AUSTIN, TX - SEPTEMBER 3: University of Texas fans cheer on the Longhorns as they play the Rice Owls on September 3, 2011 at . This was the debut game for the new Longhorn Network, a partnership between the University of Texas at Austin and ESPN. (Photo by Erich Schlegel/Getty Images)
Recently UT posted an update on its website concerning the Longhorn Network's distribution battle. It essentially said, Distribution will happen, we promise.
The message, from Athletic Directors Deloss Dodds and Chris Plonsky, asked Longhorn fans to please be patient.
Since our Longhorn Network (LHN) launch in August, delays in distribution have overshadowed the network's many positive aspects and impact. In order to make LHN successful, we hope our fans understand that ESPN is continuously negotiating with all major television cable and satellite service providers. ESPN has done this before, having previously launched seven other networks, and their professionals are considered television industry leaders.
In other words, "We have no control over this -- and just like you, the fan, we must rely on ESPN to solve the dispute."
Just don't expect a meaningful resolution any time soon.
This is a battle between two 800 lb gorillas who show no signs of giving in. According to the Media Business Corp., there are over 7.5 million cable and satellite homes in Texas. Time Warner Cable is the dominant distributor, with over 2 million homes. Until ESPN cuts a deal with TWC, the others are basically content to sit back and wait and see what price point is set by the major distributor.
When Texas agreed to the 20-year, $300 million deal with ESPN for the Longhorn Network, the University saw this was a "turn-key" operation, and that their main function would be to provide complete access to the athletics program.
ESPN is responsible for all production costs and for distribution. IMG College holds the multi-media rights for UT and they get 17% of the deal as the sales entity for all advertising and marketing.
When the deal was announced, many were stunned at the length of the deal and the amount of money involved. When Texas first began negotiations with Fox over a regional network several years ago, it certainly didn't reach anything close to the level ESPN offered.
For ESPN, $300 million over 20 years is chump change. According to industry reports, ESPN currently collects $5.06 every month for every subscriber that receives the network -- and that is over 100 million households. TNT is second costliest national network, at $1.16 per month. ESPN of course has other channels and when you bundle their subscription fees together, the network is pulling down over $7 per subscriber nationwide before they sell a single ad.
Distribution Battle Over Price Point
ESPN entered negotiations with distributors asking for 40 cents per subscriber per month - as well as placement on the expanded basic cable tiers in Texas, Louisiana, New Mexico and Oklahoma, Which means all those Aggies, Sooners, and Red Raiders can help pay the bill.
Outside of the dominant area of influence, ESPN is negotiating to bundle the Longhorn Network with other channels (ESPN Goal Line, ESPN Buzzer Beater) and have them placed on the premium programming tier that you pay extra for.
That basic expanded tier price is actually fairly low for a regional sports network (RSN), but this is uncharted territory, since this is the first such network that is centered on only one school. The Big 10 Channel negotiated a 70 cents per subscriber price when it was established.
Time Warner Cable was initially interested enough in the Longhorn Network that they looked into purchasing a 20% interest, but when they passed, they started to play hardball in negotiations. TWC will not put the Longhorn Network on its expanded basic tier at 40 cents per subscriber.
TWC has a history of standing its ground. On January 1st they dropped the Madison Square Garden Network from its New York systems. That means over 2 million customers no longer get the NBA New York Knicks or the NHL New York Rangers and Buffalo Sabres games. The two sides had been in private negotiations for over two years but couldn't reach an agreement. "Linsanity" may be driving up ratings but Time Warner says that customer drop off over the dispute is "insignificant."
Nothing is bigger than the NFL, and its NFL Network is carried by seven of the top eight carriers in the nation. Care to take a guess as to who the lone holdout is?
Why ESPN is Willing to Holdout
Sports programming, more specifically live sports programming is why ESPN is the profit center for Disney. ESPN also understand that the landscape is shifting and that multiple platforms for their product is key to future financial success.
"We feel like the most important couple of things for us to do are to acquire rights that allow us to move content around," ESPN Executive President John Skipper said. "We don't buy games; we buy content - both the games themselves on multiple platforms, the highlights around them, and the rights to do other shows."
ESPN wants to make sure that you can get whatever event or channel you want on any mobile device at hand -- as long as you are paying for TV as well.
Because the Longhorn Network is the first of its kind, ESPN is trying to set a price point for future like ventures. This isn't just about Time Warner or other cable distributors. Every athletic facility on the UT campus is wired for video streaming. There is a web site already attached to the Longhorn Network, and ESPN would love for you to use it to demand the LHN.
For ESPN the Longhorn Network is a grand experiment on a future revenue stream, and they are willing to negotiate for the long term. If that means that Deloss Dodds has to take the brunt of the angry calls and emails over the failure to get broad distribution for the network, well, that's why ESPN is paying Texas the big bucks.
ESPN is also confident that when negotiations are finally settled, the hardcore fans who are willing to sign up will quickly forgive and forget as they tune in for an "inside" look at UT -- as these examples show.
Also, a very interesting interview with John Skipper a few weeks back: