PPV Events Struggle For Operator Respect

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When Mike Tyson steps into the ring to fight Lennox Lewis on June 8, there will be more at stake than just the heavyweight championship. The future of the struggling pay-per-view event category may also hinge on the performance of the first true "fight of the century."

With revenues free-falling since the halcyon days of the late 1990s, both distributors and operators are weighing the future of the event business.

Some believe the PPV sector is just one or two major boxing events away from recapturing its glory days when the category approached half a billion dollars in annual revenue.

Naysayers argue the category is a relic of cable's analog days, one being usurped by new digital products like high-speed modems and video-on-demand that promise greater revenue returns for operators.

Still others maintain the category is in the midst of an evolution in which subscription packages and VOD will represent a significant part of the category's future revenue take.

"Five or six years ago, PPV was the new product and it thrived, but today it exists in a much different, more complex era," said Cox Communications Inc. vice president of video product management Lynne Elander.

NO MORE BIG EVENTS

The Lewis-Tyson bout — mired in controversy since the participants' pre-fight brawl during a January press conference announcing the fight — is an extremely important event for an industry desperately seeking major revenue drivers.

"Anything north of 1 million buys will be very welcomed by the industry because you just don't see those kinds of numbers anymore," said Home Box Office senior vice president of operations Mark Taffet.

Such marks were commonplace in the late 1990s. Seven of the 10 top grossing PPV events of all time occurred between 1996-99 when fighters like Tyson, former heavyweight champion Evander Holyfield and then welterweight champion Oscar De La Hoya dominated the boxing landscape.

The category generated its highest yearly revenue totals during those years, including a record $486 million in 1999, according to Showtime Event Television PPV revenue estimates.

But it wasn't just boxing that filled operator's PPV coffers during the 1990s. Pro wrestling and, to a lesser degree, music concerts and specialty programming also generated significant revenues for the industry.

But in recent years, the category hasn't come close to replicating those numbers. In fact, the combined revenue take for the category in 2000 and 2002 was only $692 million, according to SET estimates.

BOXING DRIES UP

One of the major reasons for the category's decline: the lack of marquee boxing matches.

In 1999, operators offered 22 boxing events, versus 21 during 2000 and 2001 combined. And only the 2000 De La Hoya-Felix Trinidad welterweight fight broke the 1 million PPV buy mark.

Taffet, who oversees HBO PPV, said the development of marquee events has been complicated by fighters' demands for upfront guarantees, which often puts the network in a financial bind if the bouts don't perform as expected.

Distributors say they're having to shoulder the financial burden of creating events more now than at any point in history of the industry — unlike the 1980s and 1990s when operators often paid upfront guarantees or took a smaller revenue split to help distributors pay for expensive programming rights.

"Right now the fighters want too much money for PPV, so it becomes difficult to make the fights without financial and marketing support from cable operators," said Showtime executive vice president of corporate strategy and communications Mark Greenberg. "You can do the small fights that do 20,000 to 50,000 buys at no cost, or you do the big ones where you can expect a significant return, but the mid-level events have fallen out of the category."

Indeed, Showtime and HBO PPV are teaming on a rare co-promotional agreement to share the cost of presenting the Lewis-Tyson event.

But some industry executives say PPV boxing events have become too expensive for many subscribers to afford — the average marquee event retails at a suggested price of $49.95, and Tyson-Lewis will retail at an unprecedented $54.95.

Also, some say the quality of today's fighters and the cards offered on PPV have fallen dramatically in recent years.

"It's been a difficult few years for the boxing category," said DirecTV Inc. senior vice president of programming acquisitions Michael Thornton. "The fights have been sporadic — the price has gone up and I don't necessarily think the quality has been tracking with the prices."

CROWDED MARKETPLACE

Distributors also contend the category is suffering from operator growing pains stemming from the launch of digital and broadband products. PPV events are now forced to compete with new products such as digital-cable tiers, video-on-demand and high-speed Internet access for subscribers' discretionary income.

In addition, digital has brought more PPV channels into the marketplace, clouding the event distributor's ability to deliver consumer messages.

"There are more channels and more choices to make for the operator — do they sell movies, do they sell adult or do they get behind events?" Greenberg said. "People just don't commit as much as they would have if there was only one PPV channel."

In Demand senior vice president of programming and development Dan York said distributors will eventually have to adjust to the evolving PPV marketing environment. "The industry needs to bear in mind there are increased pressures on operators for cross-channel inventory, ad sales, and other revenue generating units such as modems and telephony" he said. "PPV's just one of the categories that operators are looking at."

Cox's Elander admits that the plethora of new services has taken a toll on the amount of marketing and promotion usually allotted to PPV events.

"The resources that we have to allocate to all of the different product lines have not grown at the same rate [as new products]," Elander said. "If I have to run 250 GRPs [gross rating points] of cross-channel in a month, am I better off promoting a $40 to $50 a month high-speed Internet access product that has a recurring revenue stream, or promoting a one-time only, $50 fight that may eventually get cancelled?"

Arguably, the genre affected most by cable operators' product marketing quagmire is boxing, since its marketing-based rate cards often require as many as 400 spots. HBO's Taffet said the company is already experiencing the effects of operator marketing resource squeezes.

"We understand operators have more products to market and promote to consumers, but we have to find ways to keep operators focused on the events we distribute," Taffet said.

While operator marketing support is important, World Wrestling Federation Entertainment Inc. has its own platforms to promote its PPV events. "Our model is a little different than [boxing's] — they don't have the nine hours of television commercial time to promote their events every week like we do," said executive vice president and chief marketing officer Julie Hoffman. "Their reliance on DBS and cable marketing support is much stronger — they don't have an event without that support, If they lose a tenth of that support, they feel it dramatically," she added.

One positive marketing constant for event providers: the direct-broadcast satellite services, and DirecTV Inc. in particular. DirecTV has remained aggressive in its approach to marketing both small and big events, translating into strong overall buy-rate performances.

HBO's Taffet said the DBS industry delivers 30 to 40 percent of all HBO PPV revenue per event, even though it accounts for less than one-third of the addressable homes.

NEW MODELS

In an effort to revive the event universe, some executives believe the category will have to find new distribution models to generate revenue.

For operators, the category's future may lie in the development of out-of-market sports packages, including a recently announced National Association for Stock Car Auto Racing interactive service. The cable-exclusive "NASCAR on In Demand" package will offer auto racing fans seven dedicated PPV channels that feature in-car cameras, live team communications and real-time race-car statistics displayed on animated dashboards.

The NASCAR service joins out-of-market sports packages from Major League Baseball, the National Basketball Association, the National Hockey League and the National Football League.

The ability to offer "NASCAR on In Demand," as well as "NBA League Pass," "NHL Center Ice," and "MLB Extra Innings" allows cable to more effectively compete against DirecTV while enhancing the industry's digital services.

"While we're disappointed that the event category is not performing as well as all of us would like, the category is shifting appropriately toward more PPV packages that we're able to deliver to the consumer," Elander said. "While it many not generate more revenue than traditional events, it pays dividends in terms of customer retention, as well as brings an awareness that cable is the preferred place to get your video product."

Also, In Demand is looking to develop non-traditional models for traditional PPV services. York said the company is in "active talks" with "significant comedy, music and other breaking content categories regarding continuity series for PPV," but would not reveal specifics.

In Demand also expects to launch the first-ever pro wrestling series on PPV in June. The as-yet-named show featuring NWA and other international wrestlers will air Wednesday nights for a suggested retail price of $9.95, according to sources.

But developing events outside of live sports and sports-entertainment categories remains a challenge. PPV concerts have never hit in a really big way and attempts to offer operas and Broadway shows have failed to catch on.

DirecTV's Thornton said such events, particularly the music genre, are a difficult sell because there isn't a sense of urgency. "It's not the last time you'll get to see these people, so it doesn't have the same appeal as a boxing match," he said.

Thornton said the company is trying some interesting things with concerts in terms of price points, offering events well below the traditional $20 price point usually reserved for music events. "Music isn't something that people will look to switch platforms for or we'll be acquiring platforms. We realize it's not a huge money-maker, so let's make it easier for the consumer to buy as opposed to looking for a big, exclusive event," Thornton said.

But some industry observers have criticized DirecTV for proffering free concert performances to drive viewers to other PPV offerings. But Thornton defended such stunts, saying they exposed subscribers to the company's other PPV programming.

"We've gotten a tremendous response in terms of retention and customer satisfaction on the concerts," he said. "There's not a lot of money in the business, so in terms of people tuning in and sampling the music it does much more good than any revenue we might be losing by doing it."

Rigid scheduling rules have also hurt the development of niche events. Unless it's a marquee attraction, most PPV distributors remain averse to scheduling events without a traditional two months to three months lead-time.

According to Innovative Sports Marketing, which offers as many as 40 soccer and other niche PPV sports events a year, distributors often turn away attractive futbol matches. "I often get offered quality games 11 days before game time but I can't get carriage because 11 days aren't enough time for an In Demand or a Dish Network to grab it," Innovative general manager Dan Jacobs said.

EVENTS VIA VOD

Operators argue that niche events may work better in a VOD environment, where viewers can pay to see a concert or a play over an extended period.

"Where some of these new technologies will help out is to give us the ability to reach out to these customers in different ways so that we're more effectively delivering to the consumer an event they may want to see," said Cox manager of PPV and VOD marketing Denise Myers.

Hoffman said the WWFE is currently participating in some trials with library programming, but is taking its time over concerns about the brand getting lost amidst a VOD or SVOD events package.

"It's like putting our wrestling product in Blockbuster. While it's nice that it's there, it's not the primary function of Blockbuster to go and find wrestling product," Hoffman said "The infrastructure being built for VOD and SVOD is primarily to sell movies, not events, so we're taking it slow."

While SVOD and VOD are future distribution outlets, Greenberg said PPV is still the most viable vehicle for such events. But the only way such programming can prosper is through a greater commitment from the industry to nurture and build such projects. That includes more favorable revenue splits in favor of the event provider to draw more players to the PPV category.

"When operators come to program suppliers trying to launch new products, they say 'Give it away for a year to help build awareness and distribution,' " Greenberg said. "Why is the PPV industry so different? The industry needs to foster and support event providers so that more events can make it to PPV."

To further enhance traditional PPV offerings, HBO's Taffet said the company is exploring ways to offer a multi-channel premium-priced service, including alternate camera angles and statistics, along with its PPV fight telecasts to provide more compelling access for viewers.

FUTURE

Despite the challenges, Taffet isn't predicting a doomsday scenario for the PPV event category. HBO PPV will continue to deliver six to 10 events per year, but it needs the cooperation from the industry to maintain economic viability.

"The last few years our events have performed better than we or the industry expected, but what hasn't happened is the million-buy mega-fight," Taffet said. "As long as we have a channel available to us that we can use for four to five hours to develop and distribute compelling boxing events, then we will be in the PPV event business. Whether any of those events are mega-fights will depend on whether the industry continues to embrace and support the business."

WWFE's Hoffman added that as long as the industry looks forward instead of trying to compare itself with past performances, it will survive.

"We keep comparing ourselves to the phenomenal 2000 numbers, but that year the economy was very robust," she said. "Every business in every sector is feeling the pain on the back end of 2000, so let's be realistic and not look at how the business is doing or how the category is doing in comparison, but rather how is it fairing against economic indicators. The economy certainly drives the PPV business."

And despite the shifting PPV event model, executives said PPV is still the best format to view marquee events — like a Tyson-Lewis fight.

"There's still an important role for live events — there's still nothing like being there for the big heavyweight boxing match," Elander said.

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