DirectTV to Pull The Plug on Viacom (Updated 7-11-12)
(Update – As of this morning Nickelodeon, MTV, VH1, Comedy Central and other cable channels owned by Viacom were taken off of DirecTV’s lineup early Wednesday morning, beginning a channel blackout that has angered viewers across the United States. In total 20 million homes lost access to Viacom’s channels)
DirectTV® subscribers might wake up tomorrow saying “I want my MTV”. DirectTV® and Viacom have been in negotiations and those negotiations came to a halt last night. DirectTV® claims they have made their final offer to Viacom and will be removing Viacom’s 22 channels (MTV, Spike TV, VH1, Comedy Central and Nickelodeon to name a few) at midnight tonight.
At the heart of negotiations is Viacom’s request for a 30% rate increase that would amount to over $1 billion dollars. Because of Viacom’s size they can bundle all of their channels into the negotiations. DirectTV® said, “You should be able to decide which Viacom channels you want and which you don’t.”
Viacom claims that DirectTV® subscribers have made Viacom the most watched programmer and accounted for 20% of all of its viewing. They also claim that they are only paid for 5% of the viewing and the increase is justified.
Wall Street has been talking about Viacom’s value being in decline. Cable and Satellite providers are under attack from streaming videos and Netflix. The ratings decline for networks like MTV and Nickelodeon it is creating a perfect storm for distributors to drop Viacom from its line up. A few years ago this would be unthinkable just based on Nickelodeon. UBS analyst John Janedis recently downgraded his rating on Viacom’s due to concerns related to ongoing ratings weakness. He wrote in his report: “We continue to think the concerns related to Netflix/Amazon viewing are overblown in the near-term, but from a content perspective, our sense is that returning series at MTV are under-performing, which will translate to further make-goods and a drag on ad growth in fiscal year 2013″.
Why is this important to MMA fans? The loss of DirectTV® hurts the expansion plans of Bellator, who is in partnership with Viacom. Partnership really mis-states the relationship. Viacom owns a large chunk of Bellator. Bellator can’t jump ship the way the UFC left Spike, they’re stuck until sold off. Bellator goes where Viacom goes.
Many thought the Viacom deal would allow Bellator to become the second largest American Mixed Martial Arts promotion. Suddenly Viacom itself is in danger of The Judgement by the market. With One FC’s ten year deal with ESPN STAR for Asian distribution and the DirectTV® Viacom deal hanging by a thread we may see One FC take the number two spot in the sport. Thinking that an Asian distribution deal doesn’t threaten Bellator’s North American position would be a mistake. The missing facts are: Victor Cui, CEO and owner of One FC, was at one time a senior director for ESPN STAR, and ESPN STAR is a 50-50 joint project between ESPN and Rupert Murdoch’s News Corp – the single largest media presence in North America, which includes, yes, FOX.
The House is gearing up for a battle over spending taxpayers money on sports sponsorship. The focus is on NASCAR but you cannot cut NASCAR without affecting all sports. The UFC recently inked a deal with the US Marines and many Mixed Martial Artists (“MMA”) have been sponsored by Military divisions. If the measure passes these expenditures would cease.
Republicans are divided over topics that usually unite them (spending cuts, military and NASCAR) and the Democrats are excited to have the distraction. At the heart of the battle is the $80 million dollars spent on sports sponsorships and the return on that investment. The proponents say $20 million a race is way too much. While supporters of the sponsorship programs, like Army National Guard Director Lt. Gen. William Ingram Jr. say “the program is effective. “ Without the draft, the Military needs to find ways to reach their target demographic.
There is no question that the Military’s target demographic is watching NASCAR and UFC type events. The in-content exposure is valuable and hard to miss. When marquee brands like Nike are cutting TV and Print spending by 40% in favor of Team and Event sponsorships it seems like an odd move by the House to pressure the Military in exactly the opposite direction.
As the US Marines learned with their UFC deal, there are other valuable sports properties that allow the Military to reach its target demographic and not spend $20 million per event. The model in play with the UFC makes a ton of sense for The Marines. The Marines are getting in-content branding on the most sought after sports property around. They get interaction with the athletes, digital placement on the UFC’s website and more.
Unlike NASCAR or other sports like Bull Riding, MMA also opens the door to real engagements with the target demographic. This engagement can go well beyond the recruiting phase too. We all have seen the UFC and Marine marketing program. The House should be looking at ways to get more for the expenditures. Ideas like:
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MMA Athletes showing up during Basic Training to help during Combatives Training.
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Military discounts on Merchandise and Tickets.
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Armed Forces MMA Team – While on Active Duty the ability to train and compete at the amateur level (like they do with other sports like Boxing and Wrestling).
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Veterans that were on the Armed Forces Team get immediate entry into TUF and their Pro card is paid for, in return they continue to represent their Branch of service. Guys like Brian Stann should be a sponsored athlete and a part of a program that helps transition the soldier athlete to a professional athlete.
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Lifetime free entry in signature events like Grapplers Quest and NAGA for active Military and Veterans.
Ideas like those will only enhance the ROI. From a MMA perspective the price the Military allegedly spends on one race would fund all of the above programs for several years. Every service member will learn some form of hand to hand combat during their enlistment. There is no reason not to offer MMA as a Team Sport on the bases. The opportunity to enhance the return on investment has never been better.
The House needs to realize that it is less about how much they spend and more about how they spend it. If NASCAR has become too expensive then find other sport properties that reach the same demographic. If you can find sports like MMA that weave into the basic structure of current Military life then you can find others. You don’t have to spend $20,000,000 per race to reach your target demographic. You don’t have to kill off your marketing plans because one part of the plan has become too expensive. Just replace it. The sport of Mixed Martial Arts would welcome this budget and the branding would be dominant and active 24/7 like our Military.
Turner Broadcasting To Buy BleacherReport.com
Turner Broadcasting Systems (TBS) is rumored to be in talks to buy BleacherReport.com for $200 million. The two companies are not commenting but sources close to deal, including the website AllThingsD, are reporting that the framework of the deal is in place and due-diligence has begun.
The Bleacher Report raised $40 million in venture capital since its inception in 2007. The site is primarily made up of user-generated content. It’s the user-generated content that has Bleachers Reports competitors crying foul, saying the sites contributors borrow content already released. The argument is weak. Twitter breaks news about 15 minutes ahead of the AP. Social networks are the hub of user generated content. YouTube was full of user generated videos when it was bought for billions.
Bleacher Report has done a great job at adding relevant content at a rapid rate. The contributors have helped propel Bleacher Report to over 9 million uniques per month. In 2010 the company generated an estimated $5 million in revenue. The year over year growth has slowed a bit to an estimated 8% from 2010 to 2011. In 2011 the company hired Rich Calacci away from CBS Interactive and he transformed the sales almost instantly. His team is on pace to bring in over $30 million in ad revenue from partners such as Red Bull, Muscle Milk, Pizza Hut and more.
Bleacher Report is selling at a premium, even for a sports based platform. Compare the potential sale to AOL’s purchase of HuffingtonPost.com for $315 million. At the time of the sale to AOL it had 25 million uniques per month and was doing just over $30 million in revenue. The Huffington Post was considered a prestigious website with real reporters and it’s user generated content is generally contributed by celebrities.
Many are asking why TBS is being so aggressive with its valuation of the Bleacher Report. TBS will likely use its vast resources to enhance the BleacherReport.com traffic. There is no question that TBS is seeking to replace the over 9 million unique visitors its ad network lost when they lost Sports Illustrated this spring. TBS is also losing PGA.com at the end of 2012. Bleacher Report saw its competitor MMAJunkie.com and Big Lead Sports’ sales to USA Today Sports Media Group. Leaving Bleacher Report as the only independent website on ComScore’s top 10.
We see a trend in journalism. The barrier to entry has never been lower. User generated content is the fuel for the World Wide Web. We have operated a user generated fan driven content website for years. We were punished by a major movie studio for most of those years until last year they announced they were launching their own user-generated content fan site.
The new online media properties seem to tout their in house publishing technologies almost as much as the content they produce. Bleacher Report is not the only user generated sports platform. Vox Media, a venture-backed startup, operates the SB Nation sports blog network
Add up the pieces – revenue potential, the loss of Sports Illustrated web traffic, PGA.com relationship coming to an end, a powerful publishing platform, and a core base of passionate contributors and the deal starts to make more sense for Turner than it might at first look.
Jon Jones vs The Canadian Immigration
If you missed it UFC Light Heavyweight Jon “Bones” Jones plead guilty to Driving While Intoxicated (DWI) today. For those of you that have never traveled to Canada you might not realize that a DWI is considered a “serious” offense. I praise Mr. Jones for taking responsibility and handling this matter as expeditiously as possible.
The effect of this conviction go beyond the sentence that will be handed down by the judge. As an example, if you are traveling to Canada, before you are allowed to enter the Country you will be asked “Have you ever been convicted of a crime?” When your answer is “yes”, you will likely be turned away. If you have been convicted of a DUI or DWI within the last ten years you will not be allowed entrance. According to the Canadian Criminal Code driving while impaired is a serious crime. The attitude is supported by most Canadian citizens.
The common person with a conviction may be considered rehabilitated “after” a certain period has expired from the completion of the sentence imposed. You must apply for rehabilitative status and demonstrate your rehabilitation. The usual post conviction waiting period is five years. After this five-year waiting period the person must submit the following documents:
- An application form IMM 1444E
- A passport size photograph
- A copy of your passport data pages
- An FBI police certificate
- A state police certificate
- Copies of court documents indicating the charge, section of law violated, the verdict, and sentencing
- Proof of completed sentences, paid fines, court costs, ordered treatments, etc.
- Copies of the text of the law describing the offence.
- Detailed explanation of the circumstances surrounding the offence
- Three letters of reference from responsible citizens.
- A non-refundable processing fee of $180 USD
Further information can be found at Citizenship and Immigration Canada’s webpages, Overcoming Criminal Inadmissibility and Overcoming Criminal Inadmissibility – Frequently Asked Questions.
It might be possible to get a temporary resident permit to enter Canada prior to rehabilitation, but this is up to the passport control officer’s discretion and requires a $200 (Canadian) fee. The temporary resident permit is meant to allow entry for exceptional circumstances, which would include reasons of national interest or on strong humanitarian or compassionate grounds, which a UFC event is not.
It remains to be seen how the Jones conviction will effect the UFC plans.
Jason Genet
K-Swiss Taps Out of MMA
K-Swiss the parent company of Form is exiting the Mixed Martial Arts landscape. Form was one of the few companies that had a true endorsement model and activated around the athletes and sport. According to the companies Edgar filings they bought Form in 2010 for $1.6 million and lost about $3.7 million before tapping out.
From their public filing:
13. Form Athletics
On July 23, 2010, the Company entered into a Membership Interest Purchase Agreement (“Purchase Agreement”) with Form Athletics, LLC (“Form Athletics”) and its Members to purchase Form Athletics for $1,600,000 in cash. Form Athletics was established in January 2010 to design, develop and distribute apparel for mixed martial arts under the Form Athletics brand worldwide. The purchase of Form Athletics was part of an overall strategy to enter the action sports market, however, during the third quarter of 2011, the Company decided to no longer pursue operating in this line of business, as discussed below. Operations of Form Athletics have been accounted for and presented as a discontinued operation in the accompanying Consolidated Financial Statements.Pursuant to the Purchase Agreement, the Company was obligated to pay additional cash consideration to certain Members of Form Athletics in an amount equal to Form Athletics’ EBITDA for the twelve months ended December 31, 2012 (“Form CPP”). The purchase price of $1,600,000 and the net present value of the initial estimate of the Form CPP was capitalized. The fair value of the Form CPP was determined each quarter based on the net present value of the current quarter’s projection of Form Athletics’ EBITDA for the twelve months ended December 31, 2012. Any subsequent changes to the Form CPP was recognized as interest income or interest expense during the applicable quarter.
The acquisition of Form Athletics was recorded as a 100% purchase and the Form CPP liability was recognized and accordingly, the results of operations of the acquired business were included in the Company’s Consolidated Financial Statements from the date of acquisition. A trademark asset totaling $3,150,000 and goodwill of $539,000, were recognized for the amount of the excess purchase price paid over fair market value of the net assets acquired. The amount of goodwill that was deductible for tax purposes was $507,000 and will be amortized over 15 years.
At July 23, 2010, the acquired assets and liabilities assumed in the purchase of Form Athletics was as follows (in thousands):
Balance at
July 23, 2010
Inventories
$ 39
Intangible assets
3,689
Total assets
$ 3,728
Current liabilities
$ 18
Form CPP
2,110
Total liabilities
2,128
Contribution by K•Swiss Inc.
1,600
Total stockholders’ equity
1,600
Total liabilities and stockholders’ equity
$ 3,728
Since Form Athletics began operating in early 2010, operating results prior to the Company’s purchase of Form Athletics were not significant and pro forma information was not materially different than what was reported on the Company’s Consolidated Financial Statements.
14
During the second quarter of 2011, after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Form Athletics goodwill and trademark was impaired and recognized impairment losses of $3,689,000 (see Note 5) and reversed the Form CPP liability of $2,110,000, which was recognized as interest income.
