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.