Without anyone seemingly paying much attention, ESPN has become the Google of cable TV sports. How long before regulators set their sights on it?
On Monday, the Sports Business Journal wrote of CBS and Turner considering a joint-bid for the rights to the NCAA Men's basketball tournament if the NCAA opts out of its current deal with CBS. The article focuses on a lot of things, including the potential expansion of the tournament to as many as 96 teams and how Turner and CBS might split the telecasts in the event the NCAA opts out of the current contract and a joint CBS/Turner bid wins.
What's more surprising to me is what the article doesn't focus on. First, why the NCAA might want to opt out to begin with.
The NCAA is considering whether to opt out of its 11-year, $6 billion contract with CBS after the Final Four in April. The deal has three years and $2.131 billion remaining.
OK, so it's a no brainer that just like the reasons to consider expanding the tournament, the reason to opt out of the current contract is money. Which brings me to the thing that surprised me most in the article: that ESPN is only mentioned once, and merely in passing as a potential bidder at that.
I know hardly anyone is interested in cable network carriage fees, and broadcast network retransmission fees -- the amounts paid by the various cable and satellite providers to the networks. But this is a good context to have that discussion.
In fact, if I'm the NCAA, aside from expansion -- which just makes sense from a "more teams = more games = more money" perspective -- it's the cable carriage fees that have me interested in considering rebidding the rights.
Particularly ESPN's, because ESPN is so much higher than anyone else. The estimates from SNL Kagan for 2010 shake out that on average, ESPN makes $4.10 per month/per cable or satellite subscriber. Just for ease of rounding, figure 100 million subscribers, so ESPN is raking in nearly $5 billion dollars a year just in subscriber revenue -- that doesn't count any of the advertising. The reason Turner makes a good partner, I suppose is that TNT is at least in the top 3 when it comes to carriage fees -- but it's less than a fourth of ESPN!
Here are the top 3:
- ESPN: $4.10/subscriber/month
- FOX Sports Net $2.37/subscriber/month
- TNT: $.96/subscriber/month
Because the various FOX Sports Nets are regional and not national, I'm not sure what its coverage is nationwide and because of its regional nature, Nielsen doesn't roll it up into its coverage estimates. As of December, Nielsen estimated ESPN was available in over 99 million homes. I'd guess Fox Sports is in less than that, but how much less, I can't really speculate.
Clearly, winning the bid for the NCAA Men's B-Ball tourney rights if CBS opts out of its current contract and puts it up for bid would put FOX Sports Net on the map.
Turner has a little more in its war chest since it could include the revenue from TBS (estimated at $.47/subscriber/month).
But clearly ESPN is in the best position as far as a war chest full of cash goes. ESPN has already snagged up future BCS rights (college football) and it surely will be considering making a bid for the Olympics when it becomes available.
From my perspective, unless I'm missing something (usually a safe bet) the interesting angles to this story are what motivation ESPN's war chest of cash plays in the NCAA's thinking and that it's pretty clear it plays a big role in CBS' thinking. Why partner with Turner? Because it probably can't afford to compete with ESPN on its own.
Without anyone paying much attention, ESPN has become the Google of cable TV sports. How long before regulators set their sights on it?
For the record, I'm not saying ESPN has an unfair advantage due to revenue derived from cable carriage fees. But clearly it has an advantage. I'm sure ESPN's competitors consider it unfair.
I don't think it's "unfair", and I'd say good for ESPN. That said, I do think ESPN's revenue from carriage fees is more than it should be for what it offers. ESPN's carriage fee revenue is bigger than TNT+ Turner + USA Network + Nickelodeon + FX....combined. Those 5 networks combine for $2.79 a month vs. ESPN's $4.10.
And that doesn't even include the $.54/month/subscriber estimated for ESPN 2.
ESPN is a big network, even with the Nielsen ratings. But so much of that is fueled by. Last week, even with the highest-rated, most-watched Pro Bowl in a decade, ESPN still trailed USA Network, both in total day viewing and in primetime.
I think ESPN certainly deserves a premium due to the popularity and demand for live sports. Whether that premium should be set at more than twelve times more than MTV ($.33/mo/subscriber) or more than seven times more than USA Network (which routinely beats ESPN in the ratings) is another story.