bottom line for me is that I can't see Tubby Smith because BTN refuses to compromise with a sports tier offering.

It's a greedy all-or-nothing for BTN and the fans are being held hostage.