By Jon Wilner Bay Area News Group
Originally published August 26, 2017 at 8:00 am Updated August 28, 2017 at 11:56 am
I spent years trying to locate Derek Chang, to no avail, and eventually gave up trying. But a tip from a source this summer — ”Last I heard, he’s in Singapore” — re-started the search and led me, eventually, to Chang. [Who was] executive vice president for content strategy for DirecTV (i.e., it lead negotiator) prior to the launch of the Pac-12 Networks.
Turns out, Chang does not hate the Pac-12. In fact, he’s a Stanford business school grad who took endless heat from classmates for not signing a carriage deal with the conference.
The account below is based on interviews with Chang, Scott and numerous other Hotline sources with direct knowledge of the Pac-12 Networks’ negotiations with DirecTV (and other distributors) during the pre- and post-launch windows.
******************************************
On May 3, the conference unveiled the $3 billion Tier 1 deal with ESPN and Fox — and, behind the scenes, immediately began courting partners for what would become the Pac-12 Networks.
First stop: Mr. Derek Chang. “If you’re going to launch a national network, the best place to start is with a satellite provider,’’ said a source with knowledge of the Pac-12’s strategy. “(The Pac-12) started with Chang and said, ‘We’d like you to be our partner. Buy from us wholesale so you don’t have to pay the retail rate.’ This was long before there were any substantive discussions with the cable companies.
“Derek said no. He probably thought they would have a hard time getting off the ground and didn’t want to drive up the cost.”
When viewed from DirecTV’s perspective, Chang had good reason for balking: Programming costs were soaring, affecting the margins for distributors. “We were trying to hold the line,’’ he said.
And to an extent, DirecTV was already paying for the Pac-12 content. The $3 billion outlay by ESPN and Fox would, over the 12-year deal, be passed on to the distributors (like DirecTV, Comcast, etc.) in the form of increased subscriber fees. Now the conference, in the form of a direct partnership with the Pac-12 Networks, was asking DirecTV to pay for the second-tier content, as well.
“The packaging not quite right initially,’’ Chang said.
So the Pac-12 moved on. In late July (still 2011), Scott announced the creation of the Pac-12 Networks with four founding partners from the cable realm: Time Warner, Comcast, Bright House and Cox would guaranteed the Pac-12 cash upfront (to pay for the launch costs), annual income and initial carriage into millions of homes.
But the cable connection added stress to the DirecTV discussions during the year-long run-up to the launch. “They did a deal with Time Warner (and others), and that boxed them in, and it boxed us in,’’ Chang said. “The way the deal was structured, the MFN, the packaging, how it was carried — it was difficult to get comfortable with.”
The key letters in that comment: MFN. They stand for Most Favored Nation, the term used to describe a model for structuring carriage deals. MFNs guarantee the same fees for all distributors of given a content package, regardless of when they come on the scene. (One source said MFNs are a way of making sure the initial carriage partner doesn’t look like a schmuck when subsequent deals are cut.)
*************************************
The pressure for a deal increased by the day. The Pac-12 seemingly had one option: Eliminate subscriber fees for DirecTV’s customers in the the Tier 3 zone (outside the footprint). But because of the MFN, it would have been forced to do the same for all subscribers on all systems. Concerned that the business model would sustain long-term damage, the conference declined, according to two sources.
But another person with knowledge of the negotiations downplayed the significance of that issue: “DirecTV was looking for ways not to carry it.”
One week into the 2012 season, the Pac-12 signed a carriage deal with DirecTV’s primary competitor, DISH, which, crucially, had a different subscriber base. “DISH has more of its customers out west, so it worked for them,’’ a source said. “The out-of-market issue wasn’t as big of a concern for them.”
At that point, one week into the season, DirecTV assessed the response of its customers: How many would cancel, or threaten to cancel, if the satellite provider did not carry the Pac-12 Networks? The company would have to be pushed to the tipping point, where it would lose enough in subscriber fees to make a deal with the Pac-12 Networks — something in the neighborhood of $40 million – $50 million annually — worthwhile.
The ongoing stalemate suggests that point was never reached.
One reason — perhaps the reason: Content. The conference’s Tier 1 deal is structured in a manner that gives Fox and ESPN the premium football games: As soon as the schedule is released, each network selects two games for broadcast. In other words, the Pac-12 Networks never have access to the four best matchups in any given season — the games that could be used as leverage.
The rest at the link...
http://www.seattletimes.com/sports/...-of-the-pac-12-networks-impasse-with-directv/
Originally published August 26, 2017 at 8:00 am Updated August 28, 2017 at 11:56 am
I spent years trying to locate Derek Chang, to no avail, and eventually gave up trying. But a tip from a source this summer — ”Last I heard, he’s in Singapore” — re-started the search and led me, eventually, to Chang. [Who was] executive vice president for content strategy for DirecTV (i.e., it lead negotiator) prior to the launch of the Pac-12 Networks.
Turns out, Chang does not hate the Pac-12. In fact, he’s a Stanford business school grad who took endless heat from classmates for not signing a carriage deal with the conference.
The account below is based on interviews with Chang, Scott and numerous other Hotline sources with direct knowledge of the Pac-12 Networks’ negotiations with DirecTV (and other distributors) during the pre- and post-launch windows.
******************************************
On May 3, the conference unveiled the $3 billion Tier 1 deal with ESPN and Fox — and, behind the scenes, immediately began courting partners for what would become the Pac-12 Networks.
First stop: Mr. Derek Chang. “If you’re going to launch a national network, the best place to start is with a satellite provider,’’ said a source with knowledge of the Pac-12’s strategy. “(The Pac-12) started with Chang and said, ‘We’d like you to be our partner. Buy from us wholesale so you don’t have to pay the retail rate.’ This was long before there were any substantive discussions with the cable companies.
“Derek said no. He probably thought they would have a hard time getting off the ground and didn’t want to drive up the cost.”
When viewed from DirecTV’s perspective, Chang had good reason for balking: Programming costs were soaring, affecting the margins for distributors. “We were trying to hold the line,’’ he said.
And to an extent, DirecTV was already paying for the Pac-12 content. The $3 billion outlay by ESPN and Fox would, over the 12-year deal, be passed on to the distributors (like DirecTV, Comcast, etc.) in the form of increased subscriber fees. Now the conference, in the form of a direct partnership with the Pac-12 Networks, was asking DirecTV to pay for the second-tier content, as well.
“The packaging not quite right initially,’’ Chang said.
So the Pac-12 moved on. In late July (still 2011), Scott announced the creation of the Pac-12 Networks with four founding partners from the cable realm: Time Warner, Comcast, Bright House and Cox would guaranteed the Pac-12 cash upfront (to pay for the launch costs), annual income and initial carriage into millions of homes.
But the cable connection added stress to the DirecTV discussions during the year-long run-up to the launch. “They did a deal with Time Warner (and others), and that boxed them in, and it boxed us in,’’ Chang said. “The way the deal was structured, the MFN, the packaging, how it was carried — it was difficult to get comfortable with.”
The key letters in that comment: MFN. They stand for Most Favored Nation, the term used to describe a model for structuring carriage deals. MFNs guarantee the same fees for all distributors of given a content package, regardless of when they come on the scene. (One source said MFNs are a way of making sure the initial carriage partner doesn’t look like a schmuck when subsequent deals are cut.)
*************************************
The pressure for a deal increased by the day. The Pac-12 seemingly had one option: Eliminate subscriber fees for DirecTV’s customers in the the Tier 3 zone (outside the footprint). But because of the MFN, it would have been forced to do the same for all subscribers on all systems. Concerned that the business model would sustain long-term damage, the conference declined, according to two sources.
But another person with knowledge of the negotiations downplayed the significance of that issue: “DirecTV was looking for ways not to carry it.”
One week into the 2012 season, the Pac-12 signed a carriage deal with DirecTV’s primary competitor, DISH, which, crucially, had a different subscriber base. “DISH has more of its customers out west, so it worked for them,’’ a source said. “The out-of-market issue wasn’t as big of a concern for them.”
At that point, one week into the season, DirecTV assessed the response of its customers: How many would cancel, or threaten to cancel, if the satellite provider did not carry the Pac-12 Networks? The company would have to be pushed to the tipping point, where it would lose enough in subscriber fees to make a deal with the Pac-12 Networks — something in the neighborhood of $40 million – $50 million annually — worthwhile.
The ongoing stalemate suggests that point was never reached.
One reason — perhaps the reason: Content. The conference’s Tier 1 deal is structured in a manner that gives Fox and ESPN the premium football games: As soon as the schedule is released, each network selects two games for broadcast. In other words, the Pac-12 Networks never have access to the four best matchups in any given season — the games that could be used as leverage.
The rest at the link...
http://www.seattletimes.com/sports/...-of-the-pac-12-networks-impasse-with-directv/
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