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Friday, February 29, 2008

Big Ten Network Reaches a Big Impasse

by: Colin J. McIntyre, Associate Editor, MTTLR

Introduction

In June of 2006, the Big Ten Conference announced its agreement with the Big Ten Network (“BTN”), in which the network paid for the rights to air a variety of Big Ten events and made a commitment to promote Big Ten sports of all kinds.1 Since that announcement, Big Ten sports fans have been watching anxiously as BTN has struggled through negotiations for carriage by the largest cable operators - Comcast most specifically. These negotiations will determine whether millions of cable subscribers will be able to watch many Big Ten games and how much they’ll pay. A critical point of contention has been whether the network will be carried as part of the extended basic cable package or whether it will be incorporated into a premium sports tier package.2 Prior to the network’s debut on August 31, 2007, it claimed to have reached agreements with over 75 small cable providers, as well as satellite providers DirecTV and AT&T U-verse.3 The number of agreements reached by BTN with cable providers rose to 140 by mid-October, but BTN and Comcast were still unable to reach an agreement.4 The parties appear to have made little headway in subsequent negotiations, although both sides continue to proclaim progress.5 As Big Ten sports fans have grown frustrated at being unable to watch games previously available on their basic extended cable services, the Big Ten Network and Comcast have done their best to address viewers’ concerns – by pointing fingers.6

The Dispute

The core issues have been whether there is enough interest among cable subscribers to justify adding the Big Ten Network to the basic extended package and whether the subscribers would be willing to pay any additional costs. Comcast has characterized the Big Ten Network’s coverage as the games no other networks wanted – the leftovers.7 BTN counters that although the Big Ten’s agreements do grant first choice of games to ESPN and ABC,8 it is still getting a valuable slice of the pie containing some important games that can hardly be deemed unwanted.9 The parties have presented conflicting claims of BTN popularity and viewership.10

Agreements between program networks and cable operators typically involve a per-subscriber fee paid by the cable operator.11 Comcast claims that the fee proposed by BTN is unreasonably high and would have to be transmitted to the subscriber. This increased cost imposed on subscribers not interested in receiving BTN amounts to a “Big Ten Tax” in the amount of $13.20 annually, according to Comcast.12 In BTN’s corner, commentators fire back that Comcast would not only force subscribers interested in BTN to pay for digital cable, but also to pay more than $70 annually for the premium sports package.13 While some might consider the $13 “Big Ten Tax” less-than-Comcastic, others would consider this $70 “Premium Sports Package Tax” to be downright Comrageous.

Comcast has done well to present itself as a sensitive protector of downtrodden consumers, upholding fairness by refusing to force subscribers to pay for the allegedly unwanted BTN. However, Comcast appears to contend that placing BTN in the Sports Entertainment Packages is the most fair way to make it available, though it would force BTN desirers to pay for five additional, potentially unwanted channels.14 One commenter suggests that Comcast’s current position makes one wonder about its previous opposition to a la carte programming.15 Comcast previously submitted comments to the FCC,16 which generally indicate a basis for opposing a la carte programming requirements similar to that found in the Booz-Alan-Hamilton study.17 However, with the FCC’s 2006 report questioning the validity of the Booz-Alan-Hamilton study and finding a la carte programming to favor consumers,18 perhaps we will see Comcast revisiting its position as well.


The Actual Reasons


The big question in the standoff between BTN and Comcast is how they can afford not to reach an agreement. BTN has already stated that it was expecting tens of millions of dollars in revenue from broad viewership,19 yet it has already had to bite the bullet for football season and is now well into basketball season. BTN President Mark Silverman claims that BTN cannot survive on a premium sports tier,20 but presumably it is also pretty hard up not being carried by the big cable companies at all. Though accusations of misinformation and mischaracterization have flown back and forth throughout the past several months,21 BTN makes a couple claims that seem convincing. First, it claims that it is willing to negotiate and looking to make a deal and cites the numerous agreements it has reached with other providers.22 Comcast, on the other hand, seems to have remained firm in its insistence on placing BTN in the sports tier.23 Silverman then provides reasonable explanation for declining to allow BTN to appear in a sports package. So what are the incentives for each party to participate in this stalemate?

According to Silverman, placement on the sports tier would mean dramatically reduced viewership,24 to the tune of 96% less revenue than anticipated.25 Although BTN has indicated a willingness to be flexible based on the volume of business brought in by Comcast,26 96% might be larger than the bulk discount BTN had in mind. BTN has also announced its goal of broad distribution, presumably broader than the 4% of Comcast subscribers who currently receive the sports tier.27 Finally, BTN indicates that all regional sports networks with local appeal similar to BTN are carried on basic extended packages, including the 11 RSNs owned by Comcast.28

Comcast’s incentives for sticking by its guns are interesting. Is the six-time runner-up for the title of “Lowest Customer Satisfaction Score” in the cable and satellite industry counting on the goodwill and loyalty of customers to help it weather this storm?29 Or is it true that BTN’s offerings are the day-old casserole of cable programming? Is David Cohen’s reasoning correct when he suggests that the BTN campaign is having little impact on Comcast subscription rates because nobody cares about BTN?30 Commenters have suggested in the past that significant barriers exist to switching from cable to satellite television.31 Besides the normal logistical hassle,32 technological limitations may make satellite unavailable, landlord approval of dish installation may be an impediment,33 and the bundled offering of cable television and broadband services may deter would-be satellite subscribers,34 especially where equivalent broadband service is unavailable35. Cohen’s suggestion seems conclusory, at best. It seems possible that Comcast hopes to enhance its sports tier to collect the larger subscription fees, confident that it can outwait BTN.36 As concerned voices continue to decry the growth of big cable,37 the BTN-Comcast negotiations may be another indication that Comcast’s power may be a little out of hand.38

Conclusion

While the specific details about negotiations remain unclear, a review of the available details allows at least general impressions. As a dedicated Big Ten sports non-fan, I am admittedly not riled that some games are now only available on BTN. However, I find it striking how each side has conducted itself. Comcast’s’ behavior seems equivalent to spreading rumors,39 pouting,40 and taking one’s ball and going home.41 In contrast, the BTN campaign has taken a largely positive or responsive approach.42 On the merits of their positions, each party certainly has a financial interest, and it is difficult to totally resolve the issue without more information about the specific negotiations. BTN has appeared more straight-forward in the statements it has made, though, while Comcast officials and the anti-BTN campaign have seemed evasive and sneaky.43 The continued stalemate in negotiations and the circumstances surrounding the negotiations suggest that Comcast may be using its market power to act as a bully.





1 See General Releases, BigTen.org, The Big Ten Conference Announces Media Agreements Increasing National Coverage of Big Ten Sports, Jun. 21, 2006.

2 See Eric Lacy, Big Ten, cable outlets at impasse, Detroit News, Aug. 24, 2007, at 1D (“What’s not negotiable . . . is the [Big Ten N]etworks stance on having the channel on basic cable.”); Richard Sandomir, Not Everyone Wants Channel That’s All Big Ten, All the Time, N.Y. Times, June 18, 2007, at D5 (“the offer to place the network on the sports tier was not an opening gambit or a negotiating ply.”).

3 BigTenNetwork.com, Frequently Asked Questions, http://www.bigtennetwork.com/corporate/FAQ.asp (indicating that reaching an agreement with Comcast “in the near future” was unlikely) (last updated Dec. 7, 2007) (last visited February 6, 2008).

4 Bob Fernandez, Comcast Holds the Line on Big Ten, Phila. Inquirer, Oct. 10, 2007, at A01. See also Ed Sherman, Comcast vs. BTN spins out of control, Chi Trib., October 10, 2007, at C4 (“Silverman said there has been ‘no movement’ in BTN's negotiations with Comcast”); Interview by Sam Webb with Mark Silverman, President, BTN, (Oct. 3, 2007) (“…there is only so much we can do when the other party is not really interested [in negotiating]”).

5 See, e.g., Michael Zuidema, Big Ten Network Standoff Drags On, Grand Rapids Press, Feb. 22, 2008; Ed Sherman, Big Ten Network, Comcast Continue Battle, Chicago Tribune, Feb. 8, 2008. See also BigTen Network, Cable Having 'Meaningful Talks, WCCO.com, Feb. 26, 2008

6 See, e.g., Myth vs. Fact, BigTenNetwork.com (last visited Feb. 6, 2008); PuttingFansFirst.com, (last visited Feb. 6, 2008) (anti-BTN website funded by Comcast, according to Mark Snyder, Good Luck Finding Today’s U-M Game on TV; Fans Are Biggest Victims of BTN-Comcast Feud, Detroit Free Press, Sept. 1, 2007, at Sports page 1). See also Sherman supra note 5.

7 See Fernandez, supra note 4; Sherman supra note 5.

8 BigTen.CSTV.com, Big Ten Network Frequently Asked Questions, (last visited Feb. 6, 2008)

9 See Webb, supra note 5; Myth vs. Fact, supra note 6.

10 See BigTenNetwork.com supra note 6; Interview by Sam Webb with Patrick Paterno, Director of Communications, Comcast Midwest, (Oct. 3, 2007); Chip Scoggins & Judd Zulgad, U Caught up in Comcast-Big Ten Feud, Star Trib., August 28, 2008 at 8C.

11 See Comments of Comcast Corporation, MB Docket No. 04-207 at 18 (filed July 15, 2004) (“Comcast Comments”).

12 See Teddy Greenstein, Big Ten, Comcast in “Taxing” Fight, Chi Trib., June 22, 2007, at C2; Scoggins supra note 10.

13 See Ed Sherman, Comcast Adding Costs, Not Choices, Chi Trib., Oct. 31, 2007, at C2 (indicating $5.99 per month fee to digital subscribers for sports tier); Fernandez supra note 4. See also BigTenNetworks.com supra note 6 (claiming basic non-digital Comcast subscribers could have to pay up to $280 annually to receive BTN on the sports tier).

14 Comcast.com, Sports Entertainment Package Features, (last visited Feb 6, 2008) (listing CSTV, Fox Soccer, Fox College, NBA TV and NFL Network as the channels in the package).

15 Fernandez supra note 4; Webb supra note 10.

16 See Comcast Comments supra note 11.

17 Booz Allen Hamilton, The a la Carte Paradox: Higher Consumer Costs and Reduced Programming Diversity: An Economic Analysis of the Implications of a la Carte Pricing on Cable Customers (July 2004) (“Booz-Allen-Hamilton Study”).

18 Federal Communications Commission, Media Bureau, Further Report On the Packaging and Sale of Video Programming Services To the Public, Feb. 9, 2006.

19 Fernandez supra note 4.

20 Id.

21 See, e.g., Sherman supra note 5 (Silverman claiming Comcast ad was “mischaracterizing the facts”); Richard Sandomir, Tempers Flare Over Network For Big Ten, N.Y. Times, June 23, 2007, at D5 (referring to a letter from Comcast executive vice president, David Cohen calling statements by Big Ten commissioner, Jim Delany “mischaracterizations and overstatements”); Webb supra note 5 (presenting Silverman questioning Comcast’s decision “go in a full scale advertising attack on the network with lies that they know are inaccurate.”)

22 See BigTenNetwork.com supra note 6 (referencing 150 agreements reached as indication of flexibility); Webb supra note 5 (Silverman indicating that BTN is “getting deals done” and is flexible).

23 See, e.g., Fernandez supra note 4.

24 See id. For several compelling arguments against forcing channels onto themed tiers, see Comcast Comments supra note 11 at 15-33 (arguing that a la cart and themed tier programming significantly reduces viewership and network revenues, which dramatically increases costs to consumers).

25 ($60 M - $2.5 M) / $ 60 M = 96%. Fernandez supra note 4 (indicating expectation of $60M and potential for $2.5M on a sports tier).

26 BTN suggested that due to its size, Comcast would likely pay less than a dollar per subscriber, rather than the $1.10 figure that has been spread around. Id.

27 Id.

28 BigTenNetwork.com supra note 3.

29 American Consumer Satisfaction Index, Scores By Industry: Cable and Satellite TV, (last visited Feb. 6, 2008) (listing consumer satisfaction ratings from 2001-2007 for seven major companies). Looking beyond the cable and satellite industry, of the 156 companies receiving scores in 2007, Comcast received the second lowest, tying with United Airlines and losing out only to Charter Communications. American Consumer Satisfaction Index, Scores by Company, (last visited Feb. 6, 2008)

30 See Fernandez supra note 4 (quoting Cohen saying “"We are seeing, essentially, no impact from that campaign. The market is proving that they are overreaching.").

31 See Comments of Citizen Commenters, MM Docket No. 92-264 at 40-43 (filed 08/05/2005)(explaining costs of switching from cable to DBS) (“Comments of Citizen Commenters”).

32 Id. at 41.

33 Clear exposure to the southern sky is necessary. Id. at 41.

34 See id. at 42-43; Christopher Stern, Comcast Bundles TV, Internet to Keep Customers, Wash. Post, Mar. 26, 2003, at E01.

35 For an example of Comcast reveling in the inferiority of its broadband competition, see http://www.theslowskys.com/home/ (last visited Feb. 6, 2008)

36 This idea has been advanced more than once. See Sherman supra note 13; BigTenNetwork.com supra note 3 (indicating that Comcast could earn up to $280 annually for each non-digital subscriber that signs up for the sports tier).

37 See, e.g., Jay Halfon & Edmund Mierzwinski, U.S. Public Interest Research Group, The Failure of Cable Deregulation, (2003) (“US PIRG Report”); Comments of Citizen Commenters; Letter from Harold Feld and Andrew Jay Schwartzman, Vice President and President, Media Access Project, on behalf of Common Cause et al., to Kevin Martin, Chairman, FCC (Mar. 21, 2007) (supporting implementation of ownership limitations on cable operators) (“Common Cause Letter”); Harold Feld’s Tales of the Sausage Factory, (Jul. 31, 2005, 13:51 EST) (“Fighting Big Cable (and why it matters)”).

38 See, e.g., US PIRG Report; study; Common Cause Letter supra note 37.

39 See Putting Fans First Commercial, (last visited Feb. 6, 2008); PuttingFansFirst.com supra note 6.

40 See PuttingFansFirst.com supra note 6.

41 See Scoggins supra note 10 (reporting Comcast’s withdrawal of sponsorship of a luncheon hosted by the St. Paul Chamber of Commerce and the University of Minnesota, as a result of the university’s Big Ten membership).

42 See, e.g., Big Ten Network Commercials, (last visited Feb 6, 2008) (showing BTN commercials lauding the positive impact of BTN and the importance of the Big Ten to the community); BigTenNetwork.com supra note 6 (responding to Comcast’s statements in a myth vs. fact page).

43 Compare Webb supra note 5 (interviewing BTN President, Mark Silverman) and BigTenNetwork.com supra note 6 with Webb supra note 10 (interviewing Comcast Midwest Vice President, Patrick Paterno) and PuttingFansFirst.com supra note 6.

1 Comments:

Blogger Ron said...

Hmm. From some digging, it looks like the most popular TV networks cost about $0.50 - $1 per subscriber on basic cable. The next tier run closer to $0.30. I think it seems mostly a cost thing. Unless BTN can promise that it can deliver as many viewers as TBS or ESPN (which is unlikely, except during the actual games), it just seems to be priced too high. I get a kick out of the fact that BTN likes to tout it's "national average" price of about $0.30...which it gets by averaging in only $0.10 for subscribers in states unlikely to watch.

This seems to be about greed on both sides. As a Comcast customer, I'm with Comcast on this one...I'll chip in $0.10 for something I'll never watch, but not $1.00. Let's see what happens!

March 2, 2008 at 10:57 AM  

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