Dollars and Sense: The BTN Deal

There has been an awful lot of incorrect and misleading information going around about just how much money the Big Ten is making, or failed to make, on the contract the Chicago Tribune reported was "for all intents and purposes...done."  What follows in an attempt to define exactly what happened in objective terms.

Disclaimer: All the numbers in this post are taken from estimates provided by the Tribune.  I have no way of fact checking their figures or determining if their source is in fact giving the correct dollar amounts.  As a result, this is all subject to change once the deal is officially announced.

Per the Tribune (link above):

The deal will nearly double the number of homes that can access the BTN, from 30 million to 55 million [ed -- increase of 25 million]. In the eight-state Big Ten footprint, the number will surge from 6.5 million to about 13 million [ed -- increase of 6.5 million].

The network's initial asking price was $1.10 per month per subscriber. Even with Comcast paying 70 to 80 cents, as sources indicated....

The emphasis is mine.  Let's look at what the BTN is publicly stating as their price and what Comcast said would be their final offer.

According to the BTN's own web site , under the FAQs:

Q: So, how much does the network cost cable operators?

A: Under a dollar within the Big Ten's eight states, and about a dime everywhere else. Overall, the Big Ten Network's national average price to cable companies is about 30 cents.

Now to Comcast.  This is a little more difficult, but Brian of mgoblog did some real-life-actual-reporting (sort of) and came away with this:

So it was something of a shock to me when I asked for a clarification on what Comcast considered to be a non-burdensome price to consumers [for the BTN], and got this response: "On aggregate, we value this channel at between 8 and 25 cents."

I'm going to assume two things: (1) that this is the same figure that the BTN is claiming as the average price for all consumer nationwide, and (2) that the 8 cents things was a bad joke, and they really did mean 25 cents. 

Now back to the apparent deal.  The Tribune is claiming that the BTN is being offered between 80 and 70 cents per "footprint" subscriber, and that this represents 6.5 million new subscribers.  I'm splitting the difference to get to 75 cents, that's total revenue of $4.9 million.  Now here comes another large assumption: the Tribune did not mention the rate of the non-footprint subscribers, which is really too bad because they represent 75% of the total customer base.  I'm going to stick with 10 cents like the BTN outlines.  This is questionable, but because it wasn't mentioned, and because Comcast can get the price they want by simply playing with the footprint number, that's what we are going with here.

That's another 18.5 million X 10 cents or (rounded) $1.9 million, a total of $6.7 million.

Comcast Final Offer 25 cents $6.3 million +.4 million
BTN Demand 30 cents $7.5 million -.8 million

So while Comcast did appear to get the final figure closer to their original offer (assuming they didn't really mean 8 cents, in which case the conclusion would the the opposite tenfold), this number only represents one-third of the deal, and in total dollars, way less than that.  Besides, the Comcast win of about $200k isn't really significant to either party.  The Big Ten makes that up in hot dog sales on one Saturday.

In addition, based on this quote from the FCSN president , it hardly appears at though the BTN had a problem with falling from their original asking price:

TVWeek: There are obviously two sides to every argument, but from your point of view, what’s wrong with this sentence: "Sports fans will have to pay $1.10 per person to watch fifth-tier football games and women’s volleyball."

Mr. Thompson: Well, the $1.10 has been probably the most oft-quoted figure, which is just not true. I mean, everyone knows that within the cable satellite programming business, there’s always a rate card and there’s always a price. Everybody also knows that basically nobody pays rate card, nobody pays that exact price. There are discounts for coming on early. There are discounts for volume, there’s discounts for how many channels. I mean there’s a ton of discounts, always some discounts. So, the $1.10 just isn’t right and none of the operators who are holdouts have seen that $1.10 rate. Where would they pay the $1.10 rate? That’s not the price. It’s like the analogy that nobody pays sticker price on a car unless you’re an idiot.

Emphasis mine.

Now for the other two-thirds: Keep in mind that the Big Ten Conference, and thus the member schools, are the majority owner of the Network.  Unlike an independent sports station like your regional Fox Sports Network, there are alternative motives here.

While the exact dollar figure Comcast ends up paying the BTN for broadcast rights is important, as Michael Pollan would say, "you can't look at the simple accounting"...there are other things going on here and the deal isn't just about the subscriber rate.

You see, it's still about money, but there is money to be made that won't be included in the wire Comcast sends to the Conference.  The second and third demand of the BTN - (2) that the network be on basic cable in the eight state footprint and (3) that it be available nationwide through a tiered system - are just as important as the size of the check.  It is exposure, but not for its own sake.  Non-primetime games are now available nation wide.  This means an increased presence across the country that will not only help recruiting(wins, $) but also increase general applications to all member schools($, increased quality of the student body).  In addition, alums who have moved out of Big Ten Country can now stay connected to both their teams and their schools through alternative programming, thus increasing the chances that said displaced graduate will donate($).

Additionally, the increase in both the homes that have the channel on basic and those nationwide will no doubt dramatically increase the BTN's ad rates, and thus bring in millions in ad revenue.

So why is Comcast fighting this?  They claimed it was because they want to protect their customers and stop those who do not want the channel from having to pay the "tax".  I've been a Comcast customer long enough to know this cannot possibly be the case.  These guys can also attest.

The real reason is of course: money.  If Comcast is able to put the network on their sport tier like they originally countered, it would mean an extra $5 per subscriber in the form of the sports package fee.  The Tribune states that there are 6.5 Comcast customers in the footprint that will now get the BTN on basic cable as the result of this deal: this represents a total submission by Comcat.  Quick math: that's potentially $32.5 million dollars Comcast let go of when they agreed to the BTN's demand #2...that figure doesn't count the increased charge for a digital cable box that is required for digital programming (I believe to be between $10 and $15 per month) and all the bullsh*t additional fees they are sure to get away with.

So you see, things aren't as they appear, and they sure aren't about the cost per footprint-subscriber.  Points (2) and (3) are totally undervalued in the public perception right now: they represent everything the Big Ten wanted and tens of millions of dollars that Comcast is losing in uncollectable sports package fees...this dwarfs the $200k that the BTN let slide in Comcast's favor.

You can draw your own conclusions, but in my opinion this represents a very big win for the BTN and thus the Big Ten. 

I'd also like to point out that this is a living post, if new information comes about, or one of you thinks that the facts aren't represented here, I will do updates.  The point is to get the facts straight.

Update:

-It is worth extrapolating the data out to show dollar figures on a yearly basis rather than, as is done above, monthly. Numbers we use above call for rates of 75 and 10 cents for footprint and non-footprint homes, respectively. Over a year that's $9 and $1.20 per HH. This brings the total figure to $80.1 million. The original Big Ten price becomes $90 million and the Comcast offer (again, the highest of their original 8-25 cent range) is $75 million. So this is actually a $2.5 million swing, but, again, the issue that has much larger implications is the basic vs sports tiered status of the channel in the footprint.  Thanks to reader Neil for the email.

-Speaking of the footprint, Brian brings up another piece of the negotiations that we don't know as much about: this supposed "trial period" that the BTN will run through. Apparently, the BTN will be on basic cable in the footprint through the upcoming football and basketball seasons and then be moved to either (1) the digital package, or (2) the sports tier. There is a very big difference. The digital package isn't much of an issue because it sounds like 80% of homes in the footprint already have that level of service. That percentage is only going to rise. The sports tier, on the other hand, would represent a very big loss for the Big Ten because the percentage of homes willing to shell out the $5-$8 fee will be considerably less than the 80+% that will be on digital.

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