What to Make of the NHL Network

Earlier this decade starting 24-hour cable networks became the cool thing to do for major sports leagues – NBA TV, NFL Network, more recently MLB Network, and of course the NHL Network. The first three have sustained notable successes and failures, nonetheless most people are aware of the three networks and what their position in the market is. The NHL, on the other hand, is an afterthought.

Few people know about the network, let alone watch it. That begs the question if your brand wants to use television as a marketing tool and revenue-generating utility, how do you plan to succeed with relatively little penetration. Last check the NHL Network is only in about 12mm households (though the number may increase with the Comcast deal), and despite league management saying the goal is wider distribution, I have not heard much of a fight from their camp to achieve this.

Conversely, they don’t have much leverage with cable operators. MLB, NFL, and the NBA each have major national television deals and broadcast and cable that earn substantial ratings, plus MLB and NBA ratings on regional networks often exceed NHL ratings in similar markets. Clearly, the other three sports have much more demand in the US. MLB boasts more content than any sport because of its long season, the NFL has made ancillary events such as the draft and combine into annual media frenzies, and the NBA’s work with Turner have given its network a boost. The NHL has none of that going for them.

The league tried to leverage cable operators by tying its Center Ice out-of-market package to network distribution, but again the package does not have the demand or popularity to force the hand of cable operators. Given the low subscriber penetration rate, and the difficult battle it faces to move the needle on that, plus the minimal subscriber fees it earns from the cable providers, I’d argue the NHL is failing to achieve both goals – marketing to a broader audience and revenue generation. That said, the league should reconsider its network strategy, rather than pursue a losing proposition.

If the league wants to stay in the content business, they should focus on developing shows and licensing them out to regional networks and international providers, rather than striving to program a 24-hour network. This could help reduce costs, while maintaining a revenue stream, and bolster distribution by leveraging with more availability – i.e. RSN’s, other niche sports networks.

Further, NHL’s online presence is well-designed and provides a great fan experience. It can try to shift the network completely online, have free and premium components, still license content out to television networks and web portals, use iTunes and other mobile distribution platforms, and shift the cable provider strategy to more VOD, which they have pursued with Comcast.

As the red-headed step child of major US sports, the NHL needs to stay ahead on the innovation curve and be willing to take more risk. Following the same network model that other leagues use is a doomed strategy for the NHL at this point. The league needs to develop something unique that extracts value from the current fan base (without gouging them), and achieves the reach and relevance needed to expand its fan base.

Pac-10, ACC Logical Media Partners

Here’s the lay of the land for college conference media deals: the ACC, Big 12, and Pac-10 will all vie for new contracts over the next two years, the two models are partnership [with established media networks for substantial rights fee] or ownership [of your own network].

The partnership model yields lower risk, however few options exist – mainly ESPN, Fox Sports, and CBS – and each competitor has already allocated significant chunks of programming time and fees to the SEC, Big 10 and Big East. This leaves the three remaining BCS conferences to fight over a limited supply of money and distribution. Conversely, launching a cable network is a difficult proposition in this market. Each conference has seen the Big 10 battle for distribution, while the NFL Network continues to lose its fight with providers, among other networks in protracted carriage disputes.

Larry Scott, newly crowned Pac-10 Commissioner, publicly acknowledges that he must market his conference to a wider audience, while ACC Commissioner John Swofford understands how the recent SEC deal changed the economic balance of power in college sports. Signing a rights deal with ESPN, likely for less than the SEC will not do justice to either conference’s bigger mission. The Pac-10 and ACC would play second fiddle to the SEC in college, and get buried under the NFL, golf and tennis majors, MLB coverage, and the NBA. ESPN and ESPN2 have limited shelf space, most of which is occupied. Additionally, these conferences need top billing to increase exposure and drive other revenue streams.

Given the difficulty to launch cable networks, a partnership between the conferences increases their leverage, disperses some of the risk, and increases the upside potential. Each conference brings an iconic team in both major sports – USC is the gold standard in football, as UNC and Duke are in basketball, while Florida State and Virginia Tech hold clout in football, as UCLA and Arizona do out West. They play in complementary timezones, opening the door for cyclical live programming and bi-coastal doubleheaders.

While gaining distribution is difficult, this combination is arguably a better sell than the Big 10. The aggregate covers no less than 12 of the top 30 TV markets to the Big 10’s 7, which is a generous count. Further, it’s presence in more overall markets would the network to charge a premium fee to more “in-market” consumers, thus increasing revenue. It follows that offering programming from two regions, with numerous displaced, yet passionate fans, creates a better selling point to cable providers not in school markets.

New business development opportunities can stem from the relationship. In place of the ESPN contrived basketball conference showdowns, a compelling pre-season ACC-Pac-10 series would draw interest, while the network could investigate bidding on college bowl games involving the two conferences, both creating a more compelling programming slate.

Another key is content ownership. Both conferences have the opportunity to learn from the SEC’s Digital Network initiative, and roll out an enhanced revenue generating machine in a few years. Doubling the content library opens new, creative bundling opportunities to sell to the sponsorship market and to license out. Without diving into financial projects at this stage, with the right management in place, its feasible to make the sum value of their content libraries greater than the individual parts.

And they count the greatest golfer and greatest basketball player ever among their combined alumni – hmm, shoulder programming?

Don’t Blame the Cable Guy For Channel Carriage Disputes

For the past few years it’s been the NFL Network battling cable providers, now the NFL’s latest creation, the Red Zone Channel faces a similar fate, meanwhile the Tennis Channel wages war with Cablevision in NY. As fans all you want is the channel and all you hear are the networks chirping about how the cable providers are standing between you and your favorite programming.

What customers don’t hear in detail are the outlandish requests these networks make, and the lack of economic sense of a deal from the cable provider perspective. Consider this – reports say the NFL wants to charge cable providers 25 cents per subscriber to carry the Red Zone channel on digital basic cable. For a provider with 10 million subscribers that amounts to a $30mm annual expense for a channel that is only available for about 6-7 hours a week for 17 weeks (Sunday afternoons during the season).

From an operator perspective, it’s difficult to issue a rate increase to customers for barely 100 hours of annual programming, thus picking up the channel on digital basic would be an additional expense without much added revenue, compromising significant profits. Sure, it may help retain or add some subscribers, but will many people change cable providers for what amounts to an insignificant amount of overall programming. If customers didn’t already switch to DirecTV for the complete NFL package or leave over not having the NFL Network, it’s likely they have found a way to satiate their NFL fix. Further, playing the game theory side, if multiple operators pick up the channel, soon all will follow, removing any leverage on customers and reducing profits for all providers.

The Tennis Channel case adds another layer of complexity. It does not have exclusive rights to any significant programming. As Cablevision advertised, viewers can watch about as many hours of tennis as they can hope for on ESPN and CBS, especially with DVR aided viewing. Cablevision failed to mention USOpen.org will provide live online streaming of matches and the US Open iPhone application will have a live video component. Similar options exist for all tennis Grand Slam events. At this point, does anyone outside of the niche, die-hard tennis fan need the Tennis Channel? Better yet, is anyone willing to pay higher cable rates to get the Tennis Channel or switch to satellite or telco-cable just to get the Tennis Channel? Didn’t think so, therefore Cablevision does not have incentive for increasing expenses to add the network to basic digital service.

Cable operators feel squeezed from both sides – networks increasing fees and new competition putting downward pressure on rates. With online streaming about to emerge in the form of TV Everywhere and other authenticated services, cable providers need to revisit channel packages and become more creative to offer customers more options and maximize the value they capture from each additional channel. This may include introducing a la carte packages for niche programming above and beyond digital basic, or putting a stronger marketing push and new packaging around tiered programming (sports tiers, etc), or creating new service bundles that integrate online and VOD access. Providers need to make sure they provide enough upside potential for channels to make it attractive. That comes back to the reason why content owners (or distribution owners, in the case of cable operators) need to charge a premium for good content – whether online or offline. For now, if the cable operators are smart, they will continue to push back on these niche networks with outlandish, unsubstantiated demands and develop a system that pays these niche channels based on actual customer demand. Networks may not want to hear this, but on the flip side the larger revenue per subscriber may compensate for the lower subscriber number, however any revenue is better than none, which each faces during a contract dispute with operators.

YES Network Marketing Follies for Live In-Market Streaming Package

“Watch the Yankees when you’re locked out of your house?” I know that’s not the first thought when I’m locked out, it’s a distant second, with everything else behind gaining entry! Yet, that is how YES Network is pushing their product to the market place.

When the Yankees, YES, and MLBAM announced the first live in-market streaming deal in July with a price tag of $39.95 for the rest of the season or $19.95 per month, it immediately raised the question of who would pay for this and what would they gain. MLBAM and cable nets are absolutely right in that they should charge for it out of the gate, and prevent the issues every other media business that moved online with free content now faces. However, subscribers have to be Cablevision (and now Verizon) customers with both Internet and cable service. My question, and one YES should consider as they market the product, is one would someone already paying for network at home, pay a significant fee to watch games online all season?

The marketing plan does not communicate a value proposition to its audience, a reason why they should pay additional for this service. Further, it’s creative leaves much to be desired, and I don’t think I’ve seen any distribution outside YES and its website (though I’m not a Cablevision or Verizon customer). MLBAM offers a tremendous online game package with great features and high quality feeds, YES should be touting what you don’t get with a regular cable subscription at home. Talk about the live stats on the side, the fantasy player tracker, the ability to call up highlights on-demand, social media integration to discuss the game with fans, and even PIP if they are MLB.tv subscribers.

Next, consider when customers will use this service. According to YES, its at the beach or when you’re locked out. Maybe I’ve been locked in a cave, but I’m not seeing many laptops in those situations (leave mobile out for now), nor do I feel the Yankees game is top of mind in either situation. The ads do mention work, which is likely the number one place, but what about in the house when your wife/parents are watching something else, or at school, or stuck traveling – or you want to track stats and interact during the game. Build out realistic scenarios, then develop creative that presents them in a more humorous way – similar to how the NCAA tournament employs the boss button. A key missing ingredient in the marketing is that I never see someone watching the games on their laptop in any realistic situation. All YES shows are generic Yankee highlights, if you watch it without sound it’s not completely evident what the product is.

One problem could be that YES is marketing a product that does not yet exist – single PPV games. Without any added value, customers will always opt for TV over online, making a full season or even monthly package less realistic. Then the marketing campaign touts one-off scenarios when the product is useful (beach, etc.), yet you can’t buy a single game for say $2.99.

Two other points on YES product roll-out. First, I mentioned the poor distribution earlier, but placement on their website is abysmal. I actually looked at the site for a good minute or two and thought it was not on the homepage, until I finally found it at the top, with the same colors as the background and no distinguishing creative. Not going to attract fans who are not looking for it. Second, the team should offer fans a chance to sample it, say one game free for all eligible subscribers, or put a time constraint. Get people to experience it, try it, live it – and win them over that way. Make completing a survey a stipulation for the free access, and leverage that data for next year’s product.

Under the current conditions, I don’t see how this product is generating much subscription revenue at this point. Though, it does have promise if executed correctly.

Verizon Pushes Innovation with Social Net Interactive TV Play

Last week, Verizon announced that FIOS users will have access to a Widget Bazaar product that provides access to popular social network sites such as Twitter and Facebook, as well as widgetized web content from ESPN among others. FIOS plans to evolve the service into another incarnation of the online app-stores that have taken over the public conscience.

The dashboard concept shows great foresight, and if designed correctly, it would fill the gap for something that Internet users would benefit from. Users suffer from information overload and most struggle to manage their presence on various social networks. Add to that the proliferation of news and information, and users face the “firehose effect”, more information than most can handle. Recent research shows the resulting effect, many users stop Tweeting or stop going to Facebook after only a few uses. People realize it takes an effort to manage their online personas, so due to frustration and lack of control they wind up leaving.

Verizon’s dashboard is a start, it gives users a framework (the dashboard), yet lets people customize what they want to see. Many online services give users the same control, however none have emerged as the aggregator of choice that solves all shortcomings. And my feeling is that the end all must include a built-in real-time search component that sifts through the data to present what you want to see, and allows you to dig in if you want more.

Besides getting it right with the application, and the numerous interactions with TV content that become possible, this is another example of why competition in the phone and cable space benefits everyone. No longer permitted to sit on local monopolies and simply collect monthly fees, cable companies must now provide better service than telco television, while telcos must work that much harder to convince long time customers to change. Competition spurs innovation. The outcome, value-added services, such as this Verizon Widget Bazaar and Comcast’s iPhone application to program DVR functions remotely, and the various services that Tivo is bundling into set-top boxes as it fights for survival.

With innovation, customers win, and win big. After stagnation for many years in local television delivery, expect lightning fast change in the next 5 years. Most people are not aware of the power within set-top boxes or at the head-end of cable systems. Power that to this point that has not been close to utilized. One issues these companies face, staying flexible and innovative in the face of deteriorating prices and low-cost online challengers. Will technology be enough, or do they need a la carte service to survive in the long term.

Why Even Fight, Customers Not Demanding Two Olympic Cable Channels

For a moment, put aside the fact that the USOC completely dropped the ball by announcing the launch of its Olympic TV Network without having the IOC on board, without previously working with other NGB’s to secure rights, and without some handshake agreement with NBC – the TV czar of all things Olympics. Even without these factors, launching this network is still a bad decision.

NBC partnered with InterMedia Partners for Universal Sports, a network essentially premised on the same strategy as Olympic TV Network. It fit well into NBC’s Olympic coverage, where NBC disperses events across a group of cable networks. However, the two years between Olympics remain somewhat of an abyss.

If ever there was a time to push the Olympic theme, I agree now is that time. Michael Phelps is still prominent in the public eye, Chicago is in the mix for the 2016 games, Bejing is still fresh in everyone’s mind, and a cable network can provide the marketing platform that Olympic sports desperately need to return to the mainstream. However, further segmenting an already small, niche audience is not typically a successful strategy. Neither is creating negative PR with in fighting among various governing bodies. The USOC-Comcast backed network launch may do more harm than good.

Clearly, with Comcast involved as an equity partner the network will get some distribution – replicating the recent strategy used by multiple sports networks to achieve wide distribution. But it goes against the current of the overall cable industry movement. Providers face a dilemma. Continuing to add programming increases MSO expenses, while competition from telcos and Internet viewers puts downward pressure on prices, squeezing profits at a time when ad dollars have disappeared. The proliferation of niche cable networks through the 1990’s and early 2000’s is not a sustainable business model for cable because none of these networks can directly increase customer revenue. Adding a second network based on programming with minimal interest outside of two bi-annual windows is not a good economic decision for MSO’s.

The USOC and Comcast would have added more value by trying to partner with the Universal Sports network and maximize the value delivered by Olympic programming. Develop a solid, singular marketing platform that promotes it as the place to go for Olympic coverage. The competition is the entire sports universe, not each other. MLB Network competes against ESPN, TBS, ESPN 2, Versus, multiple regional RSNs, TNT, and the other league networks. Another entity walking in to start a baseball-only network to compete with MLB makes no sense because you weaken each other in a fight against other behemoths that already hold an advantage.

Throw into the fire the haste the USOC showed in announcing this, and it has all the makings of a disaster. I have a hard time seeing either of these networks succeed unless they dump money into marketing and find a way to generate interest in more than Michael Phelps during the time between Olympics. And if the US lost the Chicago for reasons related to this situation, cable viewers would never forgive them.

TV Everywhere, Anywhere, Somewhere…

Programmers and cable operators, other than CBS of course, tout it as the savior, putting the proverbial “genie back in the bottle”. But the $64,000 question is if the TV industry is already too late to the game and if this plan is what can save them?

One key concept from Chris Anderson’s “The Long Tail” is how technology has democratized the tools of production, reducing the barriers of entry to previously capital-intensive businesses such as television. This raises a few fundamental questions about the TV Everywhere plan. What prevents someone from recording a show on DVD (or a networked DVR for that matter) and putting it on the Internet through a pirated video site? Legal authorities can do only so much to prevent illegal sites, but like it or not they exist. One only needs to look at the frustration over NBC’s tape-delayed Wimbledon coverage. Disappointed users had no problem finding a live feed on the Internet.

Technology evolves faster than corporations can react. Even if the TV Everywhere concept comes up with a successful authentication plan and finds a way to address pirating, how long before someone figures out a way to beat the system. Shedding light on Cablevision’s recent court victory allowing it to deploy remote DVR, it may actually help the industry in the end. A DVR is yet another Internet-capable device in the possession of users that consumers can use to put unlicensed content online. Removing these boxes from cable homes can help prevent this. It may sound farfetched, but its not outside the capabilities of the increasing tech-savvy world.

Putting the genie back in the bottle is tougher than it sounds. It’s like telling kids not to smoke. They know about it, they have seen it, telling them smoking is bad only makes them want to do it more. Giving the customers free content, then taking it away from them, will only inspire them to want to find ways to get it free.

Bringing up another Chris Anderson concept, one I don’t agree with, free does not work. It killed music, its killing broadcast television, its ruining newspapers, and it will destroy everything in its path. iTunes did not save music. 99 cents is not sustainable revenue. Kindle is about to ruin the book industry with its low-cost business model. Offering services free drives user numbers, not businesses. The key is to find ways for the product to drive usage and squeeze as much revenue out of the situation as possible – something Apple has done well for the most part, in selling premium products.

TV Everywhere is necessary. Content providers will not remain sustainable in the long run if they can’t charge for content. TV Everywhere is the effort to save big programmers. If it fails, and users begin an attrition from cable to online, revenues will start to shrink, programmers will be unable to afford content development, and users will be left with a smattering of UGC and You Tube videos to watch.

Obviously, its an exaggeration, but it’s the path the industry is heading towards. Leno at 10PM is the first step, a major network unable to afford traditional programming due to shrinking revenue. It may take years to manifest itself, but successfully charging for online content and maintaining current revenue levels with reasonable growth is necessary for the industry to avoid disaster.