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DirecTV Hangs on to the Ball

12/15/2002 07:00:00 PM Eastern

Cable operators hoping for a shot at DirecTV's strongest programming were disappointed last week as the National Football League opted to extend its exclusive Sunday Ticket deal with DirecTV—though at a much, much higher price.

Just a day after finally abandoning its planned sale to EchoStar Communications, DirecTV agreed to pay $2 billion for the NFL package over five years. At $400 million a year, the deal represents a huge increase over the $140 million DirecTV has been paying annually.

For $139-$199 per season, subscribers get a package of up to 14 out-of-market games each week.

Even at DirecTV's growth rates, NFL Sunday Ticket should generate only $300 million in gross revenue next year and around $370 million in 2004.

But the deal keeps the games off digital cable tiers until 2005 and away from EchoStar through 2007. And, with DirecTV looking for a new suitor, exclusivity was more important than ever.

The new deal is a blow to cable operators, who saw the out-of-market football package as a way to accelerate digital penetration and stem the loss of subscribers to DirecTV.

Cable may never have had a chance. NFL Commissioner Paul Tagliabue said In Demand, the cable-owned pay-per-view and VOD clearinghouse, had negotiated intensely for nine months. Some on the cable side, though, say they never got to the table.

"It was a one-horse race," said In Demand President and CEO Steve Brenner.

"In the current environment," Tagliabue said, "[cable operators'] priorities were consolidation and rollout and not as focused as DirecTV on sports programming."

He added that, after 2005, "we'll be able to look at all of the alternatives again."

Extending DirecTV's current deal means the NFL won't have to reopen negotiations on its central TV-rights deals, a $16 billion broadcast and cable agreement with Fox, CBS, ABC and ESPN. It runs until 2005, and the networks expressed concern that making a version of Sunday Ticket widely available on cable systems would undermine their ratings and ad revenue.

Fox and CBS, which get a cut of the out-of-market deal, had veto power on any new deal. Also, insiders say the league's national TV deal is back-loaded, with the biggest payouts from broadcasters still to come.

The NFL "wasn't free to give us the package," Brenner said, adding that cable would have taken a non-exclusive NFL deal.

In Demand offers out-of-market packages for the other major pro and college sports and has an exclusive deal with NASCAR.

DirecTV sweetened its deal by enhancing its Sunday Ticket games with advanced technologies like high-definition and interactivity beginning next season. That likely means increased Sunday Ticket prices.

"With the multichannel landscape becoming more competitive, it's crucial for us to have programming that sets us apart," said DirecTV Chairman and CEO Eddy Hartenstein. "There's no better example than the NFL Sunday Ticket."

It's estimated that about 1 million of DirecTV's 11 million subs buy the football package.

The NFL also plans to launch the NFL Channel, around the start of the 2003 season. DirecTV will carry it as part of its widely distributed Total Choice tier but is not the exclusive distributor.

 

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