Athletic Director U. from D1.ticker - Original content every Sunday evening designed to help you lead.
Athletic Director U. is a new, weekly series from D1.ticker designed to land in your inbox every Sunday evening. Articles will delve into pertinent topics from around the industry, providing unique perspective into many critical issues facing collegiate administrators today. Today's ADU entry is another from D1.ticker founder, Matt Roberts. As we progress, you can expect a combination of important long-form content reviews or article mash-ups from Roberts, valuable organizational behavior entries from GAME, Inc. founder and Rutgers professor, Jason Belzer, as well as insightful contributions from Athletic Directors around the nation. More info coming this week on an exciting launch for the latter of those three efforts. Feedback, as always, is welcome to Matt@D1ticker.com.
The Importance of TV Advertising Trends, Scarcity and Sports
Last Monday, SportsBusiness Journalâ€™s John Ourand reported the Big Ten had secured a new six-year deal with ESPN worth an average of $190M annually for half the leagueâ€™s Tier I TV rights. While no official announcement has been made yet (Ourand thinks it could be coming this Tuesday), combined with Fox Sportsâ€™ $240M average annual commitment over the same length of time for the other half of TI rights and CBS Sports renewing its hoops-only pact for $10M, the Big Ten is due $2.64B over six years starting in 2017-18. A massive bounty no matter how you slice it.
For ESPN, the move may, at least temporarily, quiet some of the recent narrative around subscriber losses/cord-cutting, headlining personality attrition, ratings slips and questions on how it plans to produce revenue at scale from an over the top (OTT) offering some day. Disney CEO and Chairman, Bob Iger, spoke to some of these exact issues in a Hollywood Reporterinterview last week. Many other excellent journalists around the industry also tackled the situation with savvy insight and analysis.
The aim of todayâ€™s Athletic Director U. is not to directly add on to whatâ€™s already out there, but to present a hypothesis that ESPN, CBS, and Fox had to square away the rights deals because a large amount of ad money is coming back to TV, sports programming has significant leverage with the brands who spend big on TV and thereâ€™s too much risk in letting a competitor, on- or off-line, linear or digital, win the day anytime soon. While carriage and retransmission fees have long been pointed to as the underpinning to many of these deals, which is certainly not incorrect as they are critically important, trends around where and why ad dollars are being spent produce an interesting sub-story to consider.
Ben Thompson is a Wisconsin and Northwestern grad and independent tech journalist who lives in Taiwan covering the industry under his Stratechery brand. Iâ€™ve come to find Benâ€™s daily and weekly entries to be quite insightful and predominantly correct as developments in the market have played out. Last Tuesday, Benâ€™s free weekly article was titled, "TV Advertisingâ€™s Surprising Strength - And Inevitable Fall." Even though Thompson predicts Facebook and Snapchat will eventually steal share from TV networks for top brand advertising dollars, there are a number of key takeaways that help to better understand the current landscape and why spending on TV from some of the deepest marketing pockets makes full sense right now and could continue for some time to come. Hereâ€™s the review:
+ First, after a handful of years of the top advertisers experimenting heavily with social/digital options, upfront ad sales for the 2016-17 programming season were up 7% to 12% as money came back to TV inventory.
+ Itâ€™s important to identify the demos of 12-17, 18-24 and 25-34 as the most important for marketers who want to sink their teeth into the youngest consumers possible to develop brand affinity and greater lifetime value.
+ The top 200 advertisers in the U.S. (think major CPGs, car companies, retailers, entertainment players, telecoms, credit cards, electronics and beer) make up 80% of TV spending â€œdespite accounting for only 51% of total advertising (and 41% of digital).â€
+ While many of these categories face major disruptors (online/Amazon for CPGs, self-driving cars and transportation-as-a-service for auto companies, etc.), Thompson argues that these brands â€œuniquely suited to TV are probably by definition less suited to digital advertising, which at least to date has worked much better for direct response marketing. No one is going to click a link in their feed to buy a car or laundry detergent, and a brick-and-mortar retailer doesnâ€™t want to encourage shopping to someone already online.â€
+ Thompson closes with a yellow light, "linear television and its advertisers were all predicated on owning distribution and thus owning customers. The Internet has or is in the process of destroying their business models for broadly similar reasons; for now the intertwinement of these models is keeping everyone afloat, but that only means that when the end comes it will come more swiftly and broadly than anyone is expecting."
While Thompson warns of Winter at some point for TV networks, letâ€™s take his initial points - ad money coming back to TV from major marketers, the natural tie for big brands to spend on TV and the lack of Facebook and Snapchat having figured out effective brand advertising plays yet - and add key insights from AdAgeâ€™s Anthony Crupi to the hypothesis. "Scripted TV is Dying a Slow Death" was released by Crupi earlier this month on June 9th. Here we go:
+ In his very first paragraph, Crupi notes "live programming is pretty much the only thing keeping the Big Four broadcast networks from tumbling into the abyss."
+ Hereâ€™s an important overall note: Sports accounts for 34% of all viewing by Adults 18-49. When combined with News, one-off specials (ie "Grease Live") and reality shows, the metric increases to 61%.
+ When removing news, one-offs and reality, NBC currently leads the pack at 74% of its overall ratings tied to sports, Fox is at 58%, CBS is at 52% and ABC checks in at only 12%. These figures, in reverse, are also somewhat representative of how well each network has done (or not) with its scripted programming.
+ Sports delivers 95% of its viewers in real timeâ€¦important as, "It should go without saying that the DVR is the advertiserâ€™s worst enemy, as commercial deliveries are all but neutralized by the time-shifting devices."
Just two weeks later, Crupi also penned an important winner for our purposes with, "The Sports TV Well Has Run Dry." Chronological recap in context of the Big Ten-ESPN tie-up:
+ The NHLâ€™s TV rights are done until at least 2020 (NBC Sports)
+ NBC also has the English Premier League until the end of the 2021-22 season and Olympics until after the 2032 Summer Games
+ Major League Baseballâ€™s rights are held through 2021 (Fox/ESPN/Turner)
+ Top NFL deals (CBS/Fox/NBC) are squared away through the 2022 campaign
+ The Pac-12 will be with Fox/ESPN until the Spring of 2024
+ The NBAâ€™s rights deals run through the 2024-25 season (Turner/ESPN/ABC)
+ The Big 12 is done through 2024-25, as well (at least in its current iteration) (ESPN/Fox)
+ The College Football Playoffâ€™s rights are with ESPN until after the National Championship in 2025
+ Fox and Telemundo have FIFAâ€™s World Cup through 2026
+ ESPN has the ACC for 11 more years
+ March Madness is on CBS until 2032
+ The SEC marriage with CBS/ESPN lasts until 2034
+ One national TV buyer: â€œAdvertisers are willing to pay a premium for sports, because they recognize that, at its core, sports not only delivers a passion-based experience and a uniquely engaged audience -- and, by the way, they're watching the ads -- but it's also, let's face it, the last real reach vehicle.â€
+ The same buyer noted how the battle for sports rights also includes the dynamics of making sure a competitor doesnâ€™t win them.
+ Looking back at Ourandâ€™s entry, whatâ€™s left before 2020 includes the likes of NFLâ€™s Thursday Night package (currently: CBS/NBC), UFC (Fox Sports) and the PGA Championship (CBS/Turner).
Connecting the article trio tells a clear story. Thompson details why big ad money is coming back to TV: It fits mega-brands better than digital/social right now, which are predisposed to see their efforts perform better on the tube anyway (again, for now). Crupiâ€™s first piece reviews the lack of hit scripted programming, another traditional high volume viewership home for key demos (and therefore big ad money) thatâ€™s simply not currently performing well. Crupiâ€™s second read notes how few major sporting rights can be had before the early 2020s. Taken together, it seems quite clear why Fox, ESPN and CBS popped for the Big Ten rights at rates for the latter two that are 3x more than they are currently paying. Carriage fees, and retransmission fees for that matter, are crucial to the financial performance of networks, but hopefully this review shines some light on the movement of advertising dollars and why sports rights are so crucial in the current TV landscape for reasons beyond the headlines.
In 2014, SNL Kagan and Wunderlich Securities pegged ESPN's overall revenue at $10.8B with 63.9% ($6.9B) from carriage/subscriber fees and 36.1% ($3.9B) from advertising. Though this Business Insider review doesn't break-out the ad sales into TV, online and magazine categories, it's a decent overall picture of how important ad revenue is to the Worldwide Leader. - link
Wunderlich did provide such a breakdown back in 2013 when it totaled ESPN's overall ad haul at $3.434B. $3.522M was attributed to TV, $674M to online and $238M to ESPN The Magazine. - link
Advertising revenues for this year have been down for ESPN, but the College Football Playoff moving from New Year's Day to New Year's Eve has been a big reason. Some ratings declines have also impacted the situation. - link