News

Ops Eye Low-Cost Local Heroes

5/03/1998 8:00 PM Eastern

To Coaxial Cable in Columbus, Ohio, the Ohio State
University women's volleyball team might as well be Major League Baseball's
Cleveland Indians.

The cable operator, along with Time Warner Cable, recently
began a local-regional-sports service that emphasizes college, high-school (men's and
women) and minor-league sports.

And it seems that these local heroes are doing just fine.

With regional-sports networks gobbling up valuable sports
programming featuring professional teams, operators believe that they can turn local
college and high-school games into both ratings and branding bonanzas.

While such programming may not compete for advertisers with
high-profile professional or college games, local product provides operators with
inexpensive programming that it can use to brand itself in the community, as well as to
compete against direct-broadcast satellite and telco rivals.

Along with local news, industry observers believe that
local sports holds the most value for operators in the market.

"Sports is really the only strong local programming
that cable operators do well," said Paul Bortz, president of Denver-based Bortz Media
& Sports Group.

As the value and popularity of regionalized sports
programming has exploded over the past decade, cable operators have, for the most part,
relied on regional-sports networks to provide access to local professional teams.

With a few exceptions, Cablevision Systems Corp.'s
Rainbow Media Holdings Inc. and Fox/Liberty Networks either own or are affiliated with
more than 20 regional-sports networks that have programming deals with most professional
teams: 25 of 30 MLB teams, 26 of 29 National Basketball Association teams and 19 of 26
National Hockey League squads.

Also, Fox and ESPN have tied up the rights to most major
college conferences for ratings-rich football and basketball. That leaves very little
marquee product for operators looking to start their own sports services.

Yet such programming has proven to be a gold mine for the
regional-sports networks. Despite operator claims that only 30 percent of subscribers want
sports, local events often generate the highest ratings of any cable program, many times
outdrawing national-broadcast programming.

OPERATOR-RUN

SPORTS SERVICES

To be sure, cable operators do not live by local alone;
they are major players in competing for professional-sports rights:

• Comcast Corp. bought the Philadelphia 76ers NBA and
Philadelphia Flyers NHL teams two years ago to anchor programming for its Comcast
SportsNet service.

• Prior to that, Cablevision purchased the New York
Rangers NHL and New York Knicks NBA teams to fuel its SportsChannel New York (now Fox
Sports New York) and Madison Square Garden Network regional networks.

• Last year, Marcus Cable Co. L.P. teamed up with
Texas billionaire Tom Hicks to purchase the Texas Rangers MLB franchise in an effort to
develop a new regional-sports network in the market. Hicks also owns the NHL's Dallas
Stars.

• Two weeks ago, Adelphia Communications Corp.
chairman John Rigas entered into an agreement to purchase a majority interest in the
NHL's Buffalo Sabres, as well as to secure the team's cable rights for the
MSO-owned Empire Sports Network.

WHY GO LOCAL?

But such acquisitions are extremely costly and outside of
the financial capabilities of small and midsized operators that are looking to capitalize
on the popularity of local sports.

So instead of going after major-league programming, some
operators have opted to target local college and high-school teams in an effort to strike
programming deals that will help to brand cable with the community.

Time Warner and Coaxial launched their own version of a
regional-sports network in Columbus last month, showcasing the region's best
scholastic-sports programming.

"We've always done some sports coverage in the
market, but this is the first time that we've teamed up and unified our
efforts," said Gregg Graff, senior vice president of marketing, programming and
advertising for Coaxial.

The service will initially have about 75 to 100 live events
per year, mostly from the popular Ohio State sports program. The service will offer 31
events from the college, including women's volleyball and basketball and men's
hockey and baseball, Graff said.

In addition, the service, which will be in front of a
combined 300,000 Time Warner and Coaxial subscribers, will feature Columbus Clippers
minor-league baseball games and Columbus Quest women's basketball games, along with
20 to 30 high-school events, Graff said..

"I think that these are areas that have been neglected
by the regional-sports services," Graff said. "Other than the big [Ohio State]
Buckeye games, you don't normally see a lot of coverage of these events."

Time Warner's Kansas City, Mo., system has been
successful for years with producing and distributing live games from high schools and
small colleges in Missouri on its 24-hour network, said system representatives. The
service, which uses CNN/SI as a backdrop, also carries local games from more obscure
professional outfits like the International Hockey League and Major League Soccer.

Cox Communications Inc.'s Phoenix system has also been
successful with distributing local-sports programming, as well as Phoenix Suns NBA games,
said Gregg Holmes, vice president and general manger of the 583,000-subscriber system.

Cox's channel not only derives high ratings for its
sports programming -- Suns games have averaged a 10.5 Nielsen Media Research rating over
the years -- but the system also generates incremental revenue from pay-per-view package
sales of about 20 Suns telecasts, although Holmes declined to reveal buy-rate figures.

ADVANTAGE

OVER RIVALS

Because of the community bond that subscribers have with
their high-school and college programs, system executives said, local-sports programs have
boosted systems' awareness and involvement with residents. Further, such programming
has allowed systems to differentiate themselves against other multichannel-video
competitors in the marketplace.

In Columbus, for example, both Time Warner and Coaxial are
fighting a fierce battle for subscribers with Ameritech New Media, regional Bell operating
company Ameritech Corp.'s cable arm. But with their fiber optic-based sports network,
Graff said, the MSOs have a major advantage because a loophole in program-access rules
enables them to offer popular local-sports programming to their subscribers exclusively.

"When Ameritech came in, there was a lot of talk that
they would differentiate themselves by providing local programming, but now, here we are
doing it first and exclusively," he said.

But operators may not keep that advantage for long.
Lawmakers in Washington, D.C., are considering changing program-access rules so that
fiber-based networks don't enjoy the special protection that satellite-distributed
services lack.

The success of such narrow local-sports programming will
inevitably invite competition for rights. Looking for additional programming options -- as
well as seeking greater local tie-ins with operators to help justify high licensing fees
-- regional-sports networks are becoming more and more interested in high-school and
non-big-conference college-sports programming.

Cablevision's Rainbow Sports division wants to create
local-sports networks in specific markets that would offer very localized sports and news
programming.

Several networks are on the drawing board, and they could
launch as early as this year, said Charles Dolan, chairman and CEO of Cablevision. The new
services would initially complement regional-sports networks in Boston, Chicago, the San
Francisco Bay area and Ohio, and they could also carry overflow product from those
services.

ESPN, in an effort to compete with Fox Sports Net in a
number of regional markets, has explored the rights for such programming, along with
pursuing high-profile, professional-team games, according to sources close to the matter.

ESPN would only say, through a prepared statement, that it
is "exploring such programming in several markets," and that it will
"consider opportunities in various markets as rights from regional-sports franchises
become available."

Even the telcos are infringing on the local-sports
marketplace. Just two weeks ago, U S West Communications reached a multimillion-dollar
deal with the Suns for the rights to the team's cable and broadcast games, as well as
other communications and marketing efforts, beginning in 2003. Sources said the telco,
which plans to launch its digital-TV service within the Phoenix market in 2000, is also
expected to go after other local-sports product.

Representatives from USWC could not be reached for comment
at press time.

Operators fear that the heightened interest in such
programming is bound to increase the rights fees, which would jeopardize their development
of low-cost local networks.

One system general manger, who is looking to start his own
local-sports network in the South, said a local junior college has already begun to hear
bids from other companies, although he declined to reveal the names of competing
companies.

"It's ludicrous that these small colleges are
increasing their asking fees -- their games have never been on television before, but I
guess that's the nature of the business," he said.

Graff, however, hopes to turn the tables on the
regional-sports networks. He hopes that the success of his local-sports network will allow
him to actually compete with Fox Sports Ohio for the rights to such marquee programming as
Cincinnati Reds MLB and Cleveland Cavaliers NBA games.

"We'd like to think that we can bid for these
professional rights, and we're actively looking for sponsors to help boost the
advertising base," Graff said." We understand that such programming will be
expensive, but the kind of programming that we have now has a lot of demand among
subscribers."

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