The grin on Larry Scott’s face seems hard to explain.
The commissioner of the Pac-12 Conference has come to talk television and, right off the bat, he must concede that not all the news is good.
Entering their third year, his Pac-12 Networks still don’t have a distribution deal with DirecTV, meaning that millions of fans won’t get a full schedule of conference football games this fall.
The national network and its six regional channels also trail their Big Ten Conference counterpart in terms of subscribers, and could be light-years behind the Southeastern Conference, which launches its network in mid-August amid projections of record viewership and revenues.
So why does Scott seem pleased?
Finding a shady spot to rest during the Pac-12’s recent football media days in Los Angeles, the commissioner preaches patience.
“You have to look at this based on where we’ll be after 10 years,” he says. “Not three.”
Scott is talking about a decision he made from the start. He is talking about a strategy that has yet to pay off.
For the major conference networks, the trick is persuading cable and satellite carriers to add their channels.
As the oldest of the group, the Big Ten is available in 90 million homes throughout the U.S. and Canada. The SEC will launch to 67 million households nationwide, with more deals reportedly in the offing. The Pac-12 comes in third at 60 million.
The numbers look even worse for the Pac-12 when you consider actual subscribers — the consumers who pay for an additional tier to watch the network.
The Pac-12 has only 11 million subscribers as compared with 57 million for the Big Ten, according to SNL Kagan, an industry consulting and research firm.
Though it is too early to make projections for the SEC, that conference’s pre-launch growth could result in a highly successful debut.
“It’s frustrating,” Scott said. “We don’t have that full distribution.”
But the commissioner points to a critical difference between his networks and the others.
The SEC handed its channel over to ESPN in exchange for a massive rights fee and the Big Ten entered into a roughly 50-50 joint venture with Fox Cable Networks.
The Pac-12 has maintained full ownership, creating and operating its networks.
“These are all very different models,” said Chris Bevilacqua, a top sports television industry consultant. “It’s hard to compare them.”
As the Pac-12 built toward an August 2012 debut, executives considered all three approaches, discussing partnerships with established broadcasters and carriers such as ESPN, CBS and, ironically, DirecTV.
“We had a lot of interest,” Scott said.
Two things influenced their decision. First, they sold the rights to their prime football and men’s basketball games to ESPN and Fox for an estimated $3 billion over 12 years. Then, they signed a pre-launch distribution deal with a consortium that included Time Warner, Comcast and Cox.
With plenty of cash and tens of millions of households in hand, the Pac-12 chose to go it alone.
Conference executives liked the idea of keeping all the profits and building equity in something that could be worth a billion or more someday. They liked maintaining control over programming.
This is a conference that brags about winning 469 NCAA team titles in a wide range of sports. And about sending athletes to the Olympics — if the Pac-12 were its own nation, it would have finished fifth in the medal count at the 2012 London Games.
Full ownership offered the freedom to feature water polo, volleyball and other sports that might not appeal to a broadcast conglomerate.
“Fifty-one percent of our 850 events this year are women’s sports,” said Lydia Murphy-Stephans, president of Pac-12 Networks. “That’s very important.”
But ownership came with drawbacks.
“I said to our university presidents and athletic directors, ‘If we do this well, it will be successful,’” Scott recalled. “But we have to look at the benefits long term.”
Murphy-Stephans recalls the early days of working from a cramped room with “a phone, some pencils and paper cups.”
When Big Ten executives blazed a trail with the first major conference network in 2007, cable and satellite companies had to listen because Fox sat at the negotiating table. ESPN carried even more clout in selling the SEC Network.
“We didn’t have that leverage,” Murphy-Stephans said.
They still don’t. The Pac-12 has tried to compensate by asking for about 80 cents per subscriber, well below the reported rates of $1 for the Big Ten and $1.30 or more for the SEC.
The Pac-12 has also been creative, securing a deal with AT&T U-verse by packaging its networks with exclusive telecommunication rights to the 12 member schools. As Scott said: “AT&T does a lot of business with our universities.”
None of that has helped with DirecTV, which distributes the Big Ten Network and appears close to signing with the SEC, but has remained steadfast in its two-year stalemate with the Pac-12.
The satellite giant wants to negotiate a lower price or offer the Pac-12 a la carte, which would cut into conference revenues.
A la carte deals are anathema to major sports networks. Jimmy Schaeffler, an analyst with the Carmel Group, suspects that Pac-12 executives face heavy pressure from their counterparts not to set a precedent.
“It’s just not going to happen under their watch,” he said.
Amid the struggles, there has been good news.
In 2012-13, television money lifted the Pac-12 above the SEC and Big Ten with $334 million in annual revenue, nearly doubling the previous year’s figures.
About 70% of that money has flowed into athletic departments from Seattle to Tucson.
“For schools that aren’t in major media markets, the excitement is really big,” said Mike Leach, the football coach at Washington State, which recently built a state-of-the-art training facility. “It’s equalized things.”
Even the DirecTV deadlock could melt away if AT&T completes a $48.5-billion deal to acquire the satellite broadcaster.
The Pac-12’s long-standing relationship with AT&T figures to smooth negotiations, and a deal could break similar logjams with Verizon FiOS, Charter Communications and Cablevision.
But the DirecTV sale faces regulatory hurdles, and it could be another year before any major developments.
“These conference networks are ultimately driven by where they are in distribution,” Bevilacqua said. “It’s a big issue.”
That keeps Scott’s grin from growing into a full-fledged smile. He must talk about patience, insisting that he chose wisely.
“We made this decision knowing it was the path less-traveled and the tougher path,” he says. “We wanted to be masters of our own destiny.”