Kansas' ESPN deal could be precursor to another wave of realignment

Tuesday June 25th, 2013

Kansas athletics has agreed to a seven-year deal with ESPN to carry at least 70 live events on ESPN3.
Jamie Squire/Getty Images

As recently as a year ago, I would have read the press release about the seven-year deal Kansas made with ESPN and yawned. The Jayhawks sold their local third-tier broadcast rights to a cable company (Time Warner Cable) and their national third-tier broadcast rights to ESPN, which will place those games (one football game, six men's basketball games and more than 50 other games involving Kansas teams) on ESPN3. ESPN3, for those furiously scrolling through their channel guides, is ESPN's web-only streaming service.

Only 12 months ago, I would have said something like this: "Wow. Nice Internet deal. Enjoy all the buffering." Yet on Tuesday, when I read the release, I thought about the way my own family's consumption of media has changed. If the TV is on at home, it's probably streaming an episode of Wonder Pets! for the kids through the PlayStation 3 on Amazon Instant Video. If my wife and I want to rent a movie, we download it from iTunes and play it on our television through AppleTV. If I'm on the road for work, I don't flip through channels on the hotel TV, I call up Netflix on my computer or iPad or phone and watch old episodes of Sons of Anarchy or Breaking Bad or some other show I missed the first time around.

I do this because, with an acceptable Internet connection, these programs don't look much different from the HD feed that comes through a satellite dish or a cable wire. What does this mean for Kansas fans? It means that for those who live outside of Kansas or the Kansas City metro area, the first look at top hoops recruit Andrew Wiggins -- the two hoops exhibition games are included in this deal -- will come over the web. The great preponderance of college sports fans probably won't tune in to watch the 2014 Jayhawks football spring game, but this deal and the next few like it should give us a much better idea about the next step for college sports at large.

There will be another wave of realignment. The ACC's agreement to a Grant of Rights for the remainder of its media rights deal with ESPN merely pressed the pause button. This wave of realignment was defined by cable subscriber fees and new markets. What will define the next one? We're about to find out.

Schools tore up the conference landscape for the past three years because of cable television. Thirty years ago, that would have seemed laughable. Remember the yawn over a web deal? In 1983, announcing an exclusive cable deal would have drawn much the same reaction. Now, college football's title game and Monday Night Football are on cable. Technology has moved even faster in the smartphone age. What seemed impossible five years ago is quite possible today. So when these current conference media rights deals expire in the 2020s, new bidders such as Google, Apple or Netflix could send everyone scrambling again.

The reason ESPN -- and by extension, cable and satellite distribution -- dominate now is twofold. First, the broadcast quality over cable and satellite remains superior. The picture is clean, bright and it won't cause you to miss a touchdown because of buffering. Given the recent advances in streaming and Internet service provider infrastructure, this advantage likely will be nullified in another five years. More importantly, ESPN owns sports because ESPN owns the most games. You may appreciate SportsCenter or the 30 for 30 series, but you probably tune into ESPN's networks because they're showing the game you want to see. (SportsCenter also has such rich highlights because when ESPN pays to broadcast games, it also pays for the right to broadcast lots of highlights.) Move the games to another outlet, and viewership follows.

At this point, about half your cable bill is dedicated to paying for live sports. ESPN commands the highest national subscriber fee, but regional sports networks that broadcast regular-season NBA and Major League Baseball games also command huge fees. Those who don't care about sports are beginning to wake up to the fact that they don't need to pay so much for events they have no intention of watching. Now, they can cut the cord and entertain themselves by streaming shows through Netflix, Amazon, Hulu Plus or broadcast network websites or apps for a fraction of the price. When enough sports atheists figure this out, the cable/satellite distribution model will have a problem. Because as much as sports fans love their sports, they don't love them enough to double what they're paying now.

The cable/satellite industry dismisses these warnings by pointing out that the current bundle is still the best deal for the most people. And it is -- for now. But every consumer has a breaking point. ESPN has made its WatchESPN streaming service available only to customers of cable systems that agree to pay extra for the service. Depending on how many people cut the cord in the next few years, ESPN may decide to offer WatchESPN -- which is different from ESPN3, which is offered through Internet service providers -- on an à la carte basis. If six sports atheists won't pay $30-$40 a month for ESPN services through a cable company, one sports fan might be willing to pay that rate to avoid paying for the rest of the cable universe.

ESPN wouldn't do this unless the cable model begins circling the drain. Companies must use caution when building new business at the expense of their primary business. But if deals like this Kansas one are a hit and ESPN executives -- who have been better than their competitors at predicting upcoming consumer whims -- decide the future will be piped through a router and not a cable box, then they have the infrastructure in place to become their own distributor.

When those college rights deals expire, some interesting new bidders will likely have entered the marketplace opposite ESPN, Fox and CBS. Google sniffed around the Pac-12 in 2010, but the league wound up selling premium football and basketball to ESPN and Fox and placed the rest of its inventory on its own network. Maybe next time, Google will buy the rights of the Pac-12 or the SEC and stream games on a subscription-based YouTube channel. Or maybe Google Fiber will have expanded beyond Kansas City, Provo, Utah, and Austin, Texas. Maybe Google buys the Big 12's rights and makes games available only to Google Fiber customers. Or maybe Netflix, which has begun to mix in original programming such as House of Cards and the new Arrested Development season, will try to multiply its subscriber base by streaming sports. The cost to subscribe may rise a dollar or two for everyone, but as long as a consumer's total programming expenditure per month remains lower than cable, he'll be happy.

So how will conferences and schools respond to this? The most likely answer is further consolidation. The NFL commands massive prices because it is the only seller of premium professional football. Even ESPN must bend to the NFL's will. At the moment, there are multiple sellers of premium college football. That could change the next time around with a College Football Association-type agreement that allows leagues to sell as a bloc, or a few leagues could continue to move ahead on their own by swallowing schools and fan bases from other leagues to improve their aggregate consumer base.

Apple or Google or Netflix or an untethered ESPN will want to know exactly how many subscribers a deal will bring. Exclusivity and immediacy are why the rights to live sports are so valuable. Those rights will always be used to leverage fan loyalty to create paying customers. The only difference is the technology used to deliver the games. That shift in technology will drive the next round of realignment.

It will also allow me to watch Andrew Wiggins on my phone, so I'm not really complaining.

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