Sports tiers — conceived as a way to offset the high cost of basic-cable sports networks — haven’t been the distribution home run that distributors and networks might have hoped for.
With popular and high-priced services like ESPN and various regional sports networks refusing to budge from highly penetrated analog and digital-basic packages, network executives said that after about an experiment of about two years, sports tiers have failed to gain more than a small audience of hard-core fans.
Where they have managed a batting average north of .500 — achieving penetration rates of 50% or more — the key has been to import non-sports news and entertainment channels to the roster, executives at affected networks and cable companies said.
CONTENTIOUS START
Sports tiers stemmed from the cantankerous carriage negotiations between cable companies and sports networks in the late 1990s.
While cable and sports-network executives have always disagreed over per-month prices, it wasn’t until the very public battles between ESPN and operators over 20% annual license-fee hikes — and local increases from regional sports networks that pushed prices regularly above $1.50 or $2 — that operators began seeking alternatives to siphon some sports costs out of expanded-basic packages.
Top cable companies Comcast Corp. and Time Warner Cable introduced tiers that feature sports networks like College Sports Television (CSTV), three Fox College Sports regional Networks, The Tennis Channel, NBA TV and Gol TV. Time Warner rolled out its tier in late 2003; Comcast in 2004.
Overall, Time Warner’s five-to-11-channel sports tiers are priced from $1.95 to $3.95, while Comcast’s six-to-eight channel offerings sell for around $5, according to the companies.
Other MSOs, including Cox Communications and Insight Communications Inc., package such sports networks along with other niche programming services. (Cox’s sports-and-information package has been around since 1998.)
But no MSO has accomplished the initial goal of moving ESPN and the regional sports networks out of expanded basic and into sports tiers.
Instead, sports tiers have come to resemble a minor league roster, comprised of up-and-coming freshman and sophomore niche sports networks instead of the high-priced big leaguers.
“I think that the sports tiers were a strategy that evolved a couple of years ago and coming off a point of view that the escalating sports rights and the notion that we should only charge those people who only want this service,” The Tennis Channel chairman and CEO David Meister said in a recent interview, before he retired and was replaced at the channel he co-founded by former Fine Living channel president Ken Solomon. “The flaw that has evolved is that it hasn’t been easy to move some of those existing networks like ESPN and regional sports networks. So where sports tiers have been launched, they’re not performing particularly well.”
PENETRATION ESTIMATES
Sports-network executives say pure sports-based tiers have garnered a disappointing 10% to 20% rate of penetration.
More broadly based tiers with sports and entertainment-news programming achieve a higher penetration of about 40% to 60%, according to executives.
No MSOs — including Comcast, Insight, Cox or Time Warner Cable — would provide take rates for their respective sports tiers.
With such poor penetration, networks that get a large portion of their subscribers through sports tiers are concerned they’ll never reach critical mass unless they’re somehow bundled in with top regional and national sports networks.
“The presumption among operators that this would be a good strategy is a valid one — people had in mind that these would be a robust group of channels,” Meister said. “But the reality is [the tiers] have tended to be not as exciting and not as compelling as regional sports networks, and therefore we’re not terribly surprised that the performance is not as good.”
BASICS ARE LOCKED
But Fox Sports Net and ESPN officials say there’s no way their networks are moving from analog or well-penetrated digital-basic tiers — and they’ve made sure such language is included in all renegotiated contracts.
Fox Cable Networks Group executive vice president of affiliate sales and marketing Lindsay Gardner said FSN’s 20 owned or affiliated regional sports networks represent more than just live games and sports news. They’re a service to the community, so they deserve the broadest distribution possible.
“Regional sports networks aren’t so much about sports as they are about local institutions that large groups of residents care deeply about, and they will always need to have the broadest reach possible,” Gardner said. “Many of these consumers who watch and rely on these regional sports networks for coverage of their local teams — and part of their tax dollars go to fund the stadiums that these teams play in.”
ESPN’s latest round of affiliation deals stipulate the core networks, led by ESPN and ESPN2, must remain on analog or digital-basic tiers.
ESPN has even placed sports-tier restrictions on newer networks such as ESPN Deportes, a pair of HDTV channels and the recently launched ESPNU, according to Disney/ESPN Networks president of affiliate sales and marketing Sean Bratches.
“We will not allow any of our products on a sports tier,” he said. “They’re not something that we’re interested in participating, as it relates to the branding of our services.”
Even operators now admit it’s unlikely such networks will populate sports tiers in the near future.
“Obviously, when you have [sports] networks that have been around a while and have a business model that’s already established, trying to move it off to a tier is extremely difficult,” Cox Communications Inc. senior vice president of programming Bob Wilson said.
“If there’s a new regional sports network, everyone is trying to figure out how to make it work on a tier,” Wilson said. “But it’s difficult to move the more established ones.”
More recently, operators have been successful in steering new networks to the sports tier.
NFL NET EXCEPTION
With the exception of NFL Network — which leveraged the league’s popularity and a robust video-on-demand offering to gain digital basic distribution — nearly every sports-targeted network launched over the past three years has been positioned on a tier.
For networks like CSTV, NBA TV and Fox College Sports, sports tiers represent the lion’s share of cable carriage — as well as their ticket into the cable arena.
“[Without sports tiers] I think we would have more subscribers, but in a few cases, some systems would have struggled with launching us given certain timing,” said Tennis’s Meister, who claims 40% of the network’s subscribers access the channel through sports tiers. “If we didn’t have sports tiers, some networks would be reluctant to launch us on a broader platform, but to some extent we try to mitigate that by creating a rate structure that provides free [carriage] so it gives them flexibility to those systems.”
For NBA TV, sports tiers represent a distribution lifeline.
“It’s a reality in today’s environment,” National Basketball Association executive vice president Ed Desser said. “The fact is that it’s optional, and there are people who opt to buy and those who don’t.
“If you had it to do all over again, maybe there would be a way to repackage [the services] in a way that would be a little more ideal, but it’s hard to go backward.”
MIXED TIERS A HIT
Some operators say a more ideal and attractive option for consumers is to package sports and other niche entertainment networks together in an effort to attract a broader audience.
“If you look at what those tiers are, [they have] sports but also news and entertainment,” Meister said. “As a result, there’s an appeal to men, women and kids, and I think you’re better served from a cable operator perspective when you do this.”
Insight packages CSTV, Outdoor Channel, Speed Channel and Fox Soccer Channel with such entertainment services as FitTV, MTV2, VH1 Classic, BBC America and Fine Living in a $5 “sports and lifestyle pak.”
Cox has mixed up the tier, too, bundling ESPNews, The Golf Channel and NBA TV with Bloomberg TV and History International, Wilson said.
While 60% to 70% of the 10 to 12 networks included are from the sports realm, Wilson said, Cox has been successful in driving the tier beyond the traditional male sports fan.
Wilson said the tiers are in 50% to 80% of all Cox digital homes, although he would not provide specific subscriber figures.
With a standalone price tag of $7.95 per month — or $11.95 to $12.95 when packaged with a movie or variety tier — the package has thrived since it was launched in the late 1990s, Wilson said.
“We also packaged that when we sold digital instead of some other MSOs that have put that tier together later,” Wilson said. “By doing so, they missed all of the initial growth of digital.
“It’s much harder to go back and resell people to buy that tier than when you package it in as your initial digital rollout.”
LACK OF SUPPORT
Networks lament the lack of marketing and promotional effort operators have put behind sports tiers, which must compete against VOD, high-speed Internet and HDTV service options.
“With the entrance of VoIP, VOD, HD and high-speed data, it becomes difficult to support platforms like discretionary tiers, whether it’s a sports, movie or news tier,” Bratches said. “Those genre tiers that are very splintered and fractured suffer in an environment where there are higher-margin products that [operators] are advancing in the market and, in many cases, the consumer has a larger appetite to consume.”
Added NBA TV’s Desser: “There’s a lot of noise in the marketplace and a lot of things [are] competing for people’s attention. Some systems seem to have more success than others in terms of carrying forward the message.”
But some cable networks are actually stepping up to the plate to help operators get the word out on sports tiers. Fox Cable, which relies on sports tiers for carriage of such services as its three regional FCS networks, action-sports network Fuel and, to a lesser extent, the recently re-launched Fox Soccer Channel (formerly Fox Sports World), has worked with operators to develop marketing campaigns that tout the virtues of its services on the sports tier, according to Gardner.
Fox has a vested financial interest in seeing sports tiers that feature several of its networks reach as many subscribers as possible, he added.
“If we only had one network on the tier, each sports tier customer would deliver maybe 15 cents to 20 cents a month to us,” he said. “But when you have four or five channels, it starts to add up. These sports tiers are important to our operator clients, so we are investing in them.”
UNCERTAIN FUTURE
Operators claim that over time, the appeal of new, niche sports services will help drive penetration.
Time Warner Cable executive vice president of programming Fred Dressler offered that opinion last November at a Sports Business Journal conference in New York. He said it was “premature” to judge sports tiers “because they have not been fully populated” with top-tier sports networks.
But for some networks, the future of the tiers resembles more of a crap shoot than a sure bet.
If cable operators continue to be frustrated by some of the low penetration numbers of these sports tiers, said Gardner, they may eventually KO the platform entirely, leaving many niche sports networks to fend for themselves.
“At that point, it would be a bit of survival of the fittest among the networks,” Gardner said. “Those channels that seem to have a real hold on people in their communities will survive, while others will be dropped from the system entirely or offered on an a la carte basis.”
