Let the Games Begin

In March, DirecTV and cable operators squared off in front of Congress over the satellite provider’s efforts to secure an exclusive deal for “MLB Extra Innings,” Major League Baseball’s subscription package of out-of-market games.

The issue: Cable’s ability to compete for a package of over 100 contests that multiple-system operators had carried for the last five years.

The problem: the nation’s largest direct-broadcast satellite TV service had aggressively bid $700 million to acquire exclusive rights to the package through 2014.

The battle eventually ended in a draw. Today, DirecTV and most cable operators offer Extra Innings to their subscribers, and both pay TV platforms will offer the league’s 24-hour baseball channel when it launches in 2009.

But DirecTV, which has built much of its success through sports, again made clear its intentions to aggressively pursue exclusive rights for marquee sports content. Will cable continue to pose a challenge? At least one top executive with a major MSO said no.

“We determined that baseball was meaningful, but beyond that, I don’t know what else is meaningful from an exclusive standpoint,” said Cox Communications senior vice president of programming Bob Wilson. “As a company, I think we’re very careful about getting into this cycle of exclusives. We’re certainly willing to forgo certain content because we think we have other, better ways to compete.”

So if not in the exclusive-content arena, where will cable choose to battle DirecTV for the hearts and dollars of sports fanatics? The new playing field is technology, said cable executives such as Wilson.

Both DirecTV and cable operators are now making their pitch to sports fans through the advent of advanced services such as interactivity and video on demand.

Cable companies are appealing to sports aficionados, as well as casual fans, through VOD offerings of recent National Basketball Association and National Hockey League games, as well as highlights, interviews and other ancillary programming from the pro-sports leagues. Just last month, Comcast drew more than 1 million on-demand orders for its NBA service, which offered full replays of playoff games and other postseason content, according to the league.

In addition, operators are taking advantage of local system affiliations by offering live and on-demand content from high school and collegiate contests.

“As the amount of local and high-school sports programming being made available over cable is increasing, we believe we serve the needs of our fans in a more compelling and relevant way,” said Time Warner Cable senior vice president and chief programming officer Melinda Witmer.

DirecTV continues to make a play for the hard-core sports fan through a lineup of exclusive sports content, including the crown-jewel “NFL Sunday Ticket” out-of-market football package. In addition, DirecTV executive vice president of entertainment Eric Shanks said the company will aggressively roll out interactive features that not only complement Sunday Ticket and other exclusive content, but also enhance the packages it shares with cable, such as Extra Innings.

“Both sides have taken a look at what their platforms offer and play toward their strengths,” said Ray Hopkins, chief operating officer of the regional Yankees Entertainment & Sports Network. “For DirecTV, it’s having one national platform where they can roll out interactivity and a plethora of high-definition services and specific sports services, versus a cable plant that has the ability to offer local sports, VOD, high-speed broadband and telephony.”

Pro sports packages on ESPN, Turner Network Television and regional sports networks were major drivers of cable penetration in the late 1980s and 1990s. When ESPN secured its first Sunday-night NFL package in 1987, cable had 41.2 million subscribers. Twenty years and numerous pro-sports deals later, the industry is in more than 65 million households, according to the National Cable & Telecommunications Association and SNL Kagan. So it’s no surprise that DirecTV’s subscriber fortunes were also influenced by its acquisition of sports content.

In 1994, the satellite provider had just 350,000 subscribers and was looking for a way to differentiate itself from the well-established cable industry when it struck a ground-breaking deal to distribute all locally televised Sunday-afternoon NFL contests via Sunday Ticket. DirecTV’s ability to offer every Sunday afternoon NFL football game exclusively was a huge carrot for sports fans to trade their converter boxes in for a rooftop dish.

That led DirecTV to seek a lock on similar deals with other sports. Over the next five years, DirecTV would secure exclusive rights to similar packages from the National Basketball Association (NBA League Pass), baseball (MLB Extra Innings), the National Hockey League (NHL Center Ice) and the NCAA Men’s College Basketball Tournament (Mega March Madness).

DirecTV was also able to offer the signal of every single regional sports network (though often minus live games), further feeding the sports fan’s insatiable appetite for content.

Cable, stymied by limited channel capacity, was unable to offer the packages and found itself fighting to keep sports fans happy.

Eventually, operators such as Comcast found ways to secure exclusive sports content for cable — on a regional basis. Comcast and Cox Communications are currently taking advantage of a provision in the 1992 Cable Act’s program-access rules to keep their respective Philadelphia and San Diego regional sports networks from DirecTV.

By 2002 — thanks to the new channel capacity afforded by digital cable — operators would gain access to NBA League Pass, MLB Extra Innings and NHL Center Ice. But by that time, DirecTV had siphoned off millions of sports fans, according to sports analyst John Mansell. DirecTV is now 15 million subscribers strong.

“If you’re a die-hard sports fan and you have DirecTV, there’s no compelling reason to switch to cable,” said one veteran regional sports network executive who was part of Fox Sports’s RSN business in the 1990s.

Leading DirecTV’s sports charge is NFL Sunday Ticket. The package is the most successful out-of-market sports offering by far, with more than 2 million subscribers plunking down $199 for access to every NFL regular season game.

The package is so vital to Direc TV that in 2004 it paid a whopping $3.5 billion to retain exclusive rights through 2010. Unlike earlier negotiations for Sunday Ticket, which were exclusive to DirecTV, the NFL offered cable an opportunity to bid. But executives close to the situation said the industry was not willing to top DirecTV’s offer.

“[Former DirecTV president] Eddy Hartenstein recognized the value of NFL Sunday Ticket for DirecTV and [News Corp. CEO] Rupert Murdoch realized it’s a business model that’s tried and true,” said Jimmy Schaeffler, chairman of The Carmel Group, a firm that has consulted for DirecTV and EchoStar Communications. “So whenever a [sports] package comes up that tips the balance slightly in favor of DirecTV, they’re willing to go after it.”

Such was the case this year with MLB Extra Innings. DirecTV last December initially offered baseball $700 million over seven years for the rights to the package, which offers more than 900 live out-of-market games a year for $169. Along with Extra Innings, the deal also gave DirecTV a 20% equity stake — and exclusive distribution — for a new 24-hour Baseball Channel expected to launch in 2009.

Unlike with the NFL, this time cable was willing to match Direc TV dollar for dollar. Building a groundswell of support from its subscribers — as well as from elected officials such as Sen. John Kerry (D-Mass) — cable waged a public-relations campaign against the deal that caught the attention of Washington lawmakers.

Executives from Major League Baseball, DirecTV and cable operators appeared in front of a Senate Commerce Committee hearing in late March to explain — and debate — the deal.

Fearing fan and congressional backlash, MLB reopened negotiations with In Demand and on April 4 reached a distribution deal with In Demand owners Time Warner Cable, Comcast and Cox Communications for the package. Along with distribution of the Extra Innings package, Time Warner, Cox and Comcast matched DirecTV’s 17% interest in the new channel.

The industry also committed to launch the Baseball Channel in at least 40 million households.

Even though DirecTV didn’t gain the exclusivity it sought, Schaeffler believes the company will continue to seek exclusive sports content in an effort to differentiate its sports lineup from cable’s.

Up next? Renewal talks with the NHL and NBA. Executives from both leagues would not say whether they would consider brokering an exclusive deal with either satellite or cable.

Given the backlash baseball and DirecTV faced earlier this year over the exclusive Extra Innings deal, Schaeffler doesn’t believe that either sport would look to alienate fans by taking the package away from either platform.

“You want to get your product to the most people, but again there are always exceptions to the rule and that’s where DirecTV has always looked to step in.”

But content exclusivity is at least one arena in which cable won’t look to take on DirecTV head to head, said at least one cable executive who asked to remain anonymous.

“We’ve had to ask ourselves, what does the consumer care about? Should we be actively participating in trying to acquire those very expensive properties, or is there a better way to go after this?” he said. “We feel we came up with a better way, and that’s to be the owner of local sports.”

Wilson said Cox and other operators will look to exploit its advantages on the VOD side, as well as its ability to deliver local product to give viewers a more entertaining and personal sports experience.

“We’re trying to take advantage of our platforms, whether they be linear, VOD, HD or ultimately wireless,” Wilson said. “We’re also always trying to take advantage of our local presence and do local well.”

For example, Cox’s Rhode Island system offers a 24-hour local Cox Sports Television service which, along with local college-sports programming, is expected to offer at least a dozen live high-school football, field hockey and soccer games in a programming block dubbed “Varsity Zone,” according to the company.

In Omaha, Neb., the local Cox system last fall drew 7,000 on-demand views for local high-school football games and more than 10,000 views for prep basketball contests, said system executives.

Comcast has been one of cable’s most aggressive exploiters of on-demand sports programming. The network offers hundreds of hours of free sports VOD content, including programming from the league-owned NBA TV and NFL Network channels.

A look at Comcast’s VOD lineup last Thursday revealed a cornucopia of marquee sports content, including a complete high-definition replay of game one of the May 28 NHL Stanley Cup Finals between the Anaheim Ducks and Ottawa Senators, telecast by Comcast-owned Versus. Also available in full: Turner Network Television’s coverage of May 29’s NBA Eastern Conference Finals game 4 between the Cleveland Cavaliers and Detroit Pistons.

The NBA VOD package has proven to be a slam dunk success for both parties: Mike Wade, senior manager of marketing communications for NBA TV, said Comcast’s NBA VOD content drew some 1 million users in April alone. The Comcast SportsNet regional networks in Philadelphia, Chicago, Sacramento, Calif., and Washington, D.C., this past season offered next-day replays of the local NBA team in each city, under an on-demand deal with the league.

“We’ve created the best, most comprehensive sports experience on television,” said Comcast vice president of video marketing John Donk. “Nationally, we have all of the major sports channels and offer the most compelling sports content On Demand, including game highlights, sports shows, draft picks and behind-the-scenes VOD footage that provide unique experiences to the dedicated fans.

“At the local level, we have more linear and on-demand content than anyone else, from high-school and college games to exclusive local pro-team content in many markets,” he added.

Other operators are also offering interactive features to sports fans. Time Warner Cable last fall offered a Fantasy Football Tracker in Columbia, S.C.; San Antonio; and Austin, Texas. Initially launched in Green Bay, Wisc., in 2005, the interactive-TV application gives fantasy-football players the ability to track their team’s roster with the touch of a button on their digital cable remote, while tuned to any channel.

Between national sports programming from networks such as ESPN, programming from regional networks and operator-originated local and interactive content, Time Warner’s Witmer believes the MSO’s sports customers have compelling sports programming choices.

“Aside from NFL Sunday Ticket, which the NFL chose some years ago to sell exclusively to DirecTV, we believe that cable provides all of the compelling sports programming that is offered on satellite and sports fans will not defect,” she said.

DirecTV’s Shanks begs to differ. “A million new people come to DirecTV every year,” he said. “As a sports fan, having cable in your home is a mistake, so there are still plenty of customers to be siphoned off.”

Shanks believes interactivity will be the bait by which it will reel in new sports fans. Over the last two years, the company has aggressively rolled out video enhancements to its various sports packages that have increase value to its sports offering:

• For an additional $99, the “Sunday Ticket SuperFan” package provides subscribers with a “Red Zone” highlight channel, the ability to view an entire game in 30 minutes and high-definition NFL feeds, and two “Game Mix” channels, which will allow subscribers to view eight live NFL games on a single screen.
• Tennis fans can watch as many as five French Open or U.S. Open tennis matches at one time on one channel for the respective tournaments.
• New York Yankees baseball fans in the team’s broadcast territory can watch live game coverage from different camera angles while getting up-to-the-minute player stats and scores as part of DirecTV’s enhancement of YES Network telecasts.

Shanks said the interactive elements have really resonated with fans: he said more than one quarter of all DirecTV viewers watching Yankees telecasts on YES thus far this season are accessing the interactive services.

“People are really starting to latch on to this stuff; it’s starting to become a routine part of the viewer’s DirecTV experience,” he said.

Next up for DirecTV: a full array of live, high-definition sport programming once the network launches its new DirecTV 10 satellite next month. Shanks claims that by the fall, DirecTV will be able to offer every single HD live sports telecast available.

“We’ll have the ability to offer 11 or 12 HD games every Sunday and we’ll have the ability to carry every HD baseball game on a regional or on a network,” he said.

Of course, cable operators say they’re already offering nearly every live HD game provided by the various national and regional sports networks. Cox’s Wilson adds that the operator hopes to offer exclusive wireless and broadband-based sports content to further drive the value of cable’s triple-play bundle.

Such new-platform rights will be the crux of upcoming negotiations between content rights holders, sports networks and cable distributors.

“Any deals that we talk about with national networks these days include the discussion of any [digital] rights that they can provide for us, which we can hopefully exploit and promote to create a competitive advantage [over satellite],” Wilson said.

While it doesn’t offer high-speed Internet access directly to its subscribers, Shanks said this fall it will offer a broadband video version of Sunday Ticket, as well as and mobile phone-enabled NFL highlights, for its NFL Sunday Ticket SuperFan subscribers.

Clearly, both DirecTV and cable operators are determined to use new media — and exclusive content — to win over the best sport fans. Let the games begin.