The Big Ten Network

Some of you may have seen the numerous articles over the past year discussing the Big Ten Conference’s Big Ten Network (BTN) and its public battle with cable companies over distribution. This past fall fellow Ross MBA-candidates Matt Mace, Guangcheng “Gary” Dong, and I worked on a project investigating the BTN’s distribution strategy and making recommendations. What we discovered was pretty interesting – especially since we were able to confirm why some cable companies did not want to add the network under BTN’s current terms, and why BTN was pursuing a strategy that was causing so much conflict.

Background
The Big Ten Network (BTN) is a television network primarily covering college sporting events of schools within the Big Ten Conference (BTC). It provides national broadcasts of college football, basketball, and other sports content for cable and satellite television subscribers. Besides sports programs, BTN broadcasts academic programming from Big Ten Conference universities. Most of the content is exclusive, meaning it will not be shown live simultaneously on other television channels. The BTN is a joint venture between the BTC and Fox Cable Networks.

Although most BTC athletic events will exclusively be shown on the BTN, the Big Ten Conference did recently renew their contract with ESPN/ABC Sports, owned by the Walt Disney Company. This contract is a $100M/yr, 10-year deal that includes rights to show 25 football and 56 men's basketball games per season as well as 100 women's basketball and volleyball games over the 10-year period. It also includes rights to show the championship games of the Big Ten and the Big Ten women's basketball tournament.

Big Ten Member Universities value the BTN as a marketing and recruiting tool for new students. Along with a $1B agreement with ESPN and ABC to broadcast games, the BTN will allow BTC Universities to promote themselves to a nationwide audience and increase awareness among possible academic and athletic recruits. The proceeds from the BTN are divided equally among the 11 BTC member universities. Additional funds for athletics, enables other money to flow to research, the arts and other scholastic endeavors. These schools are seeing some big money.

The Issue
The BTN, launched in August 2007, has had a significant amount of success achieving distribution deals with both satellite and smaller, local cable companies. However, it has struggled forming agreements with large cable distributors like Comcast. The main argument from these cable companies is that the BTN is trying to sell its content to a national audience, when it might be better received by a more-regional audience in the Big Ten states. To understand their side of the argument, we contacted the alumni associations of the eleven BTC universities and discovered close to 87% of Big Ten alumni live in the U.S. live in Big Ten states. Interesting.

Another beef the cable companies have with BTW is the network requests subscription companies to pay average subscriber fees of $1.10 for customers within the eight Big Ten states, and $0.10 for all other customers. Since not all cable television subscribers will want Big Ten programming, it is not in the best interest of cable network to bill their customers for fees demanded by the BTN. On the other hand, it will hurt the cable company’s bottom line to simply absorb the fees BTN is requesting. Cable companies like Comcast that refuse to pay across the board subscriber fees to BTN are asking for the flexibility to add BTN to a special sports tier, for which subscribers could request as an optional package for additional fees. Through absorbing BTN fees, cable companies stand to lose out on millions of dollars. For example, Comcast has around 4 million cable television subscribers in Big Ten Conference states. The BTN fees for these subscribers would cost Comcast $4.4 million per month, or $52.8M per year. Comcast earned a net income of almost $2.5B in 2006, so the $52.8M subscribe fee to BTN would reduce net income by almost 3% for BTC states alone. Another issue raised by cable companies against BTN is the amount of the fees compared with other content providers. BTN requires an average fee of $1.10 per subscriber, the third highest fee on basic cable today. Only ESPN at $3.00 per-subscriber and TNT at $1.26 per-subscriber have higher fees. The high subscription fee is in question since BTN has a much more limited fan base/lower demand than ESPN and TNT.

Another reason why many subscription television distributors have not welcomed putting BTN on their expanded basic packages is a question about the value and quality of the sports programming being delivered by the BTN. Some sports analysts believe the BTC is weaker, or not as competitive, as other major college sports conferences. They argue more powerful conferences include the Pac-10 on the West Coast, the SEC in the South, or the ACC in the East. Why? Through October 17, 2007, the BTC only had two of its football teams in the Top 25 national rankings, although historically the BTC has five or six of its football teams in the Top 25 rankings. The commission of the BTC has even suggested adding additional universities to the BTC to help make the conference more competitive, ultimately helping market the BTN. It’d be interesting to investigate how this would bring more revenue to the network and whether or not this action would have each BTC school seeing even less money from the BTN.

Subscription providers are not the only channel members who are experiencing conflict with the BTN. The end customers (fans) are becoming disgruntled with BTN since some BTC football games are being carried exclusively on its network instead of allowing local channels to carry regional events. This creates a channel conflict for some Big Ten Sports fans. Many Big Ten fans subscribe to cable television systems who have not agreed to distribute BTN programming. These fans have missed some historic football games such as the upset of the University of Michigan by Appalachian State at the beginning of the season. This conflict is similar to other exclusive sports content providers such as the NFL Network.

After better understanding why there is so much channel conflict when it comes to BTN offerings, our team created some recommendations for the BTN. We determined BTN needs to change its subscriber fee practices to build a better relationship with its distributors and end customers. Consumers who are missing game broadcasts are upset with cable companies and the BTN for not resolving subscriber fee issues. The loss of brand equity among these sports fans is potentially outweighing any revenue gain that BTN and BTC schools might receive from the holdout with cable companies. The public battle between BTN and Comcast may also be discouraging potential students from attending Big Ten schools or convincing parents a Big Ten school is not where they want to send their child. Would you want your kid to attend a member school of the BTN after witnessing such a public pissing match between the network and cable companies?

Distribution Channel Alternatives/Recommendation
Currently, the Big Ten Network is receiving around $111M annually through its deals with various satellite and cable television distributors. However, due to the channel conflict –and- not obtaining some key deals with large providers, BTN needs to determine if their current strategy is the optimal one. How many subscribers can it realistically expect to obtain? How do you resolve conflict within your distribution network to ensure relationships with future business partners and potential school recruits are not compromised. One option for the BTN to resolve channel conflict with distribution providers is through changing its practice of across-the-board fees for all subscribers. The BTN could reduce the cost so cable companies could easily absorb the additional fee. Making this change would require BTN to redo multi-year contracts that have already been established, but the benefits of signing up 100% of available cable systems could outweigh that lost revenue. In looking at this financially, if BTN were to lower its cost per month per subscriber to $.03 and $.37 respectively to garner deals with Comcast and Charter Communications, it would lose out on $35M per year from its current deals.

A second option is for BTN to change its fee structure from a per-subscriber model to an active-subscriber model (i.e. allow subscription providers to offer BTN on a separate sports tier). If the BTN offered optional programming to consumers, instead of $1.10 per subscriber in BTC states, the fee might be four or five times that amount. For the purpose of analysis, we investigated what BTN would bring in if they were to charge $5/month to active-subscribers. Based on the number of Big Ten Conference alumni living in the U.S. as well as potential Big Ten fans who did not attend a BTC school, there might be a subscriber base of less than 1 million. Note, this does not include businesses that might be interested in carrying the network. Based on 803,473 subscribers at a $5 per month subscriber fee (i.e. $60/yr), the BTN stands to earn $63M less than it is presently earning through subscription T.V. deals.

A third option for the BTN is to bypass the cable and satellite companies and broadcast all their content through the Internet. Consumers could purchase content directly through BTN, with a fee structure for unlimited annual, unlimited monthly, or game specific content options. Cable companies would be in favor of this option, since consumers would need to purchase high-speed cable service in order to view BTN content in this model. BTC universities would favor this option as well, since games could be featured on a global basis instead of limited to a U.S. based audience. However, this option is unlikely to add the revenues BTN requires given the number of high-speed cable subscribers that are potentially BTC sports fans. We discovered the estimated revenues for Internet subscribers are $7M, far below anticipated revenues of $110M for cable television subscribers. Also, this revenue number does not account for the fact BTN would need to invest monies into its website in order to be able to support showing live games, subscriber fees, etc. BTN may want to investigate offering limited content on its website to drive consumer traffic from the sports enthusiasts and fanatics. They could also use the website to drive additional revenue through online ads/sponsorships. However, they should not rely on this as a primary income source.

One final alternative would be for the BTN to offer Pay-Per-View for each of their games. Based only 9.9% of adults in the U.S. watching college football games on television and only 5.5% of adults in the U.S. watching college basketball on T.V, we believe pursuing this strategy would only limit distribution of the channel and minimize revenues. After analyzing various distribution options, it appears the Big Ten Network is presently pursuing a revenue maximizing strategy. Thus, reducing its requested subscription fees or offering the network as a separate sports tier is not recommended as revenues would be drastically reduced.

Our recommendation to BTN is to maintain current deals with subscription T.V. services. We also advise them to end their public battle with Comcast (and other large providers) to earn a more positive reputation. The negative press from this fight only frustrates fans and paints a poor picture of the network with other distributors and potential Big Ten Conference recruits. Also, based on our analysis, if Comcast and Charter Communications never sign up to carry the BTN, the BTN is still better off sticking with their current strategy rather than reducing its rates and renegotiating agreements. Although not all BTC fans currently have access to all BTN games in their homes, in our opinion, those who desperately want to see a game and don’t have the Big Ten Network will go to a local bar or a friend’s house. Additionally, some die-hard fans may even switch subscription television providers in order to have the convenience of the BTN at home. As a result, we do not see a large amount of conflict occurring with fans. As a future solution, BTN may want to investigate offering games on its website on a subscription basis for fans wanting to view games at home without access to BTN carriers. This would only enhance the BTN’s relationship with end consumers and offer an additional distribution channel solely controlled by the BTN.

A few of my favorite things...

So in the spirit of the holidays, I decided this entry should be about a few of my favorite products. I know it's not a critical assessment of a particular brand/ad campaign/product like most of my entries. But this should give you an idea of products I purchase/use on a regular basis and some tidbits about me as a consumer. Many of these would make great Christmas gifts for your friends/family/significant other BTW...

Wrapping Paper - Old Navy. Who knew, right? For any of you crafty types out there, not only does Old Navy have cool/trendy/contemporary/modern prints, but their paper is nice and thick, making for a perfect wrapping job every time. They don't have any traditional looks (i.e. metallic, shiny, Christmas paper)...so if you want an elegant, frilly gift you'll have to go somewhere else. But I have to say they make the coolest packages for birthdays and other celebrations. All they need now is some slick ribbon and they'd be my one destination for gift wrap supplies. And if they only sold their paper, boxes, etc. online...well then I'd probably have a problem :)

Candles - Method's Peppermint Vanilla - You may know my affection for Method from one of my earlier blog entries. This is yet another reason why I am loyal to the brand...Peppermint Vanilla. Only found during the holiday season, this candle is clean burning and makes my house smell clean and fresh. I burn candles quite often - they're especially warm and comforting in the evenings after a long day at work. And this is my regular stand-by. If only it were a year round product offering...And Method I'd also love it if those peppermint vanilla aroma beads were sold in their own containers all year round.

Hot Chocolate - Vosges Haut Chocolat's Aztec Elixir- I'm not really a sweets person, but this is one of my winter addictions. A wonderful blend of thick, rich chocolate, warmth and spice, you won't mind paying ~$1/oz for this hot chocolate to satisfy your cravings. This hot chocolate is a blend of ancho & chipotle chillies (a little heat down your throat), ceylon cinnamon, madagascar vanilla bean, cornmeal (great texture), and dark chocolate. And all you need is a little bit. Kiss those watery powders you thought were hot chocolate good bye!


Flavoring - Napa Valley Harvest White Truffle Oil - If you're looking for a special touch to add to a holiday dish, this truffle oil is fantastic. My favorite way to have this is with oven roasted potatoes and a touch of fresh parmesan. To make oven roasted potatoes, slice potatoes into thin rounds. Then toss with 2 TB olive oil, fresh cracked pepper, and salt. Spread the potatoes out to be ~1 layer thick on a cookie sheet and bake at 450 for ~40-45 minutes, turning once. The last 10 minutes drizzle the potatoes with truffle oil and sprinkle on some fresh parmesan (use a veggie peeler to get nice chunks). This oil is also particularly good in soups and fresh steamed veggies like asparagus. (Can you tell I love cooking?)


Lotion - Bath & Body Works Vanilla Bean Noel Body Cream - I normally don't purchase many scented lotions since I think they interfere with my perfume -and- many of them don't really make my skin feel moisturized. However, when the winter scents start showing up at Bath & Body Works, I stock up on my favorite body cream - Vanilla Bean Noel. What I like about this scent is it's light, not overpowering, and reminds me of fresh sugar cookies. And it makes my skin feel soft and rejuvinated. It's obviously popular with others as well...after the holidays are over you can often find this on eBay selling at premium prices.

Jeans - Joe's Jeans - Being 5'5", I tend to have issues with a lot of jeans brands since I can't find something that fits me in all the right places. If it fits my small waist, the rear end is too tight. Or if it's a good fit up top, the pants are entirely too long. When I found my first pair of Joe's Provocateur fit jeans, I was in love. It was a perfect fit all around...soft, comfortable, flattering, ideal length. At most stores I can look for regular, long, short, or petite lengths. But half the time a petite is too short if I wear a low heel (or they don't fit me as well as a regular), and the short length is sometimes too long. When you constantly have to pay for hemming it gets really annoying. Why is it men can order jeans in lengths and women can't?

Women's Shoes - Charles David - My closet is well-stocked with a variety of Charles David's traditional leather stilettos (seen below). This shoe is so versatile. It can be worn to work with a pair of slacks or a skirt and then put back on with a pair of jeans to go out in the evening. Not only is the styling classic and flattering, but the shoes are impeccably made. The soft, durable leather holds up to everyday wear -and- helps make the shoes pretty darn comfortable for heels. They're well worth their $150-on-up price tag.

Stereo Accessory - Apple Airport Basestation- I have a particular affection for useful/cool gadgets and the Apple Airport Basestation tops my list. If you have your entire music collection on your PC, you would probably prefer to play your music over your stereo speakers...after all computer speakers leave much to be desired. This little gadget by Apple is the ideal solution. It's perfect for parties, as you can wirelessly stream a special play list to your stereo via iTunes. And I love to use it while working around the house - I can hear my music all over. The only thing I wish is I could also get it to play internet radio stations (like Pandora). Maybe in an upgraded model...