News

Time Warner Detaches YES

6/15/2003 8:00 PM Eastern

Time Warner Cable's decision to offer Yankees Entertainment & Sports Network à la carte to its 1.2 million New York-area subs could result in Cablevision Systems Corp. going to bat for the regional sports channel.

Taking a cue from Cablevision — which reached a one-year interim deal that has the MSO offering YES on a tier or an à la carte basis — Time Warner Cable declared Thursday afternoon that it was exercising a most-favored nation clause in its contract to give itself distribution flexibility.

Time Warner said that as of July 29, it would give its expanded-basic customers the option to retain the service at no additional charge, or reduce their monthly cable bill by $1 by dropping it. Time Warner subscribers signing up for expanded basic after that date would have the option of purchasing YES for $1 per month.

Time Warner's announcement prompted YES to jump off the bench, threatening legal action.

"We view this as a breach of Time Warner's agreement with YES and we will be advising them of such," YES CEO Leo Hindery, who was in France prepping to race in the 24 Hours of Le Mans, said in a statement. "We will take the necessary action to protect our rights and keep the YES Network and the Yankees available to Time Warner customers without any additional cost."

Should YES lose Time Warner customers, Cablevision, under the terms of the deal reached in March, would indemnify the regional sports network for revenue reductions, due to subscriber subtractions and legal fees for a year.

At press time, Time Warner had not been served with a suit, according to an MSO spokesman. Cablevision declined to comment.

Time Warner executives said the MSO is exercising the "most favored nation" clause in its deal with YES, which allows the operator to change its existing standard basic carriage deal and take advantage of the carriage flexibility granted to Cablevision.

Bethpage, N.Y.-based Cablevision last April began offering YES on an à la carte basis for $1.95 per month, or as part of a package with Madison Square Garden Network and Fox Sports Net New York for $4.95. Cablevision owns the latter two services.

It's unclear whether Time Warner would continue to pay YES $2.12 for each subscriber, regardless of how many drop the service. Under the Cablevision agreement, the MSO pays YES $2.12 for every subscriber who gets the regional sports network at levels no less than 51% of the MSO's subscriber base.

Observers believed Time Warner would wait until the end of the baseball season before altering its distribution for YES. But Time Warner Cable president Tom Baxter said the MSO wanted to provide its customers with the same options that Cablevision subscribers have.

"We've been very anxious to begin to offer people choices, particularly in the area of sports," Baxter said. "After the Cablevision-YES agreement, we thought this would be the appropriate time."

Comcast Corp., which also carries YES as a basic service, said it has no plans to make any lineup changes regarding the carriage of the channel.

Time Warner has been open about developing fee-based sports tiers for high-priced networks such as the Fox Sports Net regional networks and ESPN.

While current distribution deals forbid Time Warner from moving such networks off of standard basic, Baxter said the MSO will pursue such options as those contracts expire.

The MSO has launched sports tiers in 21 of its 31 divisions around the country, but most are populated with upstart or niche sports services like the Tennis Channel, Fox Sports World, ESPN News, and the Fox Sports digital networks.

In New York, Time Warner's deals with Madison Square Garden Network and Fox Sports New York terminate at the end of 2003. Time Warner earlier this year initiated talks with both networks about potentially creating a sports tier as early as July, but no deals had been reached at press time.

Currently, Time Warner pays about $3.50 per subscriber per month for both MSGN and FSNY, but that rate would jump at least $1 more with the ability to tier the channels or offer à la carte carriage, said sources.

Mike Reynolds contributed to this story.

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