Followup Message from Athletic Director Bill Martin
10/30/2007 12:00:00 AM | General
My message to our fans about the Big Ten Network (October 16, 2007) has generated several hundred electronic mail responses. Many have been supportive of our position, others have not. We respect each individual's opinion, and we think it is important for our fans to understand the reasons behind our decisions.
There has been an intense emotional reaction to the formation of our new network. If there is one thing that has been a positive, it's been the renewed feeling that fall Saturday's of Michigan football UNITES the entire University community; students, alumni, and fans of our great University.
While we read each e-mail, it is virtually impossible to respond to all. I thought it would be helpful to respond to the most common questions and comments. We will continue to keep you updated periodically on announcements and updates on the Big Ten Network ("BTN").
If it wasn't broke, why did you try to fix it
The prior conference football and basketball broadcasting contracts took effect in 1997, and expired at the completion of the 2006 seasons. Conference television agreements are often in force for this period of time, and every decade or so renegotiations are made with the networks to ensure the long term vitality of the conference. Naturally, one of the main goals of the conference television contracts is to maximize the exposure and value of these contracts for the conference schools.
In our new agreement with ABC/ESPN, the conference was able to get back about half of the conference football games and about 2/3 of the conference basketball game "inventory" without sacrificing any reduction in the rights fees. We believe, and this year continues to confirm, that this retained inventory has considerable value. The conference used this inventory as the first step in establishing the Big Ten Network.
ABC, ESPN, and ESPN2 will broadcast approximately the same number of conference football games as they did last year. What has changed from prior years is that there are no longer any syndicated games (the 40 or so conference football games that "ESPN plus" broadcast). The games that would have been only "regional" under prior media contracts are now carried by the BTN.
Ultimately the conference structured an arrangement that would provide solid programming for both ABC/ESPN and the BTN, agreeing to a process where ABC/ESPN selects a "premier" game each week, with the BTN having the ability to show hundreds of high demand games. In addition to the rights fees generated by the BTN, the conference retains a controlling interest in the network, with Fox Cable Networks owning a minority interest.
Our conference Presidents and Athletic Directors agreed unanimously to support the media contracts negotiated by Commissioner Delany. We debate topics intensely at the conference level, and the various member schools often have contradictory viewpoints. Consequently, it is not often that we are unanimous in our decisions.
Why didn't you get these agreements secured prior to launch
Agreements with cable carriers are virtually impossible to secure in the concept stage. The first agreement, with DirecTV, was made early because of the close relationship between Fox Cable Networks, our minority partner, and DirecTV. A similar agreement was made a short time later with Dish Network, a competitor of DirecTV.
Ideally, agreements with cable companies would have been executed prior to the launch of the network, and the BTN team worked for several months to accomplish that. I'm told that it is the nature of the industry for the cable companies to "hold out" until the last minute in order to get the best deal.
As discussions with the big four cable companies in our area (Comcast, Time-Warner, Charter, and Mediacom) have shown little progress to date, it doesn't seem that it really would have mattered how much lead time the network had in reality. If the network had waited for cable agreements to be executed prior to its inception, the BTN never would have launched because the big four cable companies have continued to posture without meaningful negotiations. The delay in negotiating a deal until the last minute was expected; the continued resistance to being carried on expanded basic within the Big Ten footprint was not. And we certainly didn't expect to be hammered by a misleading Comcast media campaign.
The Big Ten Network is a joint venture between the Big Ten Conference and Fox Cable Networks. We are confident in its ultimate success, as Fox has a proven track record and experience in successfully launching other channels. Together, Fox and the conference have hired an executive team seasoned in the cable television industry, and we expect that the BTN will ultimately achieve its distribution goals.
You are not a professional team. Why do you need all this money
The financial model of intercollegiate athletics has not changed from the days of Fielding Yost. The simple fact of the matter is that revenues for football and basketball generate the resources to pay for other sports teams and the athletic department infrastructure. There are no "profits" to distribute to shareholders; surpluses, if any, are dedicated to long-term capital projects or reserves for potential future deficits.
Yet, because of the success of our football program and the size of our stadium, many believe the athletic program generates more than enough revenue to fund its operations from football tickets alone. In fact, only 40% of our revenue is from the sale of football tickets. Therefore, the athletic department is indeed financially dependent on other revenue streams, such as media rights contracts.
For some universities in our conference, particularly those that don't have the good fortune of having a football stadium our size, wouldn't balance their books without subsidies from the general fund of their university. For them, the revenues from the BTN offer budget relief for the entire university.
Whether the system is right or wrong is largely irrelevant; this is the economic model for intercollegiate sports. It bears repeating: Revenues from football and basketball generate the resources to pay for other sports teams and the athletic department infrastructure.
We simply cannot choke off resources for other sports because they cannot fund themselves. That's not Michigan. If we are going to field teams, they are going to be the best they can be. We also have to manage according to the market conditions we are dealt with; namely we have to pay market value to retain and recruit the best coaches, we have to periodically invest in our "historic" physical plant where needed, and we have to incur the financial aid costs for our student-athletes.
Michigan's Athletic Department is proud to support 100% of the student-athlete scholarship costs each year for all 25 men's and women's teams. Conference revenues, particularly rights fees for television contracts, are an integral part of providing funds for our sports teams, among which athletic scholarship monies are of paramount concern.
How are cable rates determined
I don't profess to be an expert in the cable business. However, I do know that cable rates are a function of numerous variables, including cable company infrastructure costs, programming costs, and competitive pressures. Ultimately rates may vary considerably based on the area that you are in, whether you "bundle" other services, and what level of service you require (digital, high definition, etc.).
Most of the major companies have been successful in rolling out "triple play" packages that combine cable television, broadband internet and phone service for $99. In many areas, there are competitive pressures that limit the cable companies' ability to raise rates. Indeed, anecdotal evidence suggests that many consumers can call their cable company, threaten to convert to a competitive service such as satellite or AT&T, and ultimately negotiate a lower cable bill.
The Big Ten Network itself does not charge individual households one penny. Cable and satellite companies pay to carry all cable networks, including the Big Ten Network. The decision whether to raise rates is made by your provider, not by the Big Ten or the Big Ten Network.
Do we expect the cable companies to pass on the costs of distributing the BTN
Contrary to what you may have heard or read, cable carriers do not have to pass on the asking price of the BTN to the consumer. In fact we expect that most cable companies would actually profit from the carriage of the Big Ten Network.
To suggest, as Comcast has, that the formation of the BTN creates a "Big Ten tax" for all consumers, is absurd. There is no more a "Big Ten tax" as there is a "Lifetime tax", "Oxygen Network tax", "A&E tax", or a "Home Shopping Network tax". Over 150 cable operators have agreed to carry the BTN and have found a way to get the BTN on expanded basic without impacting its customers negatively.
To offset the cost of distribution, the Big Ten Network will provide the cable companies with revenue opportunities through local advertising sales, in addition to opportunities to upgrade their customers to digital service, sell high-definition packages, promote video-on-demand, and create more interest in "sports tiers" outside the Big Ten region.
When a cable company claims the cost of the BTN must be passed along to consumers they are using a negotiating ploy, and not providing an accurate description of how they run their business. DirecTV, Dish Network, Insight, WOW, RCN, and about 150 other cable companies already added the network to their expanded basic level of service without a simultaneous price increase to consumers.
Ultimately, market forces will determine the appropriate price for cable carriers to pay the BTN to be carried on expanded basic. At this point, however, it appears that Comcast, in particular, is in no rush to start good faith negotiations on that issue.
Outside the Big Ten Region and ESPN game plan
You should know that the BTN has significantly reduced the cost to cable operators to carry the network outside the Big Ten area and that the BTN is flexible in the level of service cable providers could offer the network (including digital and sports tiers). The network is flexible out of our region so that cable companies can be responsive to their customers.
For those outside the Big Ten region, the perspective on the BTN varies widely depending on whether you are a satellite customer. For satellite customers, the reaction to the creation of the BTN has been overwhelmingly positive. Fans of ours appreciate the opportunity to see every game under our two new media agreements (all ABC/ESPN games are national now, as well as BTN games).
However, cable customers outside the region who previously purchased the ESPN Game Plan service are understandably upset that the creation of the BTN has limited their ability to watch our games to date on the BTN. In the past, regional ABC football games and the football and basketball games aired on ESPN Regional and ESPN Plus were available nationally to those that subscribed to the ESPN Game Plan service. Games that would have been only "regional" under the prior media contracts are now carried by the Big Ten Network, and thus there are no additional games available on ESPN GamePlan.
As mentioned earlier, all cable providers have been given attractive offers (i.e., around 10 cents per month per household) to carry the BTN in regions outside the Big Ten area. For cable operators that service customers both in and out of the Big Ten region, agreements are typically executed for both areas at the same time that result in a reasonable blended rate. However, we expect that the larger cable companies agree to carry the BTN on expanded basic in the Big Ten region at the same time it is made available outside the region at a reduced cost. Once these distribution agreements are in place, fans outside the Big Ten region will have access to our games.
But all I really care about is football
While many fans with families indicate they are thrilled with other fall sports programming such as volleyball and soccer, others have insisted that all they care about is the football games.
As I mentioned in my previous message, it is true that not everyone will be interested in every game or every program on the BTN - just as not everyone watches or is interested in other cable channels that are on the 50-70 channels that are common to expanded basic cable service. We don't expect all of our fans will appreciate all of the programming available or want to watch the BTN all day.
Certainly, we expect to have our football games be the highest rated programs on the BTN. Recent results have borne this out, as the Michigan vs. Purdue game had the highest-rated overall program in all of cable television in the Big Ten coverage area. The conference expects similar results for basketball, particularly in traditional basketball hotbeds such as Indiana, Wisconsin, and Minnesota.
Television viewership has become less homogenous and more splintered. While we understand that some viewers will have no interest at all in some sports; there are some families, particularly those with children playing popular sports such as volleyball, soccer, baseball and softball, who will watch the BTN on a consistent basis. Overall, we are pleased with the programming options that the BTN has to offer.
When will the Big Ten Network stream games via the Internet
The BTN will create and execute a broadband video strategy that will complement the programming found on the network. Several factors will play a role in determining the breadth and depth of our broadband streaming offering, including rights issues and continuing negotiations with cable providers for expanded basic distribution. The BTN will likely stream many games when the network reaches its distribution goals with the major cable companies. Keep an eye on www.BigTenNetwork.com for the latest information.
Reach of the Network and impact on recruiting
We have read where many believe the poor distribution of the network will result in the inability of fans and potential recruits to watch our games. As BTN distribution agreements are finalized, the two new media agreements will actually result in the opposite outcome.
Under the previous ABC/ESPN agreement, Big Ten games may have been available in only certain areas of the country on ABC (for example, last year only two Big Ten games were truly national - our Ohio State game and the Ohio State vs. Iowa game). This year, all Big Ten ABC/ESPN games are distributed to the entire nation, including our four games broadcast to date on ABC this year.
In prior years, games that would have been syndicated to local markets are now carried across the country on the BTN. Once our distribution agreements are in place, the total households that have access to games will be dramatically higher than under the prior arrangement.
Production Standards
While many have reported that they thoroughly enjoy the production quality of the games, others have been critical of the play-by-play, color announcers, and other programming aspects. Given that this venture was just launched less than two months ago, I am confident that the programming will continue to evolve and improve over time.
Many have also speculated that the commercial time for the BTN is greater than ever before, and has resulted in lengthier games. The commercial formats for the BTN games are exactly the same as ESPN games, so there should be no meaningful differences in the length of the game between ESPN and the BTN.
Isn't this just about the money
Certainly, some people boil it down to this simple question. There appears to be no question that the Big Ten games offered on the BTN have value. For those that think that it's all about the money, do you think that value should be distributed exclusively to the cable companies and the existing major networks Shouldn't public university athletic departments be able to monetize the value of their content, rather than simply distributing the games for free
There was some speculation prior to launch that Comcast was simply playing hardball and refusing to negotiate in the hopes that the BTN would get desperate and agree to a lower-than-market rate. Now, one has to wonder if Comcast will hold off an entire year to make it more painful for everyone and send a powerful message to other conferences that if they plan to launch their own networks, they better let Comcast have an ownership interest in them before they can expect to be distributed on expanded basic within their system.
We've Switched!
I am indeed grateful for the support of our fans that have chosen to switch providers so that they can watch the BTN. Some have even reported that their overall cost under new providers has gone down from their former bundled cable, broadband internet, and phone service. The list of alternative platforms and choices is somewhat bewildering, and I truly appreciate those that take the time to investigate and act on alternatives. Your choices and costs of alternatives can vary dramatically based on your geographic area and the level of service you need. I recommend that you talk to your neighbors, review electronic "message boards" for stories of fans who have switched, and call AT&T and the satellite companies for comparable products and rates for your area.
Although they won't say it, I'm guessing that DirecTV, Dish Network, AT&T, and cable "overbuilders" such as WOW are secretly delighted that the big four cable companies continue to resist having the BTN on expanded basic. They won't release information on how many have switched, but I know that switches to alternatives have been considerable across the Big Ten footprint.
What else can we do
Many people who have responded indicated that they left a message with 1-866 WANT-B10, have called their cable companies to ask for the Big Ten Network, but are legitimately hesitant to switch to a satellite or another provider.
Some have reported that when they call their cable company they seem to receive a standard scripted response from their cable companies and they wonder whether their complaints have even been recorded.
Unfortunately, the four major cable providers in our region have been behaving consistently and have indicated they will "sit this out". Some believe that the only ways to change the major cable carriers' position are to have enough people leave as subscribers or seek political action via consumer complaints to their federal or elected officials.
We understand that this is a difficult or impractical situation for some. Some have suggested online petitions, writing congressional representatives, or other organized campaigns. The conference and the BTN are currently evaluating the alternatives to reach agreement with the cable providers, and we will keep you up-to-date as the situation evolves. We want to thank you for your support as we move through this transition period.
Go Blue,
Bill Martin
