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  1. #1

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    I think it is time to discuss how the ACC Network can work...

    I thought it would be a good time to share with all of you some of the economics on how a potential ACC network may work and what it could do to the financial fortunes of the ACC institutions.

    First of all, cable television networks make their money from two key revenue streams. The first is money paid to them from the cable and satellite companies from every subscriber that has access to their channel. The other revenue stream is from advertising. The advertising can come via over-the-air ads or digital advertising which is often typically paid on impression basis...meaning when you click they get paid.

    Sports networks command some of the best over-the-air advertising rates because live sports are the only remaining television property that is DVR proof. This means that when someone watches a live sporting event, they cannot fast forward through the commercials making the commercial time some of the most valuable on the air.

    The key to making a network successful is to obtain distribution over the cable and satellite providers. The model can be relatively simple to understand in that the more subscribers that have access to your network, the more money you will make. ESPN makes over $5 per subscriber. Fox is looking to make $0.88 per subscriber for Fox Sports 1. If you are ESPN and you are in over 80 million homes and you make $5 per month per subscriber...that brings in a whole lot of cash. In fact, ESPN makes about 63% of its revenue from subscribers. The rest comes from advertising sales with about 85% of advertising revenue coming from over-the-air sales and the rest coming from digital and print ads.

    Let's say you are the ACC and you want to start a network. If you are able to get distribution into 20 million homes and can command a rate of 50 cents per subscriber, that will earn you $120 million per year. Let's also say that since you are a new network and do not have an ad rate established that you only can bring in 20% of subscriber revenue via advertising dollars. Remember that at ESPN ad sales are 50% of subscriber dollars. This means that advertising can bring in another $24 million dollars per year. If you get lucky, you can sell digital advertising over your digital network for another $6 million. All of the sudden you are at $150 million per year that when split by 15 member schools clears you a cool $10 million per year...above and beyond the current TV deal that is already in place.

    So that is the business model...so what has to happen to make that come through. First, you have to get distribution. One of the keys to the success of the Big 10 network is that they have national distribution across cable and satellite. An ACC Network that features Notre Dame and possibly Texas could get national distribution. In fact, if you put 2 or 3 Notre Dame football games on the ACC Network, you will get nationwide distribution by holding the cable and satellite companies hostage until they placate their angry subscribers and put the games on their systems. If you get national distribution, then that 20 million subscriber number doubles or more and you can do the math. Also, if you can get into the top markets in the country you can attract better ad rates. An ad in New York or Chicago sells for a lot more money than an ad in Roanoke. Bigger markets equals better cash...plain and simple. If you cannot get distribution, your business model will fall flat...just like the Longhorn Network.

    The ACC is likely right now working with ESPN to take the temperature of Comacast, Time Warner, DirecTV, Cox, Dish, Charter, etc to see if they can get distribution and what kind of rates are possible. If they can pull things in to a point where each school will get $15 million per year, then it will match what Texas gets paid for the LHN. If you are struggling to balance an athletic budget or need more money to field a top-class program, a 10-15 million dollar shot in the arm will go a very long way.

    The big question is could an ACC Network get distribution. I suggest that you follow the SEC Network. If that is a success, then the model will be in place and ESPN can clone that property and sell it the exact same way.

  2. #2
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    Quote Originally Posted by CobbCountyHokie View Post
    I thought it would be a good time to share with all of you some of the economics on how a potential ACC network may work and what it could do to the financial fortunes of the ACC institutions.

    First of all, cable television networks make their money from two key revenue streams. The first is money paid to them from the cable and satellite companies from every subscriber that has access to their channel. The other revenue stream is from advertising. The advertising can come via over-the-air ads or digital advertising which is often typically paid on impression basis...meaning when you click they get paid.

    Sports networks command some of the best over-the-air advertising rates because live sports are the only remaining television property that is DVR proof. This means that when someone watches a live sporting event, they cannot fast forward through the commercials making the commercial time some of the most valuable on the air.

    The key to making a network successful is to obtain distribution over the cable and satellite providers. The model can be relatively simple to understand in that the more subscribers that have access to your network, the more money you will make. ESPN makes over $5 per subscriber. Fox is looking to make $0.88 per subscriber for Fox Sports 1. If you are ESPN and you are in over 80 million homes and you make $5 per month per subscriber...that brings in a whole lot of cash. In fact, ESPN makes about 63% of its revenue from subscribers. The rest comes from advertising sales with about 85% of advertising revenue coming from over-the-air sales and the rest coming from digital and print ads.

    Let's say you are the ACC and you want to start a network. If you are able to get distribution into 20 million homes and can command a rate of 50 cents per subscriber, that will earn you $120 million per year. Let's also say that since you are a new network and do not have an ad rate established that you only can bring in 20% of subscriber revenue via advertising dollars. Remember that at ESPN ad sales are 50% of subscriber dollars. This means that advertising can bring in another $24 million dollars per year. If you get lucky, you can sell digital advertising over your digital network for another $6 million. All of the sudden you are at $150 million per year that when split by 15 member schools clears you a cool $10 million per year...above and beyond the current TV deal that is already in place.

    So that is the business model...so what has to happen to make that come through. First, you have to get distribution. One of the keys to the success of the Big 10 network is that they have national distribution across cable and satellite. An ACC Network that features Notre Dame and possibly Texas could get national distribution. In fact, if you put 2 or 3 Notre Dame football games on the ACC Network, you will get nationwide distribution by holding the cable and satellite companies hostage until they placate their angry subscribers and put the games on their systems. If you get national distribution, then that 20 million subscriber number doubles or more and you can do the math. Also, if you can get into the top markets in the country you can attract better ad rates. An ad in New York or Chicago sells for a lot more money than an ad in Roanoke. Bigger markets equals better cash...plain and simple. If you cannot get distribution, your business model will fall flat...just like the Longhorn Network.

    The ACC is likely right now working with ESPN to take the temperature of Comacast, Time Warner, DirecTV, Cox, Dish, Charter, etc to see if they can get distribution and what kind of rates are possible. If they can pull things in to a point where each school will get $15 million per year, then it will match what Texas gets paid for the LHN. If you are struggling to balance an athletic budget or need more money to field a top-class program, a 10-15 million dollar shot in the arm will go a very long way.

    The big question is could an ACC Network get distribution. I suggest that you follow the SEC Network. If that is a success, then the model will be in place and ESPN can clone that property and sell it the exact same way.
    Nice job. Crystal clear picture.

  3. #3
    hokiebob01's Avatar
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    Nice job but all those figures are gross and not net.

    Assuming that the network launches how do you compensate Raycom, Fox and ESPN for the programming that they own through 2025? You mentioned adding some Notre Dame games. Right now I bet that ESPN plans to run those games on their family of channels as part of the current ACC Package estimated at 20 million per team. How much of that 20 million per team will be lost or do you expect ESPN to just donate the programming back to the ACC?

    Then who do you contract with to actually produce the programming? Since the ACC is not in the business of television somebody will have to actually arrange everything and make it happen. That is not going to be free either.

    How long will cable/satellite providers keep passing along costs for programming that appeals to niche markets? Right now CBS and Time Warner are fueding in major cities. Raycom (which owns several channels) is fighting with Dish. I personally am feuding with Time Warner. It is naive to assume that consumers will continue to allow costs to be added on every quarter for programming that a few will watch.

    These are just a couple of issues that are part of the analysis that Swofford was talking about. I'm sure that there are more. It's not just adding cents to everybody's cable bill and then dividing it up.

    Last edited by hokiebob01; Tue Aug 06 2013 at 09:57 AM.
    I don't always talk to UVa Grads but when I do I always order the Large Fries.

  4. #4
    Edgeman's Avatar
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    I, for one, would love to see the ESPN3 Internet games moved to a broadcast channel!!!!!!!!! Let them also run it on "The Trace", but at least offer it on a cable channel.
    "You start a conversation you can't even finish it
    You're talkin' a lot, but you're not sayin' anything
    When I have nothing to say, my lips are sealed
    Say something once, why say it again?"
    - David Byrne

  5. #5

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    The ACC is not going to do a deal without ESPN...

    Quote Originally Posted by hokiebob01 View Post
    Nice job but all those figures are gross and not net.

    Assuming that the network launches how do you compensate Raycom, Fox and ESPN for the programming that they own through 2025? You mentioned adding some Notre Dame games. Right now I bet that ESPN plans to run those games on their family of channels as part of the current ACC Package estimated at 20 million per team. How much of that 20 million per team will be lost or do you expect ESPN to just donate the programming back to the ACC?

    Then who do you contract with to actually produce the programming? Since the ACC is not in the business of television somebody will have to actually arrange everything and make it happen. That is not going to be free either.

    How long will cable/satellite providers keep passing along costs for programming that appeals to niche markets? Right now CBS and Time Warner are fueding in major cities. Raycom (which owns several channels) is fighting with Dish. I personally am feuding with Time Warner. It is naive to assume that consumers will continue to allow costs to be added on every quarter for programming that a few will watch.

    These are just a couple of issues that are part of the analysis that Swofford was talking about. I'm sure that there are more. It's not just adding cents to everybody's cable bill and then dividing it up.


    I am sure that ESPN will own the network, will produce the content and will sell the distribution. This is the exact same model that is being used for the SEC network.

    You are right, my numbers are all gross and that is because ESPN will likely pay the conference members a flat fee for the network. The cable companies will pay ESPN.

  6. #6
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    The ACC-ESPN relationship is maxxed-out,

    Quote Originally Posted by hokiebob01 View Post
    Nice job but all those figures are gross and not net.

    Assuming that the network launches how do you compensate Raycom, Fox and ESPN for the programming that they own through 2025? You mentioned adding some Notre Dame games. Right now I bet that ESPN plans to run those games on their family of channels as part of the current ACC Package estimated at 20 million per team. How much of that 20 million per team will be lost or do you expect ESPN to just donate the programming back to the ACC?

    Then who do you contract with to actually produce the programming? Since the ACC is not in the business of television somebody will have to actually arrange everything and make it happen. That is not going to be free either.

    How long will cable/satellite providers keep passing along costs for programming that appeals to niche markets? Right now CBS and Time Warner are fueding in major cities. Raycom (which owns several channels) is fighting with Dish. I personally am feuding with Time Warner. It is naive to assume that consumers will continue to allow costs to be added on every quarter for programming that a few will watch.

    These are just a couple of issues that are part of the analysis that Swofford was talking about. I'm sure that there are more. It's not just adding cents to everybody's cable bill and then dividing it up.
    unless you think they are interested in taking on the non-revenue sports content. The Conference already sold ALL of their FB & MBB to ESPN. Raycom bought some second-hand, Fox took some of those third-hand, YES took some of the same fourth hand. Do you now suggest that the Conference will try to reacquire all of that stuff from all of those parties so that the ACC can return it to ESPN (AGAIN!) as content for an ESPN-owned ACC network? ESPN is being paid $50 million a year for those games. They don't want them back. Among ESPN, Raycom, FOX, and YES, only Raycom has any incentive to cooperate. Raycom's FB and BB games will be combined with the ACC's non-revenue sports to form the network. That is also the answer to "Who will produce..." Raycom has TV production facilities and staff. They are already active and experienced in that business. And they have "friends" in the ACC.

    Preliminary research may be inconclusive about the viability of the network. But they should, at least, have some idea about these possibilities:
    a. An ACC network will be profitable
    b. An ACC network should operate at "break-even"
    c. An ACC network will incur painful, but manageable losses
    d. An ACC network will hemorrhage rivers of cash

    If the answer is d, forget the whole thing. If it is a,b,c, conference officials and Raycom should be in a frantic dash to get this thing going. There are plenty of laid-off ESPN employees who could have useful skills in, sales, technology, production, etc.(Dirt on ESPN) Find 'em. Use 'em.

    The conference doesn't take its content to market again until 2026. By then, the ACC network will have either disappeared, or will be a thriving, valuable bargaining chip.
    Sitting around wondering if the distribution model will change is not an acceptable use of time. Get in the game. We have a model. Is there a "cable bundling bubble"? Bundling will be here for a "long time". Unbundling will cost WAY more. As for digital distribution, acceptance will be slow and both methods will co-exist for a "long time".

    BTW the figures were neither Gross nor Net. They were made-up numbers for an easy-math example.

  7. #7
    Old Line Hokie's Avatar
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    Quote Originally Posted by CobbCountyHokie View Post
    The big question is could an ACC Network get distribution. I suggest that you follow the SEC Network. If that is a success, then the model will be in place and ESPN can clone that property and sell it the exact same way.
    Here's the ACC TV markets. I included Cincinnati (for U of L in N. KY), Paducah, KY (U of L), Mobile, AL (FSU), Chattanooga, TN (GT), NE Tennessee (VT), and Providence, RI (BC) TV markets. Notre Dame gets the ACC into Chicagoland. BC and Syracuse gets the ACC into most of NH, VT, and s. ME. The only noticeable eastern gap is between the southern suburbs of Baltimore to central NJ and most of the state of CT.


  8. #8

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    There are a few numbers about ESPN buried in this article from 2011.

    http://www.adweek.com/news/televisio...at-espn-131516

  9. #9

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    Quote Originally Posted by Old Line Hokie View Post
    Here's the ACC TV markets. I included Cincinnati (for U of L in N. KY), Paducah, KY (U of L), Mobile, AL (FSU), Chattanooga, TN (GT), NE Tennessee (VT), and Providence, RI (BC) TV markets. Notre Dame gets the ACC into Chicagoland. BC and Syracuse gets the ACC into most of NH, VT, and s. ME. The only noticeable eastern gap is between the southern suburbs of Baltimore to central NJ and most of the state of CT.

    I like this map. It would be interesting to see what impact on it would be made by 1) UConn (I assume just the rest of that state filled in), 2) Temple (what impact on that hole in the Mid-Atlantic), 3) Tulane (how much of Southern Mississippi and Louisiana), 4) West Virginia (how much more than already there), 5) University of Cincinnati (how much more of Ohio). Then it would be interesting to assess the size of the DMAs of each.

    These would be the questions being asked, I would think.

  10. #10

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    Quote Originally Posted by HOO86 View Post
    I like this map. It would be interesting to see what impact on it would be made by 1) UConn (I assume just the rest of that state filled in), 2) Temple (what impact on that hole in the Mid-Atlantic), 3) Tulane (how much of Southern Mississippi and Louisiana), 4) West Virginia (how much more than already there), 5) University of Cincinnati (how much more of Ohio). Then it would be interesting to assess the size of the DMAs of each.

    These would be the questions being asked, I would think.
    To me, if we're taking credit for Chicago because of ND then we might as well fill in MD, Philly, southern NJ, and CT. ND is ND everywhere, especially on the east coast.

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