The Packaging Punch

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In 1994, DirecTV Inc. took a big risk when it signed an exclusive deal with the National Football League to create one humongous sports package for fans who wanted to see games from outside their local markets. Many wondered whether the concept—dubbed NFL Sunday Ticket—would work.

The move blindsided the cable industry, which at the time was still largely analog and didn’t have the capacity to offer similar fare.

But that, as they say, was then. In 2004, the cable industry offers nearly every league sports package in direct competition with direct-broadcast satellite platforms. But DirecTV still holds exclusive rights to NFL Sunday Ticket until the end of the 2005 season. (It outbid EchoStar Communications Corp.’s Dish Network for a DBS exclusive through 2007.) That fact — and cable’s late arrival into the sports package universe — prompts the question: Has cable yet leveled the playing field with DBS?

“Satellite was the innovator; cable was the follower, and it’s still perceived as the follower,” says DBS analyst Jimmy Schaeffler, chairman of the consulting and research firm The Carmel Group. “It’s going to take some time for cable to get that to change.”

According to Schaeffler, even if operators outbid DirecTV for the NFL rights after the 2005 season, “it would still take three to five years to start to reach par with the satellite guys.”

Of course, the cable industry is hardly lamenting its past and is aggressively working to win over fans who long ago defected to DBS to get their sports fix. Through content aggregator In Demand LLC, the cable industry now offers professional sports packages such as the National Basketball Association’s League Pass, Major League Baseball’s Extra Innings, the National Hockey League’s Center Ice, Major League Soccer’s Direct Kick, and college sports packages such as ESPN Gameplan (football) and ESPN Full Court (basketball).

Through In Demand, operators also offer the National Association for Stock Car Auto Racing’s exclusive NASCAR In Car package, which lets fans keep tabs on their favorite drivers via cameras inside the cars.

“It’s almost as if you’re following them in a behind-the-scenes kind of way,” says David Asch, In Demand’s vice president of programming and acquisitions. A “virtual dashboard” even allows fans to track vital driving statistics with gauges and information including the driver’s name, car position, miles-per-hour, and a tachometer.

NASCAR fans are an important segment for the industry. “I think that anything that offers the cable industry something different or unique is a benefit to the customer and the industry,” says Asch.

Of course, DirecTV has no plans to cede its sports dominance, even as cable catches up. Satellite’s main advantage remains its national reach, which enables DBS providers to consolidate marketing efforts. Cable operators, on the other hand, offer a different mix of sports packages in different systems, which can confuse customers and muddle marketing messages.

Stephanie Campbell, DirecTV executive vice president of programming, declines to say whether the company will try to ink another exclusive deal with the NFL after the current one expires. But she did say the importance of the package is clear. “It’s a legacy with us,” Campbell says. “We’ve been working with the league for so long, it’s part of our DNA here.” DirecTV reportedly pays about $400 million annually for the NFL rights. Campbell declined to say whether the company makes a profit on NFL Sunday Ticket or primarily uses it as a retention tool.

With several major MSOs expected to vie for NFL Sunday Ticket in 2006, Campbell admits it’s hard to know how negotiations will shake out, “I’m sure it’s going to be an interesting time.”

Most operators are pretty tight lipped at the moment. “It’s too early to speculate,” says Comcast spokesman Chris Ellis, who notes that sports packages are “very important” but only “one piece of the puzzle” in overall sports programming. Comcast, for its part, announced earlier this year that it would roll out a digital sports tier in the coming months.

Leagues are increasingly enthusiastic about sports packages. “The League Pass audience is clearly an important audience,” says Ed Desser, executive vice president of strategic planning and business development at the NBA. “They are some of our most devout fans. They are some of our most sophisticated fans.” Desser won’t disclose specific revenue or growth rates, but “the growth percentage has been fairly constant and robust.”

Operator interest in premium sports packages may only increase. “Often, [MSOs] look for premium opportunities like this,” says ESPN vice president of interactive sales Matt Murphy. ESPN offers premium college-sports packages. “They’re constantly looking for incremental revenue, and this is what subscription packages can do for them. It will continue to get bigger.”

Indeed, sports packages and sports programming in general could evolve into more segmented varieties. With digital compression boosting capacity on satellites used by programmers, sports networks are customizing fare for each cable system. In the future, sports programming will likely become more narrowly focused. “The ESPN channel will not exist,” says Kurt Riegelman, vice president of North American Sales at PanAmSat. “They’ll have 80 streams coming out of a facility, and they’ll be able to customize the feed for that MSO.”

The packages also could cannibalize other sports programming, although few see that happening yet. “Most people in Philadelphia are interested in Philadelphia sports; most people in Chicago are interested in Chicago sports,” says Jack Williams, president of Comcast SportsNet. “I don’t really see that as competition.”

“It’s kind of complementary,” says ESPN spokesman Tom Chiapetta, who says that with the exception of “displaced fans,” only about 10% of sports fans make up the hardcore group that are seeking out premium sports packages. “How much baseball can you watch? If you’re married and have kids, is someone going to put up with you watching baseball all night, every night?” MSOs hope the answer is yes.

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