The Pac-12 Networks endured furloughs, layoffs and a fall without football. But the other side of the pandemic carries a grim reality, as well.
The conference’s wholly-owned media enterprise continues to bleed subscribers, undercutting revenue and ramping up the pressure to make drastic structural changes during the three-and-a-half years of the remaining contract cycle.
So stark is the outlook that sources within the conference and the sports media industry believe the Pac-12 should consider shuttering the six regional networks — and possibly the entire operation — as the business model loses leverage in the evolving post-pandemic media world.
“The conference needs to rethink everything it does,’’ an industry source explained. “Its position has weakened in the last two years. The whole notion of the Pac-12 Networks has to go.”
That weakness is clear in the latest subscriber data:
The Pac-12 Network (the national network) now has just 14.8 million subscribers, according to December 2020 estimates provided to the Hotline by S & P Global Market Intelligence.
That figure represents a drop of 17% over the past two years, based on S & P data: In February 2019, the national network had 17.9 million subscribers. (At its peak five years ago, it had more than 19 million.)
In comparison, the Big Ten and SEC networks are believed to have more than 50 million subscribers.
The Pursuit Channel reportedly has 35 million.
“People can’t watch us on our own networks,’’ a Pac-12 source said. “That hurts. We have to get our credibility back in football, and to do that, people need to be able to see us play.”
The Pac-12 regional networks, which are often carried on a sports tier by systems within the conference footprint, have a combined 8.5 million subscribers.
According to S & P, the sub figures for all seven networks are as follows (December estimates):
Pac-12/National: 14.8 million
Pac-12/Los Angeles: 3.0 million
Pac-12/Bay Area: 2.1 million
Pac-12/Washington: 1.1 million
Pac-12/Mountain: 1.0 million
Pac-12/Arizona: 0.7 million
Pac-12/Oregon: 0.6 million
And the subscriber fee is what you might expect — low.
The Pac-12 Network, which is available on a basic tier on many cable systems within the conference footprint and a sports tier outside the footprint, produces an average of just 13 cents per subscriber per month, according to S & P.
The regional networks charge a higher fee to their limited audiences:
Pac-12/Washington: 98 cents (sub/month)
Pac-12/Arizona: 91 cents
Pac-12/Bay Area: 80 cents
Pac-12/Los Angeles: 73 cents
Pac-12/Mountain: 53 cents
Pac-12/Oregon: 52 cents
Pac-12/National: 13 cents
In contrast, the Big Ten and SEC networks reportedly charge in excess of 50 cents per subscriber.
The Hotline reached out to a half-dozen sources with knowledge of the sports media landscape and the Pac-12’s business model. Each declined to speak for attribution, but the consensus was clear:
The Pac-12 must do something drastic. It cannot hope to remain competitive within the Power Five while its peers generate more revenue and larger audiences, year after year.
At the same time, the conference has no easy escape hatch because of the nature of its contracts.
The Pac-12 Networks are obligated to produce 850 live events annually for Comcast, DISH and other distribution partners through the 2023-24 sports year. Shutting down the regional networks would likely result in reduced revenue, but it likely would cut expenses, too.
At the very least, sources said, it would become leaner and more efficient — and perhaps more enticing to potential partners.
In the 2019 fiscal year (the most recent available), the Pac-12 Networks reported $123 million in revenue and $90 million in expenses, with an average of $2.8 million sent to each campus.
It’s not known what percentage of the operating expenses are tied to the six regional networks; the Pac-12 financial reports don’t break down line-item costs in that manner.
But one thing is clear: The campus distribution figure is lower than even the lowest initial estimates.
During a gathering of conference executives before the networks were launched in August 2012, Commissioner Larry Scott thrilled the athletic directors with projections for annual distributions once the enterprise had exited the startup phase. According to a source in attendance at the meeting, those estimates were:
High end: $7 million-to-$10 million per school per year
Middle: $5 million-to-$7 million per school per year
Low end: $3 million-to-$5 million per school per year
Based on Hotline research and financial data provided by the conference, the networks have not yet distributed even $3 million to the campuses:
2013: None listed
2014: $862,000 per school
2015: $1,677,500 per school
2016: $1,980,250 per school
2017: $2,522,167 per school
2018: $2,666,667 per school
2019: $2,789,583 per school
2020: Not yet available
(Scott’s annual salary of more than $5 million is based, in part, on his role as the chief executive of the Pac-12’s media company.)
Where does that leave the networks, which have severely underperformed expectations in the areas of revenue and reach and are contractually bound to the status quo until the summer of 2024?
Multiple industry experts believe the conference should consider every option, including:
— Fold the Pac-12 regional networks, leaving only the national feed and creating a revised model that resembles the Big Ten and SEC networks.
— Shutter the Pac-12 Networks entirely, including the national network, and sell the content, which includes about 35 football games, to a major media company or perhaps a streaming service (for example: DAZN).
— Attempt to negotiate a new Tier 1 media deal immediately.
The third option would be the most lucrative but is also the trickiest to accomplish.
The Tier 1 agreements with ESPN and Fox expire in the summer of 2024 — the same endpoint as the Pac-12 Networks distribution agreements with Comcast, DISH and others.
But 40 months is a long time to wait for a conference that already lags many of its peers by tens of millions of dollars annually in media rights revenue.
Industry experts and conference sources believe the Pac-12 cannot sit back as the resource gap expands.
In their view, Scott’s successor, who’s expected to be in place this summer, should immediately begin conversations with current media partners and scour the marketplace to assess the demand for Pac-12 content.
Whether ESPN and Fox would be willing to rip up the current deals is not known. But one source, who has spent a lifetime in the sports-media space, offered the following assessment: “It’s all solvable.”
An expedited Tier 1 negotiation could allow the Pac-12’s next contract cycle to begin in 2023, providing the athletic departments with needed cash 12 months head of schedule.
“They need to go early because the situation is getting worse,’’ a source said.
ESPN, the most influential media entity in college sports, has lost approximately 10 million subscribers in the past five years, limiting its ability to purchase the broadcast rights to the top professional and collegiate sports leagues.
At the same time, it reportedly agreed to spend $300 million annually to broadcast the SEC’s “Game of the Week” package. Add its ownership of the SEC Network, and the media giant’s plan is clear.
“In a diminishing ESPN economy,” a source said, “they are allocating a greater percentage of dollars to the SEC.”
Equally concerning to the Pac-12 is the timing of upcoming negotiations: The Big Ten’s contracts expire in the summer of 2023, giving it access to ESPN and Fox dollars before the Pac-12.
How much cash, and how many premium broadcast windows, will remain after the heavyweights have fed at the trough?
According to Scott’s strategy, that might not matter. He believes an ever-expanding marketplace will include not only the traditional players like ESPN and Fox but also Amazon and Apple, which have unlimited cash. However, there are no guarantees that the tech giants will have the desire to bid on Pac-12 rights or the ability to distribute to a mass audience on an accessible platform.
It’s not only about the dollars.
“The athletic directors want exposure,” a source said. “They want people to see Pac-12 football. Do Amazon subscribers even watch football?”
The end result, sources said, is a conference that could be left with an unseemly choice: Big dollars on a distribution island with the tech giants, or smaller dollars and limited broadcast windows with the traditional sports networks.
Either way, the timing is crucial.
“We need to go to the marketplace this fall,” a source said. “I don’t think we can wait.”