I sure picked the wrong time to go out of town for a long weekend!

In full disclosure, I do not have any inside information on the pending deal that is to be announced by the ACC and ESPN. What I know of the deal has been gleaned from what I have read in published articles from last night. The purpose of this post is to provide some insight into how this may work based on my experience working in the industry.

2019 sure seems like it is a long way off...

I agree with all who are shaking their heads at the disclosure that the linear ACC Network will have to wait for 2019. When the SEC announced their network, they launched about 14 months following the announcement. Most networks typically announce that they are coming on line a year prior to hitting the air. The next 12 months are devoted to negotiations with the distributors (cable and satellite) companies. If negotiations are not going well, the programmer will typically find a way to get some of their programming out into the public domain with messaging for the consumers to shame their provider into carrying the network. This type of fun happens all of the time.

The bummer about the 2019 date is that the linear network is the true generator of cash in this deal. If the network can earn an in-market sub price anywhere near $1.00 per month, the network will be a huge cash cow in short order. The ACC geographic footprint becomes a real winner in this conversation as the high concentration of population of the states from Massachusetts to Florida along with 6 of the top 10 media markets (NYC, Chicago, Philly, Boston, Washington, and Atlanta) and 15 of the top 30 markets (Tampa, Miami, Orlando, Charlotte, Pittsburgh, Raleigh-Durham, and Indianapolis) makes the revenue potential for the linear network very appealing. Before anyone asks, Chicago is considered to be the home market for Notre Dame along with the entire state of Indiana.

I believe the delay to 2019 may be due to a few issues:

1. The Raycom and Fox Sports South content deals will need to be resolved before any network deal can move forward. This will likely take some time as the ACC is a big money maker for Raycom and the negotiations between them, ESPN, and the ACC may become expensive.

2. ESPN will need to determine the viability of ESPNEWS. As on demand content continues to grow via numerous streaming options, shows like SportsCenter, Fox Sports Live, and the entire ESPNEWS network become less viable in their ability to deliver new information to the consumer. SportsCenter is changing before our eyes and Fox has essentially killed Fox Sports Live and FS1 has eliminated their news division. ESPN is beginning to move some live sports over to ESPNEWS and also a lot of their 30 for 30 content is now finding a home on that network. The all day sports news model is really struggling and I don't see that channel in its current form having any long-term value. Personally, I always thought that this was a candidate to be converted into the ACC Network.

3. The Longhorn Network may be an option. I have said for months here that the LHN is a big financial loser for ESPN/Disney. That has not changed. ESPN eliminated the LHN news division and stated that the only live content on their network will be live games. All other live content has been eliminated in a cost savings move. The LHN situation will never get better for ESPN. I would not be shocked if there are backroom negotiations for Texas to leave the Big 12 and for the LHN to possibly become the ACC Network. The Big 12 is on very shaky ground and I would be shocked to see them go to the B1G and just give up their network for nothing. In this scenario, the Texas folks will likely get a big buyout, a new, better-positioned league, and the same amount of annual revenue from a conference network, and a shot at annual scheduling with Notre Dame in football and an invite to the best basketball and olympic sports league in the country.

4. Negotiations. The cable and satcos are likely to play hardball in negotiations as their empire is under attack from cord cutting. Currently, about 26% of cable customers fall into the category of "live sports leaders". This means that a quarter of the pay TV audience is really only there primarily for live sports. For those that care, another 25% or so are there for kids programming and another 15% almost exclusively watch Fox News. Audience analytics are one of my areas of expertise in the pay TV world so I KNOW those numbers are right. ESPN is at different contract maturity dates with each distributor. The most recently completed deals with Dish and Direct back in 2015 where Disney came in a forced them to buy the entire Disney suite of networks. This is how the Longhorn network finally made it to Direct and Dish and how Direct customers finally got Watch ESPN access.

If ESPN converts an existing network to a different format, that will automatically trigger an immediate renegotiation of distribution fees. This will be the fastest way to the linear channel by far. The best negotiating position will clearly be as part of an entire suite of Disney-owned programming (remember that live sports and kids programming dominates) as the operator will likely not want to mess with some of their most popular networks going dark. I can't see a cable operator wanting to explain to angry mothers why their kids cannot watch the Disney channel. All of this discussion sets up a three year, or shorter, negotiation to get the network on the air at a price that will make everyone happy.

What about the streaming thing?

As I mentioned last night, I see the streaming option as an option to the portion of the marketplace that is in the cord cutter/trimmer/never world. The big concerns here are price point and subscriber churn during the summer months.

If I had to make a guess, I would expect that the streaming option will be priced somewhere near $10 per month. This would mean that if they are able to get 1 million subs to the OTT network and keep them for 9 months of the year that the net will gross 90 million from subscribers and additional revenue from ads. Let's say that is another $10 million. If the league and ESPN agree to a 50/50 split on the streaming revenue, that will get the deal to that magic $45 million or so that will be kicked back to the ACC for years 2016 - 2019.

Like all of you, I will be very interested to see more details later this week. The good news is that something is indeed coming and that will place the ACC in the same league financially as the SEC and B1G.