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When The Wheels Come Off

7/27/2007 8:06 PM Eastern

A week ago, the Versus sports network thought it had weathered the doping storm clouds hovering over its coverage of its hallmark event, the 2007 edition of the Tour De France cycling race.

Despite accusations that last year’s winner, American Floyd Landis, and many other top riders used performance-enhancing drugs during past Tours, year-to-year viewership was only down 8% going into the Tour’s final weekend for the Comcast-owned service.

Then disaster hit — and hit and hit. On Tuesday, a pre-race favorite, Alexandre Vinokourov of Kazakhstan, was thrown out of the tour for testing positive for an illegal transfer of blood. The reading came after he triumphantly won a 33-mile time trial, known in the sport colloquially as “the race of truth.” Afterward, his Astana team withdrew from the competition.

On Wednesday, another team, Cofidis, withdrew. One of its riders, Italian cyclist Cristian Moreni, tested positive for the presence of a synthetic form of the male sex hormone testosterone, and was arrested by French police.

And by nightfall, the biggest tremor hit. The race leader was kicked out of the tour. A Dane who had shown surprising strength in the Alps and Pyrenees, Michael Rasmussen, was expelled by his team for having lied about his whereabouts in training for the Tour. He had been riding under a cloud of suspicion because he had repeatedly avoided pre-race doping tests — and turned out to be training in the Italian Dolomites, where he could have better access to drugs, when he said he was in Mexico.

The ordeal was a “kick in the gut,” according to network president Gavin Harvey. And the full ramifications of the Tour melting down in living color on Versus’ watch remain to be felt.

So it goes for a network that is 10 months into its rebranding from an “outdoor living” network that used to feature lots of hunting and fishing programming. The change had started in the Lance Armstrong years, when the network, then known as OLN, used extensive and exclusive coverage of the Tour as a way to vault itself into higher viewership and visibility as a second national sports network to ESPN.

Besides professional cycling, though, Versus has picked up such mainstream sports fare as college football and National Hockey League games. And, early in 2006, Harvey’s crew came close to securing a brand-defining package of National Football League regular-season games.

That would have put Versus on cable’s biggest sports-television playing field, alongside juggernaut ESPN, which in 2006 became the home of the NFL’s Monday Night Football franchise after a 19-year run of Sunday games.

Instead, Versus is now hoping to increase subscribers and revenue with a mix of college sports, boxing, mixed martial arts, bull riding, rugby — and the Tour De France.

But bull riding does not rival baseball in terms of network recognition. The Tour is in shambles. And making Versus competitive with ESPN with the most popular sports is not going to happen any time soon.

Rights to marquee sports packages from the NFL, the National Basketball Association, Major League Baseball and NASCAR are locked up at least through 2013.

Versus may have to sit out the rest of the decade before it can step up to the plate again to negotiate for the cream of cable’s sports properties.

First Half Primetime Viewers
SOURCE: Nielsen Media Research
2003 128,000
2004 152,000
2005 186,000
2006 235,000
2007 235,000

BIDING TIME

Harvey is not deterred. He says the network is willing and able to bide its time. He says Versus is increasing revenue — $39 million to be exact from 2004 to 2006 — and has added nearly 10 million subscribers since 2004 without those high-priced sports packages, and hopes to gain favor from distributors through new technologies such as its high-definition channel, broadband video and video on demand offerings.

“We have models for all kinds of different [content-acquiring] scenarios that fall into place — sometimes you win, sometimes you lose, and sometimes you have to hold your cards so that you’re in a position to do some other things,” Harvey said. “If you would have told me we would be in 70 million homes a couple of years ago, I would have said, 'That’s the place I want to be.’ ”

Indeed, three years ago, when Harvey joined OLN, it reached about 60 million homes. And Comcast, which already operated regional sports networks and owned The Golf Channel, began to position OLN more broadly as a national sports service.

“We think sports is a dynamic category of television and there’s lots of room for growth and lots of room for a second major television brand in sports,” said Harvey, who had previously worked at E!, the Comcast-owned entertainment-news network, and pay-per-view content aggregator In Demand, in which the operator holds a one-third interest.

“We believe that there is a huge opportunity for another brand that does things a little differently that serves up exclusive sports … while at the same time creating opportunity for growth,” he said.

The strategy was accelerated with Comcast’s hiring of former Fox Cable Networks Group president Jeff Shell in 2005, to oversee the company’s programming properties.

Comcast began to aggressively pursue more high-profile pro sports content for OLN, and changed its name last September to Versus to better reflect the channel’s “celebration of competition,” according to Harvey.

“Our intent was to take this network, which was facing incredible pressure from competition in the distribution environment, from a midsized network to a fully distributed sports network,” Harvey added.

OLN ICES NHL

In 2005, Comcast believed pro hockey — despite coming off a season-long player lockout — would help put the network on the map.

Once ESPN passed on a $60 million option to retain hockey for the 2005-06 season, Comcast stepped up and secured the rights for $130 million over two seasons.

Earlier this year, the network extended its to six seasons.

The NHL helped the network gain more subscribers: the service is currently in 72 million households.

The network hoped landing hockey would serve as a sign that it could be the home of other major pro-sports leagues as well, from the NFL to Major League Baseball.

When the NFL began making noise about offering a package of eight Thursday-night and Saturday-night regular season games, Comcast made it clear to the league it was interested, according to individuals close to both parties.

Harvey would not discuss any details regarding Comcast’s bid for the package, but industry executives said Comcast bid somewhere between $400 million and $500 million for the six-year deal.

Comcast’s gamble would fall short when the league decided to award the games to its own upstart cable service, NFL Network just about a week before Super Bowl XL on Feb. 5, 2006.

From there, Comcast has had a hard time gaining ground for Versus. Comcast was either outbid for or passed on these deals:

  • Baseball. In 2006, ESPN and Major League Baseball reached an eight-year, $2.4 billion regular-season TV package, while TBS signed a seven-year, multimillion dollar deal with baseball to televise one of two postseason League Championship Series. TBS also obtained exclusive rights to all four Division Series from 2007 to 2013, and will air a Sunday game of the week package beginning next season.

  • Basketball. Earlier this month, ESPN and Turner Sports paid the NBA $7.4 billion to retain their respective league deals through the 2015-16 season.

  • Auto racing. ESPN, TNT and Speed Network joined ABC and Fox in paying $4.5 billion for NASCAR television rights through 2014.

“Certainly [Comcast’s high-profile] sports strategy has probably gone by the wayside, at least for the near term,” said TV sports analyst John Mansell of Great Falls, Va.-based John Mansell Associates.

CAGEY FIGHTING

While Harvey would not discuss potential Versus bids for any of those properties, he said the network has been successful sticking to its game plan of acquiring reasonably priced, quality, brand-building programming — even though highlights from such content may not be the first to air on ESPN’s SportsCenter.

“I think we have momentum, we’re thriving — you talk about the NFL and other near misses out there, but I focus on the things that we accomplished,” he said. “Every year we’ve made smart, strategic moves that will have an impact on our growth. We’re a growth story here.”

Some numbers seem to back up Harvey’s assertions. The network pulled in $157 million in revenue last year, up from $135 million in 2005 and $118 million two years ago, according to SNL Kagan. But it’s still chasing profits. The network’s programming expenditures have risen from $104 million in 2005 to $158 million last year, according to Kagan.

And if Comcast had actually won the NFL or MLB packages, the bottom line could have been worse, according to TV sports consultant Neal Pilson.

“You could argue that had [Comcast] been successful in getting the NFL, it’s possible that they might have added 10 million homes, but that would not have paid for the NFL,” he said. Meaning: the network would have lost money presenting the football games.

The deal may have also backfired on the league itself. NFL Network is currently in just 40 million households even with its package of live Thursday and Saturday night games, and is in an ongoing legal battle with none other than Comcast, who wants to place NFL Network on a sports tier of programming. Not on its basic tier.

Rather than spend on high-priced content, Versus has instead funneled its money into content such as World Extreme Cage Fighting mixed martial arts, which Harvey hopes can be built from the ground up and nurtured into a valuable sports property.

The network is also pinning its hopes on such slices of sports as the Pro Bull Riders tour, the World Cup Of Rugby, The America’s Cup sailboat racing tournament and college-football packages from the Pac-10, Mountain West and Big-12 conferences.

The aim: Draw passionate fans from a wide world of sports.

“Our athletes on Versus may not have the biggest paydays, but we believe that they have the biggest heart, and we’re building our brand around that idea,” Harvey said. “These are areas that we can lead — not from a catch-up position, but actually lead.”

Harvey points to the recent launch of an on-demand service and an HD channel, which it shares with The Golf Channel, as potential drivers of the brand for operators seeking to sell those services to consumers.

In addition, Harvey said the network is reaching its consumers on all platforms by offering broadband video streaming of its NHL games or additional live coverage of events such as the Giro d’Italia Cycling race that aren’t shown on-air.

“The most important thing is to serve our primary distributors, but we are able to carve out deals where you can have streamed content that will serve our fans,” he said.

RATINGS STRUGGLES

But the strategy has yet to produce big audiences. In second-quarter 2007, the network averaged a 0.3 primetime household rating, flat from the same period last year and one-tenth of a point better than the network averaged in 2004.

And the NHL has yet to help. Despite a year of marketing and promotion under its belt, Versus’ second regular season and post season NHL coverage matched its inaugural season numbers of a 0.3 and 0.4, respectively.

Then there’s the Tour de France. Last year’s coverage of Landis’ win averaged 893,000 viewers — half that of the average 1.7 million viewers who watched Armstrong win his seventh and final race in 2005.

This year, with Landis possibly getting stripped of his title and doping hanging like a black cloud over the sport, 710,768 viewers on average were tuning in. That was before the three kicks in the gut last week, including Rasmussen getting torn out of his yellow jersey while still occupying first place.

Harvey said it was too soon to determine how the latest Tour scandal would affect Versus’ Tour viewership. The biggest impact, he said, has been Armstrong’s retirement from the sport.

“We were prepared [for audience declines] this tour under the shadow of the doping scandal, but up until [last Tuesday] it had not significantly hurt viewership,” he said. “There is a core set of cycling fans and there is a magic of the Tour De France as a sports spectacle that is pretty compelling.”

Final ratings for the event come out this week. At press time, Harvey was optimistic that cleansing the sport of cheaters would keep the Tour a long-term attraction to cycling fans.

But can the Tour De France, the NHL and the bull riders keep Versus from being flushed away amidst a very competitive sports marketplace?

Perhaps. Pilson says the network does fill a niche as an alternative to ESPN, particularly for rightsholders of less popular sports such as skiing or track and field.

“They have been valuable to the sports community,” said Pilson, whose Pilson Communications consultancy helped secure carriage of a World Track and Field Championships package on the network to air later this summer. “Their 72 million homes is a welcome opportunity for rightsholders, particularly in those situations where ESPN is either too expensive or simply declines to provide coverage.”

But will the network ever become the home for Alex Rodriguez and Peyton Manning, as it was for Lance Armstrong?

“[Comcast] didn’t get Major League Baseball and the NFL for now, but [it] has shelf space and real estate — plus they take a very long-term perspective on things,” cable sports network consultant Lee Berke said.

It’s possible — as long as Comcast eventually opens up the purse strings. “They’re viable as long as Comcast is willing to spend money sometime in the future when big rights come up,” according to The New York Times media reporter Richard Sandomir.

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