NBA Bounces to Cable1/27/2002 7:00 PM Eastern
National Basketball Association telecasts will have a distinct cable flavor for the next six years, as the league last week finally disclosed its TV-rights agreements with AOL Time Warner Inc. and The Walt Disney Co., valued at a combined $4.6 billion.
The pacts call for AOL Time Warner-owned Turner Network Television to feature exclusive weeknight NBA telecasts and additional playoff games, while Disney's ESPN will add league regular-season and playoff telecasts to its professional-sports portfolio.
Through the deal, ESPN will become the first TV service to carry all four major professional sports leagues — the NBA, National Football League, Major League Baseball and the National Hockey League — in a given year.
The NBA and AOL Time Warner also plan to distribute 98 more games through a jointly owned programming service tentatively called All-Sports Network.
Operators for the most part applauded the deal as a coup for the industry, but remained guarded about how much the deal will ultimately cost them in terms of increased fees from ESPN, TNT and the new NBA service.
The networks did not disclose terms of the deals. Published reports valued the agreements at some $4.6 billion, with AOL Time Warner allocating some $2.2 billion and the ESPN/ABC share worth a reported $2.4 billion.
NBC — the league's current broadcaster — dropped out of the bidding at some $1.3 billion for four years, citing declining ratings and $300 million in losses over the past two seasons.
The NBA's 23 percent annual uptick in TV-rights fees surprised many sports analysts, who felt the league would be lucky to match the $2.5 billion it earns under its current four-year pacts.
"I think it's as great testimony to the bargaining abilities of the NBA, especially given the current advertising environment," said Kagan Associates sports analyst John Mansell. "It helps that the contract is two years longer and that the league will oversee a new network."
NBA Television president Ed Desser said the league accomplished its goals of generating additional revenue for the league and expanding the reach of its product. The six-year deal provides more stability both for the league and the rights holders, he added.
As part of the new agreement, taking effect next season, TNT gets 52 regular-season games, most scheduled as exclusive Thursday-night doubleheaders against no other pro-basketball competition.
The channel will also run up to 45 playoff games, including one conference final round and both conference semifinal rounds in their entirety. In a cable first, the NBA All-Star Game will air on TNT.
TNT will drop its Wednesday night NBA telecasts. Sister network TBS Superstation will exit the basketball picture.
AOL Time Warner is paying an estimated $367 million annually over the life of the deal for the expanded TV rights, AOL's position as the league's preferred interactive services partner and the new network. But executives at Turner Sports, which is paying $890 million under the current four-year pact for TBS and TNT's coverage, believe TNT will be in a position to improve NBA ratings via the exclusive regular-season airings and the more robust playoff schedule.
"What you have is a substantially improved package: You have more playoff games, the All-Star game, signage at the venues and exclusivity against broadcast and cable telecasts on Thursday nights," Turner Broadcasting System Inc. president Jamie Kellner said.
The deal also returns ESPN to NBA-game coverage for the first time since 1984. The network will run 75 regular-season contests on Wednesday and Friday evenings (which will feature doubleheaders), plus 22 early-round playoff games and a complete conference-final series.
ESPN's broadcast brethren ABC replaces NBC as the home of the NBA Finals.
Disney officials were happy.
"There's no question that this deal adds value to a basic cable subscription, which is the meat and potatoes of the business," ESPN president George Bodenheimer said. "You have more NBA games on cable, we have conference final exclusives, [video-on-demand] rights, interactive-TV rights, and Spanish language rights, all of which adds value and will enhance subscriber retention."
COSTS TO OPS
There would be no surcharge for operators to help underwrite the costs of this deal, Bodenheimer said. Each of the ESPN and ABC properties would take an "appropriate allocation" of the rights, he said.
Still, operators expect the network to use the NBA acquisition to command its maximum 20 percent yearly rate increase this spring under its multiyear affiliation agreement with operators.
"We were expecting the increase whether they acquired the NBA or not," said one top-10 operator. "Now they can better justify the increase."
Bodenheimer would not comment on ESPN's rate-card plans, but did say the network continues to deliver the highest value to operators, in terms of local ad sales.
Operators are also bracing for a TNT price hike. Most of TNT's current agreements expire at year-end, and TBS president of domestic distribution Andy Heller said the network will definitely seek an increase in its 60- to 70-cent per-month fee. The increase will not only cover the NBA deal, but the recent acquisitions of such high-profile programming as NASCAR events and theatrical films.
Heller would not say how much of an increase the network is seeking, but termed it a "fair" figure based on the value of the network's recent acquisitions.
The programmer is leaning toward an overall increase for TNT, he said, although he would not rule out charging operators a surcharge for the NBA package.
"I want to be in a situation where everybody is carrying the product and paying the same rate," Heller said. "That having been said, how this ultimately gets structured will depend on how our clients react."
NEW NETWORK PITCHING
One of the most intriguing components of the deal is the development of ASN, or whatever moniker the channel will ultimately bear. The NBA, not Turner, will pitch the new network to operators over the next few weeks, Desser said.
The network will not inherit the soon-to-be-defunct CNN/Sports Illustrated's 20 million subscribers, as initially thought, but instead will have to forge separate distribution agreements with operators.
Desser said the network will absorb some of CNN/SI's event programming, including the Wimbledon tennis tournament and National Association for Stock Car Racing (NASCAR) qualifying races.
"We're at a preliminary stage," Desser said. "We expect to be very much involved in the affiliation side, the advertising side, the sponsorship side and production operations."
Although Desser wouldn't comment on potential distribution deals, sources said the network needs to reach 13 million subscribers by the start of the 2002-2003 season before AOL Time Warner kicks in its more than 12 million subs. If it can't reach that threshold, the games would then be carried on the NBA's digital channel, NBA.com TV.
But insiders said the NBA is counting on carriage from its other MSO team owners, including Charter Communications Inc. (Portland Trail Blazers), Comcast Corp. (Philadelphia 76ers) and Cablevision Systems Corp. (New York Knicks) to help it reach its goals.
Some industry observers, though, don't believe such carriage is a slam dunk for the league.
"I would argue that Turner has much more leverage over the operators than the NBA does," said DirecTV Inc. senior vice president of programming acquisitions Michael Thornton. "[Comcast Corp. president] Brian Roberts is a cable operator first and a team owner as a hobby."
Thornton said the direct-broadcast satellite carrier has yet to be approached by the league.
Comcast spokesman Tim Fitzpatrick would not comment on "potential programming arrangements or speculation," while Cablevision representatives refused to comment on the matter.
Charter representatives could not be reached for comment.
Many observers believe the NBA is taking a major public-relations risk by offering a majority of its regular season and post-season games via cable. But Desser said cable's high penetration numbers and its overall value to sports fans make it a viable outlet for NBA programming.
"By offering our games to a larger extent in primetime, and across a wider array of days and weeks, we think we'll end up with more total viewers, which we think will ultimately be good for our business," he said.
Desser doesn't think that increased cable coverage will deter sales for its NBA League Pass out-of-market pay-per-view package. The package, currently offered by In Demand and DirecTV, is expected to pull in more than $71 million in revenue, according to estimates by The Carmel Group.
But DirecTV's Thornton said the robust national cable slate would most likely siphon off all but the most hard-core basketball fans from the $149 out-of-market package.
"For the average fan as opposed to the displaced fan, it will have an effect," Thornton said. "I definitely see a flattening out of purchases for the package."
Simon Applebaum and Mike Reynolds contributed to this story.