A Closer Look at Pay-per-view Distribution
July 24, 2008
In discussing the most recent bond rating for the UFC, it was mentioned that Zuffa has been able to negotiate favorable terms with their PPV partners and that this has lead to greater profitability even though buys have remained flat. With the structure of PPV being a bit Byzantine, confusion on the topic often runs rampant when discussed online.
In order to shed some light on this often murky end of the business, MMAPayout.com spoke with an insider in the PPV industry who has negotiated many ppv distribution deals. While not privy to the exact terms of Zuffa’s agreements with PPV, he was able to clarify his perception of the revenue split and how UFC may be getting favorable terms:
In Demand deals are typically 50/40/10 splits. 50% goes directly to the cable companies, who actually own In Demand. 10% goes to In Demand and 40% goes to the event producer. I would think that it would be tough for Zuffa to modify their deal with In Demand, which last time I checked had approx 35 million homes. There would only be two options:
1) that the cable systems would take a smaller cut than the 50%. I would think this would be a tough sell. Beyond all other reasons, Zuffa would need to convince Comcast, Time Warner, Cablevision and all other MSOs (Multiple System Operators..read: your local cable company) to take less money. Not impossible, but I would think improbable.
2) that In Demand would take less than the 10% they require to act as a buffer between content producers and the MSOs. Not sure that is likely either.
Now, I wouldn’t think that UFC would have a tough time adjusting their deals with the satellite providers – Dish Network (Echostar) and DirecTV. These companies do not have to deal with individual cable systems. That is why prelim buyrate numbers come so quick from satellite providers – they have instant access to everything because it is in house. In Demand has to wait for all their individual affiliate systems to report in – actual numbers could take up to two months and sometimes it takes that long for even prelim numbers. That is why I think it would be difficult for UFC to modify their deal with In Demand and the MSOs – there are too many pieces to synchronize and get on the same page to accept less money.
UFC has always had a great relationship with DirecTV. I could see UFC getting them to change there deal to whatever they want. DirecTV they control their business and their are no affiliates to cut the split with. They also can modify the deal if necessary very easily.
The interesting thing would be how all of this effects the MFNs (Most Favored Nation Clause) in each contract. All of these PPV providers ask for an MFN. For instance, if the UFC told a PPV distributor they wanted a 50% cut, the distributor would ask them to rep and warrant that all other providers are getting no more than 50%, or that UFC is getting no greater than the percentage they are asking for anywhere else.” (MFN covers traditional cable AND satellite. The MFN has to work for ALL PPV distributors.)
This would really all come down to In Demand either taking less than their traditional 10% and/or the MSO’s taking less than their traditional 50%.
I think it is an important point to note that there is no way that UFC would be able to leverage a better deal than the WWE has because WWE would never allow it (AUTHOR’S NOTE: The WWE is THE player in the industry, with 2 decades of PPV history to back them up).
The general gist is that any concessions that are being made are mostly being done by the satellite providers, who don’t have a middleman they have to cut in. This gives them the flexibility to offer the UFC a better percentage than the cable companies.
