College Football on TV: From Cartels to the Longhorn Network

It's August and football is just around the corner.

And if it's August, that means that Longhorn fans are also bemoaning the fact that the first two games of the season will be on the Longhorn Network.

If a Cowboy and a Lobo fall in the middle of Memorial Stadium and no one outside of Austin sees them, do they make a sound?

Speaking of predictions, our friend Peter Bean over at Burnt Orange Nation, sees a light at the end of the Longhorn Network clearance tunnel.

More on the trials and travails of the LHN tomorrow. First, Andy Staples has a history lesson on the mating dance between college football and TV. Texas has benefited from that alliance and now finds itself in at the forefront of changing market forces with the Longhorn Network.

c.ar·tel (kär-tl)

n.

1. A combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members

The NCAA was a media cartel for decades, telling Universities how many times they could play on TV. The NCAA placed severe restrictions on TV appearances, basically limiting most teams to just two TV games during the regular season.

In 1963 Texas captured its first national championship. There was exactly one regular season game televised nationally. The Thanksgiving Day game with A&M was the only time fans around the nation saw the Longhorns play on TV before the Cotton Bowl.

The OU game was broadcast in Austin and Oklahoma City thanks to a "sellout" exception. If you could prove that any other college game within a couple hundred miles was sold out you could broadcast it in the two teams markets. Texas fans spent over $9,000 to buy up the tickets to a Trinity-New Mexico State contest in San Antonio to get the game televised.

When the Longhorns won the National Title in 1969 three regular season games were broadcast (Cal on regionally, OU and Arkansas on nationally). Texas got the extra TV game when ABC negotiated to move the Arkansas contest from mid-October to December because the two teams agreed only if it didn't count towards their TV allotment.

Even in 1983, Texas only had five regular season games broadcast (three on CBS, one on ABC and the OU game was broadcast by the regional cable outlet Home Sports Entertainment).

For those who believe that having every game on TV is a birthright, as recently as 2001 there were two games (Missouri & Kansas) that were not televised.

It took a while to get to where we are. It took busting up a couple of cartels through market forces and those changing market forces are what led to the Longhorn Network. You can thank the Boomer Sooners for starting us down this road.

CFA

In 1984 the Supreme Court ruled in NCAA vs Board of Regents of University of Oklahoma that the NCAA's TV plan violated the Sherman Antitrust Act. Beginning immediately conferences could sell their own TV packages. The Big Ten and Pac 10 formed a coalition and quickly sold their rights to ABC. The 63 teams in the other major conferences banded together to form their own cartel, the College Football Association. The CFA wanted more games on air, but they also wanted to limit total numbers, in hopes of driving the price up.

Initially deregulation drove the price down. In 1984 college football media rights generated just over $43 million, compared to the almost $70 million paid for the package in 1983. Up until then there had been one seller (NCAA) and multiple buyers, now there were multiple sellers out competing against each other.

Cartels break up when a few members break away. That started to happen to the CFA in 1990.

Notre Dame, CBS and ESPN - Game Changers

When Notre Dame signed its deal with NBC in 1990, it touched off the first wave of realignment. Penn State joined the Big 10, Arkansas dumped the SWC and joined the SEC with South Carolina. Florida State headed to the ACC and Miami went to the Big East.

A couple of years later when CBS lost the NFL to Fox they looked for a replacement and they gutted the CFA in the process. CBS signed the SEC and Big East to an exclusive TV deal in 1993. The cartel fell apart because market forces proved that some conferences were more valuable than others.

The (Dreaded) Dual Revenue Stream

ESPN was an afterthought for all the leagues until the mid 90's. ESPN had needed content, so after the Supreme Court decision they went after college football and basketball to the point of making deals to show games on tape delay. ESPN quickly discovered that the regional pull of college sports could be turned into a moneymaker on cable, more so than on over-the-air networks. Because they had so much time to fill, they could cover multiple regions in a day as conferences were more than happy to shift kick off times for the exposure. ESPN didn't need to charge as much for advertising since they were also collecting a monthly subscription fee from the cable and satellite providers.

The splintering and multiplication of TV channels turned into a gold mine for ESPN. As audience ratings shrank, and DVR's began to dominate home entertainment centers, live sports became the Holy Grail of content.

ESPN found itself in a wonderful position and was smart enough to capitalize on it. Now the estimates are that ESPN collects over $5 per month per subscriber per month - and they reach over 100 million homes. Combined with the subscription fees they collect for their other networks, it means that ESPN collects over $650 million a month before they sell a single ad. That's a lot of walk-around money, and they have been spending it to buy up just about every media right there is in college football.

The more money ESPN made with live college sports, the more demand for the product came from other broadcast venues. CBS upped the ante to the SEC to over $2.5 billion and conferences started to look around and wonder if they could cut out the middleman on all of this cash.

Big 10 Network - Changing the Playing Field

Earlier this decade ESPN was feeling its oats and lowballed the Big 10 for its media rights. Commissioner Jim Delany decided that the league should start its own network, so he made a deal with ESPN/ABC for an elite package of games while keeping an inventory of marketable games for the Big 10 Network.

Delany believed that a channel with a solid base of football and basketball contests could succeed by filling in with other sports and be attractive to alumni who lived not only in the Big 10 footprint but throughout the nation. He was right.

The league had a terrible time getting clearance (sound familiar?) but eventually came to terms with carriers to where they are collecting an estimated $1 for every subscriber in the Big 10 dominant markets. Recently, the Big 10 Network cut a check to the conference for $80 million for its share of the 2011 profits. That's an additional 6.7 million for each team in the league.

TV Everywhere

Since the 1984 lawsuit, market forces (splintering of audiences between cable, satellite and over-the-air, the overwhelming desire for live programming that is "TIVO proof," conference realignment, regional sports networks, etc.) have driven media rights up to the billions for college football - and many still believe that it is undervalued.

New market forces may change everything faster than before. Even ESPN understands that their business model of cable subscriptions and advertising is slowly eroding. Live sports are perfect content for the next wave of technology, (IPhones, iPads, gaming systems, computers) and everyone wants to figure out how to maximize their content.

And I mean everyone.

ESPN, NBC Universal/Comcast, Time Warner, Fox, Pac 12, the SEC, they are all trying to get a foothold in the regional sports network venue. It's why ESPN made the deal with UT for the Longhorn Network, and why the Pac 12 is producing SEVEN (7) regional networks.

It's also why ESPN is willing to dig in on its fight over clearing the LHN on its terms. They are looking at the long term, and if that means short term pain for Texas fans and the administration trying to explain the impasse, well that's part of what the $300 million is for. I believe the endgame is to have a niche network where the fan(atics) can access games live on any platform, as long as they also have a cable or satellite subscription. If the customer cuts the cord, they are used to paying for whatever venue they use to watch.

There are some signs as to how these regional sports networks will work, and we will look at that next. Oh and as to if ESPN will get clearance deals for the Longhorn Network?

As mentioned, our friend Peter Bean over at Burnt Orange Nation is optimistic that it will happen in time for the 2012 season.

I'm a little less sanguine about the prospects, but it is in the best interests of ESPN, UT and the carriers to get it done, so why not hope for the best.