News

Steak and Happy Talk

4/27/2003 8:00 PM Eastern

New York— The dinner we set up in our front-page story on ESPN's pre-rate-increase, trade-press campaign took place at a bustling Midtown steak joint last Wednesday night.

The steak was quite good, as was the wine, especially for those sitting at ESPN president George Bodenheimer's table after he spotted a favorite vintage across the room.

The network spin (and I mean that in a non-pejorative sense) wasn't exactly rare. In fact it was pretty predictable. But it was quite well done, in terms of laying out a plausible case for ESPN's value to affiliates.

I'm not saying that fully resonates with affiliates, especially small ones that can't do all the local-ad insertions that generate the revenue that Bodenheimer & Co. say cuts the wholesale rate in half, to about $1 a subscriber.

Small operators are the ones calling on ESPNers to raise their wholesale license fee well below their contractual maximum of 20%, to more like 2% or 3%.

Needless to say, that's not going to happen. Bodenheimer and ESPN's affiliate sales and marketing chief, Sean Bratches, fell back on the alternative offer they've pitched to operators (and which we reported in January). That arrangement provides smaller double-digit annual increases in exchange for long-term security and commitments to other ESPN services.

"The ball is in our affiliates' court," Bodenheimer said bluntly before dinner. "We have an alternative proposal on the table. The ball is in their court."

Our reporting indicates the alternative tops out around $9 or $10 per sub in 2014. Operators aren't jumping on it.

But ESPN makes a strong case that it's working hard for the money, beyond pumping money into marquee sports rights and original shows that have made the network better and driven ratings.

They know how to push the hot buttons.

Eager for HDTV and VOD revenue? ESPN's got services for you. Cable-modem provision your cash cow? ESPN promotes it, with downloadable video and frequent cable-modem plugs. Among traditional affiliate rah-rah activities, they even offer fake covers for ESPN The Magazine
as part of cable retention campaigns.

I've certainly heard operators say many times that "partnership" pitches like these are very nice, but the price is what matters most. Which means Bratches and Bodenheimer need lots of ammo. It looks like they have lots of ammo — how much any of it matters to customers is up to the customers to decide.

Aside from whatever talks they're having on the alternative proposal, ESPN isn't negotiating new deals this year. Their existing contracts run at least to 2005 — beyond that, Bodenheimer said.

So pitches like the one ESPN execs made last week are merely an effort to make their case in the press, which I guess they've just done here.

Bodenheimer's last word? "A lot's been written and said recently about costs. I think, frankly, some of the talk has been a bit unfortunate. I think our industry overall would be better off if we focused on the exceptional value that a cable subscription is."

For what it's worth, I've heard operators say that, too.

October