Mixed Signals

The Next Roone Arledge: Pay TV Subs and A New TV Ad Model?

7/05/2012 3:18 PM

Eleven years ago, on July 11, 2001, former ABC Sports and ABC News president, Roone Arledge, stood with his crutches at NYC’s former Tavern On The Green restaurant.

The Father of TV Sports told a small-sized audience about the importance to the ABC Network, of what it got for its $25 million rights fee investment in the 1972 Olympic Summer Games. For 49 out of 50 half hours measured during the two-week Munich Games, ABC was No. 1; the Q3 1972 telecasts reached 50% of the potential U.S. audience; those Olympics made possible a fiscal period which was the first profitable one for ABC; and the 1972 August Bavarian Extravaganza actually made ABC a “credible third network,” for the first time ever.

I remember thinking to myself there and then, as I watched Roone struggle through his illness, with a few choice, poignant, and pithy words, “Back in 1972, that was a lot of money, but even now in 2001, nearly thirty years later, the idea of any Olympics’ costing even double digit millions, that is just, well, it is just nuts!”

Roone died of prostate cancer a year later, in 2002. And undoubtedly, the world lost one of the truest of “status quo” visionaries. To paraphrase Jonas Salk, Roone was one of those rare people who could unify the innovative with the stasis.

Rights Fees, Circa 2012
Jump ahead another eleven years, to 2012, and the dollars expected to be paid for a new set of U.S. national college football playoffs and championship games - to say nothing of the 2012 Summer Olympics Games in London at $1.18 billion. - are remarkably difficult to comprehend. Over a single digit span of years, the mere rights fees paid for the package encompassing these three new marquee college football contests will be billions, yes, billions of dollars. Add to that the rights paid for the richest of American sports, professional football, and the word “astronomical” comes to mind. Even accounting for inflation, it is hard to make sense of hundreds of millions of dollars paid for a few college football matches of three to four hours each. Considering the dollars paid, could they ever be as important to any networks as the Munich games 40 years ago were to ABC?

Focused only on the forthcoming deal — the new format will take shape after college football’s 2014 regular season — for the three new “championship” games alone, estimates suggest $400 million-$500 million annually. Add the idea of a multi-year contract, and a dozen-year deal comes in at numbers, on the high end, approaching some $6 billion. And yes, even by today’s standards, that’s a huge sum of money, which immediately raises the accompanying thoughts: How do they pay for it? And, How do they justify it? Is maintaining the subscription pay TV and ad-supported broadcast TV models that important?
Models Broken?
Factor in the slow disintegration (or at least a potential major morphing) of TV’s two core business models — subscription-based and ad-based TV — and the TV sports rights juggling act gets even screwier.
Part of the answer comes from the kind of programming that big-time sports represents. Thus far, only a handful of programming types have been spared the fate of losing major ratings, shares, and dollars to the dreaded combination of people leaving pay TV and/or people skipping commercials. These rare few have been 1) live news, 2) live sports, and 3) live shows, such as American Idol. In each case, viewers absolutely prize the instantaneity of the telecasts. This means that in order to get that, they have to watch (or at least allow their TVs to show), the actual show’s advertisements. Plus, in more and more instances, pay TV owns the exclusive rights, so viewers need to be pay their TV provider for access to that premium content. Thus, for those few “must see live to truly enjoy” types of shows, the rights-holders have a lock on viewers, and thus on the future rights negotiations. This, in short, is a huge part of the real future of TV in America.

Put another way, so much TV is fragmenting and no longer working under traditional models. Thus, the threesome of live sports, live news, and live special shows is the only one that can hope to guarantee viewers will allow live ads. That is probably the answer to the “Justify” question asked above. Live TV sports is a majority of the glue that holds the subscription and ad TV models together today, and well into the future.

And what happens if, as Sanford Bernstein’s Craig Moffett suggests, these astronomical sports rights fees lead to an affordability crisis, which, in turn, breaks apart the entire TV model?

In short, you have this classic battle of the old versus the new. The “old” players are the traditional content owners, pay TV distributors, and Internet service providers. And these “old” stakeholders like the money they are making, and they like the control they maintain. Thus, count on future contracts between them to be very long-term, tighter and tighter, and going to extremes to keep new players and their new models out. And count on those future contracts, even if the are crazy expensive, to work.
Pay TV and Ad Status Quo
In the end, the new players and would-be stakeholders will get breaks here and there, and we will see an occasional crack in the thick armor plates of the traditional stakeholders. But, as long as deals like the prospective, long-term college championship football one are done in the traditional way, meaning huge sums are paid over long periods of time, not only to maintain the ad and subscription models, but also to keep new bidders out, it is extremely difficult to see any true, long-term changes that create more real open and flexible TV business models.

Add to that the difficulty the government has fighting these huge interests, and the “status quo” straightjacket gets tighter. Plus, the traditional players are working extremely hard to not only get the new digital media to the fans, but to control it, at the same time, and they have the deep pockets to pay for the technology that leads that development.

This is the reason why so much real money still resides within the traditional broadcast and subscription TV models. And this is why radical change, even over the course of another decade, is quite challenged.

Live TV sports, and other must-have live events, have essentially become an anchor around most viewers’ necks.

What Would Roone Do?
So, with all that said, what would Roone do?
Well, the innovator in Roone Arledge would be severely thwarted, if, for example, he were someone or some new entity trying to bring fresh new programming to fresh new eyes, under a fresh new business model. But, conversely, the traditionalist in Roone Arledge would have accepted the forces that be, and would have then tried to work within the system, to push further than others ever would, and thus achieve remarkable innovations within those apparently “innovation-less TV models.”

Which takes us to the ultimate solution: We need to find the next Roone Arledge (my problem is, I doubt he or she exists, and I question whether today’s TV universe would accept him).

Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (www.carmelgroup.com).

September