DirecTV's Sunday Ticket Renewal Sets NFL Network's Game Plan

DirecTV's $4 billion contract extension for "NFL Sunday Ticket" was the big business news out of the pro football league's annual meeting in Dana Point, Calif. last week.
But the deal -- covering the 2011 to 2014 seasons at a 43% increase over the $700 million DirecTV is paying annually under its exclusive pact that expires in 2010 -- also holds major ramifications for cable operators and other distributors.
The extension also allows DirecTV to offer a broadband package of all the league's Sunday afternoon games to consumers beyond those who already subscribe to the Sunday Ticket.

Perhaps more importantly, despite the rights increase, the National Football League will be able to offer a key feature of DirecTV's out-of-market pay-per-view package, the Red Zone Channel, to cable operators, telcos, satellite, wireless and Internet providers.

That channel -- which provides live look-ins when a team's offense crosses its opponent's 20-yard line into the so-called red zone, as well as highlights and fantasy data -- will become available no later than the 2012 season under terms of a deal announced on March 23.
NFL executive vice president of media Steve Bornstein intends to use the NFL Red Zone Channel as a bargaining chip to jump-start stalled negotiations for NFL Network, which also was renewed under the DirecTV pact. However, the league's in-house service only counts 35 million subscribers, as it has been locked at the scrimmage line with such distributors as Time Warner Cable, Cablevision Systems and Suddenlink Communications over pricing and positioning issues.
"The NFL Red Zone Channel will be very similar to" DirecTV's, Bornstein said in an interview. "It's an important element and will be part of a wider offering with NFL Network and NFL VOD."
"This is a big development," he told Multichannel News. "We have even more assets that we'll be able to offer to cable, telco and other satellite providers. We've already had some preliminary discussions with distributors."
Bornstein said it was premature to discuss specific pricing for the ad hoc NFL Red Zone Channel, which would display on Sundays. "We just finished this deal last week," he said. "That's part of what we will talk about with distributors."
It's unclear what impact the new DirecTV deal will have on the NFL's Sunday afternoon broadcasters. Both Fox and CBS, the current carriers, declined to comment.
For his part, DirecTV executive vice president of content strategy and development Derek Chang concedes the top satellite provider gave up a bit of its edge with Red Zone Channel's wider berth.
"There are risks with everything," said Chang, who called the service "a compelling product, but not a full substitute for the Sunday Ticket. It's a matter of co-existence and we'll see how it works out for everybody."
Chang declined to discuss the financial considerations of the deal, but Sanford Bernstein cable and satellite analyst Craig Moffett, in a research note, indicated that DirecTV will have to lift its game with subscribers to make the new deal pay off.
Moffett estimated that Sunday Ticket currently tackles about 2 million subscribers paying about $300 per season, for about $600 million in direct revenue annually. Moffett calculated indirect revenue -- from DirecTV monthly fees overall and DVR revenue, among other sources -- as being "perhaps 40% greater than direct subscription fees" to Sunday Ticket.
Considering an average price of $4 billion to $4.5 billion for the term of the four-year contract extension, Moffett wrote that "assuming a price increase from $300 to $350 for the 2 million current subscribers by 2011, and further assuming $80 monthly non-NFL monthly ARPU, DirecTV would need to acquire (or retain) about 400 to 450K incremental subscribers by 2012 who are solely attributable to the NFL Sunday Ticket package in order to break even on the contract."
Those totals exclude any impact from the broadband or mobile offerings under the new contract, according to Moffett.
While some view the Red Zone Channel as a significant asset and an olive branch of sorts to distributors that have been shut out from the PPV package, others think the latest deal may not sit well with TV providers not offered a chance to get in on the full Sunday Ticket action.
"I'm not sure if operators aren't ticked off that they didn't get a chance to bid for full Sunday Ticket," sports media analyst John Mansell said.

Cablevision CEO James Dolan has said in the past the operator would carry NFL Network only if it could carry the Sunday Ticket. The PPV package is also at the center of a legal dispute the network is in with Comcast, whose contract with NFL Network expires on April 30.

Although it loses Red Zone exclusivity, Chang's company can open up another Ticket revenue stream by offering the games on broadband to multi-unit dwellers who can't get DirecTV, or to those with poor exposure to its signal in the southern sky.
Under the current contract, broadband coverage of the games is limited to those who purchase Sunday Ticket and then pay an additional $99 for the broadband "Super Fan" package.
"Our first desire is to sign up more subscribers to DirecTV and add existing subscribers to the Sunday Ticket," said Chang. "But this will give us access to people who live in apartment buildings and other multi-unit dwellings who can't receive DirecTV. We'll work with our partner, the NFL, to see how it can be beneficial for both of us."
Bornstein said the broadband offering would also boost affiliates' high-speed Internet sales.
Moffett and Mansell wonder, though, how broadly the broadband package could go.
The former says while the "spirit of the agreement" pertains to the aforementioned groups, there "appears to be nothing preventing DirecTV from offering the broadband NFL Sunday Ticket to anyone who wants it."
"Why not market it to everyone?" Mansell said, pointing out though by the time 2012 rolls around "there are going to be a lot more people porting video from their computer to their television."
Bornstein may also have more games in his NFL Network playbook by that time: the service could see its eight-game primetime schedule expand to a 17- or 18-game complement, kicking off in 2012.
"NFL Network's contract is co-terminus with CBS, Fox and NBC," which expire after the 2011 season, said Bornstein. "A wider slate of games is certainly under discussion, but nothing has been decided yet."
NFL owners are expected to vote on increasing the 16-game regular season at their May meeting.
By that time, NFL Network and Comcast could be out of contract. The parties deal expires on April 30 and they continue to knock helmets in terms of negotiations and in the court room
While litigation stemming from Comcast's decision to move NFL Network to a sports tier -- after the operator did not acquire the Sunday Ticket during the last round of rights negotiations and the eight-game primetime package for Versus, then known as OLN -- remains in New York Supreme Court, an Administrative Law Judge is expected to hear the NFL's Federal Communications Commission carriage complaint against the operator in the middle of April. Whether that matter will be reviewed, resolved and a decision rendered by April 30 is unclear.

The NFL Network only has about 2 million Comcast sports tier customers.

In the meantime, the operator, says it is willing to continue airing NFL Network under current terms. But, as required by the FCC, Comcast has begun informing its customers via set-top box and bill stuffer messaging that NFL Network may pull the signal on May 1.

"We have offered to carry the NFL Network under the terms of our current affiliation agreement while the litigation that the NFL brought against Comcast continues, but the NFL has not accepted our offer," Comcast said in a statement. "We believe our proposed extension is in the best interest of our customers and NFL fans so that they can continue to have the same access to the network that they now enjoy. Because the NFL has not accepted our offer, we are required by regulations to notify our customers of the possibility that the NFL may terminate Comcast's right to carry the Network."

Bornstein didn't necessarily anticipate that a two-minute negotiating drive would alter the outcome.
"We want to be on as broadly a penetrated tier as possible; Comcast has NFL Network on a sports tier. There's nothing much else to say. When the contract expires, we expect them to take us off," he said, adding that "we want business discussions conducted in a board room, not any other room."