Comcast Isn’t Playing Around With Hockey

Aug 29, 2005  •  Post A Comment

When fledgling Fox Broadcasting stunned competitors in 1993 by snagging a portion of National Football League television rights for $1.58 billion over four years, about 50 percent higher than what CBS paid under the previous contract, many critics said the deal made no sense. A CBS executive predicted Fox would lose as much as $500 million.

That would have been true if the deal were just about advertising revenues, but that wasn’t the case. As Barry Diller said at the time, it meant Fox would now be carried on every cable system, in every sports bar and in every market. History shows it led to important affiliate switches and market upgrades. It made Fox stations more valuable and built the Fox brand.

Fast-forward a dozen years, and some critics are wondering what executives at Comcast were thinking when they paid a reported $135 million for a package of hockey games over the next two years, with two options that could add four years to a deal that in total may cost more than $400 million. The games will air on Comcast’s subsidiary, the OLN network.

With hockey returning this fall after the 2004-05 season was canceled due to a labor squabble, there were legitimate questions about the value of the sport on TV. Disney/ABC’s ESPN crunched the numbers and projected the ad and subscriber revenue and declined to exercise its option to match the OLN offer.

If it were just about ad revenue and current sub fees, the critics would be right. However, the hockey deal is about a lot more than that. It will drive distribution of OLN from its current sub count of about 65 million to around 80 million over the next couple of years and allow OLN to significantly raise the fee paid by cable operators, which is currently around 12 cents per subscriber. ESPN, which has rights in other major sports, gets a reported $2.60 per sub, so there is a lot of upside potential.

“It’s a viewership play. It’s a brand play. It’s a distribution play,” said Gavin Harvey, president of OLN. “There’s so much the NHL brings to us. It all comes down to the value proposition.”

By “value proposition” he means the benefit that will be perceived by consumers, advertisers, the media and cable system operators. “Hockey is a tremendous crown jewel acquisition for us,” Mr. Harvey added. “It is going to help our network in many ways. It’s one of those transformative events.”

That is only the beginning. Each added sub raises the value of OLN itself. The deal also includes an unprecedented package of new media rights that will help expand and promote Comcast’s huge investment in video-on-demand, online and HDTV services. And the combination of sports rights and new media becomes a powerful tool to boost Comcast’s competitive position against satellite services such as DirecTV and, shortly, against the efforts of deep-pocket telcos to muscle their way into the market.

The deal also plays to Comcast’s strength. The bulk of Comcast’s 21.4 million subs are in cold-weather cities where hockey has a large cadre of loyal fans, including Philadelphia, Boston, Pittsburgh, Detroit and Chicago.

A Comcast insider said the company expects to offer a wide array of new products tied to hockey, including VOD highlights, replays and related programming. He compared it to the National Football League VOD package Comcast began offering last year. The free VOD offerings racked up 2.9 million visits in their first month and about 8.6 million visits over the football season. That meant all of those Comcast customers were introduced to the vast array of VOD offerings available, a service that satellite cannot match. In the future it will also be a sales tool as Comcast sells bundles of state-of-the-art video, high-speed data and voice services.

The Comcast insider pointed out that in most surveys the No. 1 programming people with high-definition TVs want is sports. To get the OLN package, in which at least one game a week will be shown in hi-def, subscribers must take Comcast’s premium digital service. That helps raise the amount the cable company gets from each customer and lowers subscriber turnover.

Comcast also picked up rights to stream some hockey games live over the Internet. The only other sport to do that is baseball, which streams some games in real time as part of a larger package for which there is a charge. Comcast will do it for free, at least initially, hoping to attract millions to its Web sites. That will allow Comcast to promote other products and services to those visitors and sell much more advertising.

Despite their sly-as-a-fox denials that they are looking for OLN to be a competitor to ESPN, the hockey play will put Comcast and OLN in a much stronger position to go after other big-league rights as their subscriber count and revenues mount.

Mr. Harvey sees hockey as part of a larger mix on OLN that already includes bicycle racing, the Boston Marathon, the Iditarod dog sled race, the America’s Cup yacht race and even reruns of the reality show “Survivor.” What they all have in common, he said, is they are about the kind of competition a person faces when challenged to catch a fish or climb a mountain.

“Our success is not going to be about how we compete with a single network,” Mr. Harvey said. “It is about how we load our network with must-see programming and whether we raise [OLN] to the level of all those other terrific networks. You can’t focus on any one network. There is tremendous programming throughout cable. And you don’t want to be blindsided by things coming from outside the industry.”

The future isn’t going to be about any one delivery or distribution system, but rather how media companies manage all of their resources and multiple distribution platforms to gain a competitive edge, to maximize the value of their assets and to build their brands. Successful companies will integrate the customer experience across both old and new media platforms so one feeds another.

You may think Comcast’s hockey deal is just about TV, but it is so much more. That is why it is worth a lot more than the number crunchers at other networks, or outside critics, may think. Unless the viewership of hockey completely disappears, which is highly unlikely, Comcast and OLN have put the puck in the net in business terms just by doing this deal.