This fall will bring forth not only the changing of leaves but potential changes to the power structure of sports television, as four new team-controlled regional sports networks make their debut.
Each new entry has high hopes of succeeding in a business dominated by incumbent Fox Sports Net. But their success is certainly not guaranteed, given the tepid results of other standalone regional sports networks over the years and the continued acrimonious relationship between distributors and regional sports networks over fees.
That isn’t stopping the four newcomers trying to control their TV destinies: Denver-based Altitude Sports & Entertainment, Charlotte, N.C.-based Carolinas Sports Entertainment Television (C-SET), Memphis-based GrizzliesNet and Comcast SportsNet Chicago.
These networks — and several others on deck to potentially launch over the next couple of years — hope to follow the path most recently paved by the Yankees Entertainment & Sports Network by keeping their television rights in-house and offering local sports programming directly to cable operators and satellite distributors.
While each network’s approach differs slightly, executives say the combination of marquee local-sports programming, along with enhanced technologies such as HDTV and quality digital-picture enhancements, will provide them with enough leverage to gain carriage in markets already replete with at least one competing sports network.
“What this fall demonstrates is that the idea of creating your own network or dealing directly with distributors is going to be a much more acceptable process for teams from now into the future,” says Lee Berke, president of the consultancy LHB Inc., who has advised several pro-sports clubs seeking to start stand-alone networks.
For team owners, the prospect of owning the entity that distributes their games is alluring both financially and from an image standpoint.
“This isn’t rocket science. Economically, it’s better for us,” says Jerry Reinsdorf, owner of Major League Baseball’s Chicago White Sox and the National Basketball Association’s Chicago Bulls. He’s also part-owner of the planned Comcast SportsNet Chicago, set to launch in October.
Reinsdorf left Fox Sports Net Chicago late last year to develop the service with a very strategic group of partners: the city’s biggest cable provider, Comcast Corp.; the Wirtz family, which has ties to the National Hockey League’s Chicago Blackhawks; and Tribune Co., which controls baseball’s Chicago Cubs.
“From a financial standpoint, we looked at it, and we looked at Fox’s role — which was basically a middleman. We eliminated the middleman, so we have their money available to the teams,” says Reinsdorf.
He concedes it’s a risk not to have the guaranteed upfront license fee from Fox, but Reinsdorf says he believes that his teams’ partnership with the biggest MSO — and the other major sports teams in Chicago will yield a much more profitable return than other failed standalone regional sports networks, such as Victory Sports Network, backed by baseball’s Minnesota Twins.
Reinsdorf notes that controlling your own regional-sports network allows for more opportunities to maximize on-air exposure for the local teams without having to share time with other, more nationally based programming.
“Fox brought in a lot of national programming, and I think fans in the Chicago market focus more on the local teams,” Reinsdorf contends.
“We will rise or fall as a sports franchise and a sports product on the basis of our penetration into the psyche of the local market,” says Bob Johnson, who is C-SET’s chairman and owner of the NBA’s Carolina Bobcats, but best known in the industry for launching Black Entertainment Television. “If I own a sports team, I’m going to do everything I can to control the emotion, image, access of my brand the best way I can. We think we do that much better controlling our own content, distributing our own content, than simply being a passive licensee to other regional networks.”
But Johnson’s control extends even further. He also owns the Charlotte Arena, where the Bobcats play. Similar moves have been played out in Denver by Kroenke Sports Enterprises LLC. It owns the Altitude network, the NBA’s Denver Nuggets, the National Hockey League’s Colorado Avalanche and the Pepsi Center arena.
In order to infiltrate and saturate the team’s brand within the market, you need distribution something that has thwarted and stalled standalone regional sports network upstarts for years. But with the exception of the GrizzliesNet service, each of this fall’s new services have at least one major distribution deal — although not all are typical sports-network carriage agreements.
While nearly all regional and national sports networks aggressively vie for nearly universal subscriber penetration in an effort to maximize licensing fee and advertising revenue, Charlotte’s C-SET opted to reach a digital-basic distribution deal with market-dominant Time Warner Cable. With Time Warner’s digital tier not reaching a significant majority of its subscribers in the market, some industry observers questioned the wisdom of C-SET’s move. And other standalone regional-sports-network owners feared the precedent-setting deal would stymie their efforts to gain basic distribution.
However, C-SET executive vice president of media rights and entertainment Naomi Travers says the deal was forged with Time Warner to gain vital initial distribution, and notes that the MSO is aggressively pushing digital cable. The network is seeking to lure other operators with a monthly rate card that falls between $1.25 and $1.35 per subscriber. And she predicts that by the time the channel launches in October, it will have more than 1 million subscribers.
“All of the operators that we talked to led us to believe that most of the new subscriptions are on the digital tier,” Travers says. “We firmly believe that the digital platform is the analog platform of tomorrow.”
LHB’s Berke believes deals like the one forged by C-SET and Time Warner may be more the trend than the anomaly, as digital-cable penetration grows over the next few years.
“What was 15% or 20% penetration for digital tiers several years ago is now 40% and 45%. And new subscribers are coming in at much higher percentages,” he says. “What you will see over the next three to five years is a sea change in how cable’s being distributed with the advent of digital cable, and that increasingly will be part of the development and negotiations of these networks going forward.”
ALTITUDE’S UNIQUE DEAL
Denver-based Altitude also took a unique approach with its first distribution deal, with satellite distributor EchoStar Communications Corp.’s Dish Network. Altitude is charging around $1.75 per month, and will air on Dish’s highly-penetrated “America’s Top 60 plus” tier.
In return, Dish will gain significant advertising and promotional opportunities on the network, as well as signage at the Pepsi Center, including a 55,000-foot Dish logo on the arena’s roof.
While the network has yet to reach a distribution deal with any major cable operators, Altitude president Jim Martin says the network’s programming — including exclusive games from the Nuggets and Avalanche — will appeal to cable operators in the market. “I expect us to be in front of 1 million subscribers at launch,” Martin says. “What makes our offering powerful are the teams that we’re providing, and that’s what makes me confident of our deals; we have a compelling offering from a content standpoint.”
Indeed, a network that offers more than one pro sports team in a market has considerably more leverage than a single-team network. But when you feature four sports teams as well as the market’s biggest MSO — as is the case for Comcast SportsNet Chicago — carriage is practically a slam dunk.
However, the network has yet to reach other carriage deals beyond its MSO owner. Comcast SportsNet Chicago senior vice president and general manager Jim Corno would not reveal the rate card for the network, but sources say the service’s $3.00 license fee is among the highest in the country.
“What differentiates us and gives us an advantage is our owner is the largest distributor in the market, and with that they established what the rest of the market will pay,” Corno says. “This is the model that you’ll see in the future, where the real successful business will have the teams as well as the major distributor involved in one way or another. … Nobody has had all the pieces like we do.”
That may be true, but Berke notes that one of the keys to successful relations with cable distributors is building alliances that go beyond license fees.
“They can offer up localized opportunities with truly regionalized sports programming, and in some instances cable exclusive things like video-on-demand and HD,” he says. “As cable looks for ways to compete with satellite, you’re seeing companies like Comcast, Time Warner and Cox [Communications Inc.] use these networks as something that truly builds their businesses.”
But while the industry is experiencing a rash of team-owned regional sports networks, industry observers aren’t quite ready to declare a sports television revolution. Even Berke admits that not every team in every market is capable of successfully launching its own sports network.
“Will teams continue to do deals with Fox or other third parties? Absolutely, because there will always be certain teams that are looking for the comfort of having somebody take on the television process in return for rights dollars,” says Berke.
FOX’S STRONG SUIT
Indeed, far more pro teams than not have forged long-term carriage deals with either Fox Sports Net or its partner, Rainbow Media Holdings Inc., which either control or are affiliated with over 20 regional sports networks. In fact, Fox Sports Net and its affiliated networks have signed to long-term deals more than 20 pro franchises in the last two years alone.
Fox Sports Net president Bob Thompson says teams have threatened to launch their own regional sports networks since the early 1990s, but few have ever been successful. Nevertheless, he says it’s a situation that Fox continues to keep a close eye on.
“I’ve always concerned about our competition, but I don’t think our business is in jeopardy,” he says.
To better insulate itself from the potential of mass team defections, Thompson says Fox has been vigilant in staggering rights deals among teams in the same market, making it difficult for several to combine and start what would be a formidable competitor for Fox. That’s exactly what happened to the Rainbow Media Holdings-controlled FSN Chicago in October, when the four franchises exercised an out clause in their contracts to do a deal with Comcast.
“We’re very careful about how we stagger our rights deals so that [no team] will be sitting on the outside for a while if they’re looking to combine with someone else,” he says. “Not only are they staggered, but we have significant back-end rights, so they are ours to lose.”
Adds Berke: “Fox does a very good job with what it does and it’s not going to go away. At the same time, they won’t be the only game in town, they will co-exist with a lot of these other networks.”