HOW THE SUPREME COURT CHANGED COLLEGE SPORTS FOREVER The SEC vs WWE Network and the Changing Landscape of Cable Television. CABLE TELEVISION - WHAT IS IT? • Cable television is a video delivery service provided by a cable operator to subscribers via a coaxial cable or fiber optics. Programming delivered without a wire via satellite or other facilities is not "cable television" under the Commission's definitions. • For purposes of this CLE, we will also use Cable Television to describe other video subscription services, like Dish Network and Direct TV, and, to a lesser extent, online video subscription services such as Netflix. 2 CABLE TELEVISION - HISTORY • Cable television (originally called CATV or community antenna television) was developed in the late 1940's for communities unable to receive TV signals because of terrain or distance from TV stations. ! • FCC first establishes rules for cable television in 1965. ! • Supreme Court affirms the FCC’s jurisdiction over cable in United States v. Southwestern Cable Co., 392 U.S. 157 (1968), ruling that the FCC has reasonably concluded that regulatory authority over cable television is imperative if it is to perform with appropriate effectiveness certain of its responsibilities. THE BUSINESS OF CABLE TELEVISION •58.4% of US households subscribe to basic cable. •Each cable television charges a “carriage fee” in addition to selling advertising inventory. Carriage fees are charged to each subscriber on a monthly basis and make up a portion of each subscribers television bill. THE BUSINESS OF CABLE TELEVISION ! - LARGEST VIDEO SUBSCRIPTION SERVICES THE BUSINESS OF CABLE TELEVISION - CARRIAGE FEES FOR CABLE SPORTS CHANNELS Channel Carriage Fees Subscribers Annual Revenue (in thousands) (in millions) ESPN $5.40 97,985 $6,349 SEC Network $1.30/$0.37 (expected within footprint/ outside of footprint) NFL Network $0.84 70,671 $712 Pac-12 Network $0.80 26,000 $250 ESPN2 $0.68 97,935 $799 Big Ten Network $0.36 52,000 $225 Fox Sports 1 $0.32* 90,000 $346 ESPNU $0.18 74,363 $161 WWE NETWORK • 1980s - Vince McMahon creates the first nation-wide wrestling product and helps subsidize the cost of touring with major pay-per-view events. WWE NETWORK • 2011 - over-the-top network announced. “Over-the-top” - content distribution over the internet without multiple system operators or distributors. • Feb. 24, 2014 - WWE Network launches at $9.99 per month with a minimum 6-month commitment. • By April 2014 WWE announces it has approximately 630,000 and has a goal to have 1 million subscribers by the end of 2014. SEC NETWORK • The Southeastern Conference decided to partner with ESPN rather than going alone and distributing directly to fans online. ! • By adding Texas A&M and Missouri, the SEC increased the number of cable and satellite subscribers in its footprint from about 20 million to about 30 million. This increase means an additional $111,600,000 in revenue for the SECN (the difference between the $1.30 in footprint carriage fee and the $0.37 out of footprint carriage fee.) SEC NETWORK - CONTRACTUAL ISSUES PRIOR TO FORMATION • In order to create the network, the SEC had to renegotiate all of its local rights packages to retain the additional content for the SECN. - Historically each team retained the rights for 1 football game per year and also had local rights packages for the secondary sports to be shown on local or regional TV. The SECN needed these right to fill its inventory and so it had to renegotiate these deals. • The CBS rights package included an exclusive window when no other SEC games could be played. To allow the SECN to show more games, it had to renegotiate this exclusive window to allow games to stagger the CBS game of the week. SEC NETWORK - WHY NOT GO OVER THE TOP?? • The SECN chose to charge $1.30/$0.37 per subscriber rather than go over the top and charge $9 or some other amount per month. Why? • By creating a cable channel SECN is trying to get into 75 million homes across the entire country. • 11 state SEC footprint = $468 million per year. • The other 39 states = $120 million • Add in advertising revenue and the SECN will bring in $735 million per year total to be split between ESPN and the SEC. ! • Note: at some point it is expected that the SEC will increase the number of states in it’s footprint, increasing the potential carriage fees. SEC NETWORK - WHY NOT GO OVER THE TOP?? • It would take 4 million subscribers for the conference to make the same amount of money as the cable option. THAT IS A LOT! • The NFL Sunday Ticket on DirectTV - 2 million subscribers at $300/year. (roughly 10% of DirectTV subscribers). • The NFL has decided to go through a traditional cable distributor rather than offer Sunday Ticket “over-the-top.” • If the NFL can’t get the necessary subscribers to make “over-the-top” worthwhile the SECN would probably have a hard time as well. • The MLB has sold 2.4 million over-the-top subscriptions. Well short of the 4 million subscribers that they SEC would need. TIPS FOR LAWYERS REPRESENTING CONTENT CREATORS • Reserve as many rights as possible as new distribution methods develop and eventually become economically viable. • The best examples of “over-the-top” distribution working are with established personalities that have direct access to large audiences (e.g. Louis C.K. has 3.5 million twitter followers). • Concerns with “over-the-top” - you risk losing large portions of your audience so make sure the numbers work before leaving a traditional distribution channel entirely. THANKS FOR CHOOSING OUTKICK CLE.