orangefan
Heisman
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I Root For: Syracuse
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RE: Creating a third subdivision for Division 1 football.
(11-01-2016 02:21 PM)stxrunner Wrote: (10-31-2016 10:47 AM)Frank the Tank Wrote: Agreed. The P5 TV contracts are honestly not very large compared to what's being paid out to the NBA and MLB that actually receive significantly lower ratings for regular season games (and even early round playoff games don't reach the ratings of what the top SEC and Big Ten games of the week regularly obtain).
Look at the movie industry, which has already experienced the decline in attendance (the equivalent of TV viewers) that cable TV is going through right now. What has happened is a high/low strategy in Hollywood movie studios (who also happen to own the cable networks, such as Disney/ESPN, Fox/FS1, Comcast/NBC, etc.). Disney will still pay huge budgets for the biggest brand name Star Wars and Marvel tent pole films, while they'll also greenlight inexpensive films based on lower tier properties (or in the cases of other movie studios, really cheap horror films like the Paranormal Activity franchise). What Hollywood does NOT pay for anymore, though, are the mid-budget films (e.g. the Miramax films of the 1990s), particularly those that aren't tied to a valuable franchise or brand (e.g. a best-selling book) - those are the movies where even the biggest directors out there have a tough time finding financing.
What does this mean? Well, the P5 conferences are the equivalent of Hollywood tentpoles. There is NOT a bubble for those TV rights - they're going to keep going up and up regardless of how cable TV looks 10 years from now because they're the brands that networks need to leverage in ANY type of business model. You'll also see more relatively inexpensive "embrace the debate" shows to fill programming hours on TV. A league like the West Coast Conference for college basketball is great, too - it's inexpensive, has a couple of good brands (Gonzaga and BYU) and they can fill a lot of different time slots.
Meanwhile, who is going to get wiped out when cable revenues go down? It will be the middle class of TV sports properties: those that still have the same production costs as the top tier properties yet don't bring anywhere near the same type of revenue. That's basically screaming "G5 football" there. The LAST people that should be cheering for cable TV's demise are the fans of G5 conferences. The leagues like the Big Ten and SEC are going to continue to get their maximum revenue regardless of how the model looks 10 or 20 years from now. They were the richest conferences before cable TV and they'll be the richest conferences after cable TV. Instead, the G5 leagues will be the ones that will get revenue wiped out completely - it's the middle class of sports properties that are really the beneficiaries of a cable TV sports "bubble" (to the extent that a bubble exists), NOT the top tier properties. Those top tier properties won't get their budgets cut by the Hollywood-run TV networks any more than the next Star Wars or Avengers film.
(Similarly, look at the real estate bubble of the last decade and compare real estate prices today. The bursting of that bubble didn't end up killing the prices in the legitimate top tier markets, like New York City or San Francisco. Those markets have blown past their "pre-bubble" highs. Quality properties will end up retaining their value. Instead, a true bubble increases the prices of markets that fundamentally aren't at the top tier, such as how Las Vegas and Phoenix prices still aren't back to their pre-bubble prices. Once again, it's the G5 that will get slammed if the cable TV "bubble" ever bursts. Be forewarned. S**t rolls downhill.)
You are usually on the money, Frank, but I think you are off on this one.
The analogies you are using don't work in this case. The movie industry example is quite different. The current cable market relies on everyone subsidizing a product they don't use. It would be more like that if say, the movie theaters had a small tax they were allowed to charge everyone in their municipality regardless of whether they attended the movie or not, which then transformed to a per ticket price of people who attended the movie. That's the kind of shift we are talking in the cable TV, and specifically sports industry. In the movie industry, people just stopped going to movies, there wasn't a significant shift in the pricing structure. The demand changed there. The demand for sports isn't changing, only who pays for it. There are a LOT of people paying for sports who would not find it worth it to them had it not been bundled.
And I don't think G5 fans are rooting for it as much as they will enjoy the schadenfreude of the P5 being hit in their bottom line finally after they have cut down the G5 over time. The G5 have already taken their lumps. Nowhere to go down at this point. And while the P5 don't want to admit it, of the sports world. Their fanbases are much larger and their appeal is more widespread, especially worldwide. CFB is the prime market to be affected by the new world. They are the Phoenix of the sports world. The NFL is much more like the NYC housing market than a comparatively limited appeal CFB. Careful what you say. S*** rolls downhill indeed.
Realistically, there are only 2 options left. Either the P5 is going to be forced to take pay cuts, or the consumer (i.e. both me and you) is going to have to pay a LOT more to watch sports. Based on what happens in most industries in the US, I think the answer is more likely the latter even if the former is probably the best solution. Either way, the P5 are going to be affected. Honestly, the P5/ESPN would be stupid to cut out the G5 from the college football picture. If they do, there are simply less people motivated to pay a monthly fee to them to watch sports in the new unbundled world.
A couple of thoughts. First, you say "the NFL/NBA/MLB will always be the cash cows." You really underestimate college football for someone hanging out on a college sports fan site. College football is absolutely the second most popular sport on television after the NFL. The NBA is very strong, and has great demographics. However, college sports benefits from offering basketball as well. Ignoring this year's Cubs story line, MLB's TV audience is shrinking and literally dying. It's day of reckoning is likely coming sooner than that of college sports.
For the NFL, ESPN will almost certainly have to reduce its payout for MNF next time around from the current $1.9 billion/year. That payment is $800 million more than NBC pays for SNF, which is a better package. It is completely premised on ESPN's ability to pass this cost along to cable subscribers, so if that well dries up, it has to be cut. It is also more than ESPN pays for all of its college rights combined.
Secondly, the SEC and ACC have their base contracts with ESPN guaranteed for another twenty years. I am not worried about ESPN being good for it. Their gross margin last quarter was over 100% (revenues were more than double operating costs). ESPN's problem is not lack of profitability, it is flat growth in a situation where investors have come to expect constant growth.
The bigger issue for the SEC and ACC is that their conference networks will exist in an environment of shrinking cable subscribership. I have serious doubts that the traditional cable bundle will ever disappear. A significant number of viewers (probably more than half of traditional cable viewers from the peak) will continue to value the convenience of the bundle and have the income to pay for it without a problem. However, even if traditional cable completely disappeared, sports (including college sports) will continue to have significant value as programming. This value can and will be monetized by ESPN and its conference partners. For instance, I would be willing to pay $25 or more per month for a standalone digital network to ensure that I could watch all Syracuse football and basketball games, particularly if it were combined with other ACC schools. Many college sports fans would do the same to get the content for their schools.
Finally, for the most financially successful college athletics programs, TV revenue represents an important piece of the financial puzzle, but not the only one or even the most important one. Last year, for instance, Syracuse generated around $90 million in athletic revenue with little subsidy from the school. $25 million of that was TV money, including CFP and NCAA tournament money. Even if this TV money were cut in half (keeping in mind that its TV money was actually less than half of this just 4 years ago), Syracuse would be able to fund an athletic department that would be competitive. It might have to cut a couple of sports, or reduce coaching salaries, but it would still generate more athletic department revenue than almost every school in G5. Schools like Alabama, Michigan and Texas can't even figure out how to spend all of their current TV money. If their TV revenue were reduced, again, they would have to cut back, but they would still have far and away more money than anyone else.
(This post was last modified: 11-02-2016 10:03 AM by orangefan.)
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