NFL Network Gets New Deal with Comcast; Peacock Gets Exclusive NFL Playoff Game

Today news broke that the NFL had agreed to sell the rights to a playoff game to Comcast's past-nascent-but-not-yet-well-established Peacock streaming service. This is quite a coup for Peacock. Generally, the NFL, as the purveyor of the most popular sports programming sticks to leading television services for their marquee events. Amazon Prime Video, after all, started with a package of often-lackluster Thursday night regular season games in its first NFL season.

Close observers will note that less than two weeks ago, on May 2, 2023, NFL chief Roger Goodell and Comcast leader Brian Roberts were personally involved in negotiating a new agreement for NFL Network and NFL Red Zone, restoring the service to the systems of nation's largest cable operator after they had been dropped a day earlier.

It appears the parties recognized that each had something the other really wanted.

Inferences from the DirecTV-NFL Sunday Ticket Price Cuts

According to Bloomberg News, DirecTV is cutting the price of the out-of-market NFL Sunday Ticket package by 40% to existing customers ($200 instead of $325) and giving it away free to new customers.

What does this mean?

1. It is unlikely that DirecTV is paying for Sunday Ticket on a per-Sunday-Ticket-subscriber basis. That sort of structure would make a retail price cut extraordinarily expensive. Most likely DirecTV pays the NFL a flat fee or a share of the revenue with some aggregate minimum.
2. Competition among distributors continues to heat up. NFL Sunday Ticket may be the only marquee exclusive service in the multichannel marketplace. DirecTV clearly sees more to gain by using it to lure or retain subscribers than to increase average revenue per unit (ARPU). Sweet introductory offers are basically a form of price discounting (in this case the sugar is added programming value rather than a per se lower price). The flashing light is the warning that distributors' margins will continue to go down.
3. For all the discussion of the consumer appeal of a la carte, bundling is more powerful. New DirecTV customers are getting NFL Sunday Ticket as part of their bundle. Since only about 10-15% of DirecTV customers usually buy the package, that would suggest its appeal isn't that broad. Yet, here it is, front and center of a subscriber acquisition strategy.

Another wrinkle is that customers who want mobile, online and HD access to Sunday Ticket, whether they are new or existing customers, will pay $100 extra (last year that premium was $60). That's counter to the usual TV Everywhere approach where mobile and online access is included in the package as added value. The programmer charging extra for HD programming has also disappeared from the multichannel landscape. Mobile, online and HD fees may not be part of the NFL's flat-fee, yet. It seems that between the NFL and DirecTV they don't know how to value that TV Everywhere added value. As Mike White, DirecTV's CEO put it in an interview with Bloomberg “Charging for digital rights is an experiment. There aren’t great models in how you get your price elasticities right there. We’re all learning what will the market bear in terms of digital rights.”

Once they do, look to see mobile added to the bundle. As for charging extra for HD, at a time when the sets are 69% penetrated to households -- that just seems odd.

Over-the-Top Competition for Multichannel VOD

A new study by The NPD Group estimated that US Internet-delivered VOD (iVOD) $204 million last year, up  while paid movie rentals via pay-TV/multichannel VOD was $1.3 million. The big players in the Internet movie rental business are iTunes, Amazon, Vudu (Walmart) and Cinema Now (Best Buy), and there are many others. (Netflix and Blockbuster's streaming services are not considered part of this market; they are subscription video on demand services, rather than transactional/one-shot/pay-per-view).

The big news is that among the iVOD users, usage of pay-TV VOD declined 12% and the size of the pay-TV user base is declining.

Often lost in the discussion of cord-cutting and cord-shaving in the pay-TV market is that the different segments of the market have very different competitive dynamics.

• Until Aereo, broadcast signals were essentially not available via the Internet (although programs are via Hulu, CBS's tv.com and the network web sites). (Of course, in some ways broadcasters are the most promiscuous of all in terms of distribution, after all, they do broadcast their signals for free to all with an antenna.)
• Cable services are even less likely to be available. This makes perfect sense given that those channels rely on multichannel television for both distribution to reach viewers and license fees. Some of their programs are available via Hulu, Netflix, and their websites, but typically episodes that are not that recent and often not that many of them.
• Recent movie VOD is one where the Internet-delivered selection (the subject of NPD's study) is very competitive with the pay-TV offering, particularly in the easy of navigation of the available choices.
• In adult video, the Internet offering trounces pay-TV's (more selection, lower cost, more salacious content) and the revenues have followed, as I described in an earlier post.

The other segments of the pay-TV video offering are smaller and include foreign language services and out-of-market sports packages. It is hard to generalize about the Internet availability of the former. With respect to the latter, the MLB Extra Innings and NBA League Pass  are available on Roku, Apple TV and many other Internet platforms. NFL Sunday Ticket is available only on the Sony PlayStation 3 and DirecTV. NHL Center Ice is available only through pay-TV providers.

One thing that seems clear from the results to date is that, to the extent that the Internet-delivered services have similar access to content as the pay-TV providers, their offerings are pretty competitive and they have often been quite successful. It is doubtful that this message is being missed by any of the players in the content business. Still, there are pretty compelling reasons for certain content providers to tread carefully or slowly in this direction.

NFL Sunday Ticket without DirecTV

DirecTV, which has exclusive rights to NFL Sunday Ticket, will be selling the subscription package to any non-DirecTV subscriber for the first time this fall.  In an interview with Multichannel News, Alex Kaplan, DirecTV's Senior Director of Product Management, said that "It's our attempt to open up the universe a bit to people that can't get DirecTV -- students, people who live in big apartment buildings and people who live in New York City -- and it's a new revenue stream for us."

NFL Sunday Ticket via the PlayStation 3 will be cost $339.95 for the season; the package sells for $334.95 on DirecTV.

Letting Others Get Your Crown Jewel - Is that Smart?

It is a widely held belief that the main purpose of Sunday Ticket exclusivity for DirecTV was to attract customers to its platform (instead of cable, Dish or telco video services.  It is well known that NFL Sunday Ticket is, if not a loss leader, does not generate a whole lot of margin for DirecTV.

Making Sunday Ticket available to non-subs, is, at least, a little odd.  It is hard to imagine Cablevision providing News 12 over-the-top to Verizon customers.

Cable operators have long coveted access to Sunday Ticket (no one likes to be the platform WITHOUT a top quality programming service). It seems that if the package is available to cable customers over-the-top, by definition it is no longer is as much of competitive differentiator for DirecTV.

DirecTV's Kaplan says the target is residents in cities like New York, where tall buildings prevent a clear signal for satellites, and video-game playing college students. “There are real revenue opportunities here from non-DirecTV customers, and while they won’t sign up for DirecTV right away, ultimately these people could move to the suburbs, and we’ll have a relationship with them that could lead to a conversion to DirecTV,” said Kaplan.

That sounds fine, if the PS3 is more penetrated in New York City or college campuses, but I think most of the PS3s are probably in the suburbs.

Why PS3?  What About Other Platforms?  We Are in an Experimenting Age

The NFL has argued that Sunday Ticket has a minimal cannibalizing effect on the viewership on the nationally telecast games because its availability is limited to DirecTV. That's important because the vast majority of NFL television revenue is from Fox, ABC/ESPN and NBC, not DirecTV.

However, if the goal was experimentation, the PS3 is an odd choice.  The PS3 accounts for more streaming hours for Netflix than any of its other platforms -- 30% of the total, according to an analysis by Sandvine; this choice was the not obvious toe-in-the-water play, that say, Roku, would have been.

Eagle-eyed observers will note that DirecTV has offered Sunday Ticket via broadband already with Sunday Ticket To Go, a $50 add-on for DirecTV Sunday Ticket subscribers that has been offered since 2008.  STTG is available on iOS, BlackBerry, Android, other consoles, etc.

DirecTV did make Sunday Ticket To Go available to DirecTV non-subscribers in 2009 (in Manhattan) and 2010 (everywhere), but this offer was only available to people who could not subscribe to DirecTV service.  In fact, a prospective customer would have to first sign up for DirecTV, then be rejected by a DirecTV installer.

DirecTV's Kaplan's other interesting comment in the interview is that "We're not going to let it [NFL Sunday Ticket subscriptions on PlayStation] go to an unlimited number.  We're trying to figure out what is the market for this at that price point."  Confusingly, in a later interview with Bloomberg, he added “If this test is successful, we have the opportunity to distribute ‘Sunday Ticket’ through various different devices, and we’re certainly open to relationships with other consoles and Internet-connected devices.”

Perhaps DirecTV thinks that they have already picked off all of the viable satellite television customers who really valued Sunday Ticket. It could be that the real test is less about the incremental revenue the broadband offering will bring, but whether the existing DirecTV Sunday Ticket subscribers will churn out at any greater rate if Sunday Ticket is available over-the-top.