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Would Regional Sports Fly on PPV?

5/07/2000 8:00 PM Eastern

Imagine sitting down to watch your favorite professional-baseball team's game. With potato chips and soda at your side and a remote control in hand, you flick to your digital barker service to view the evening's schedule of programs.

You select the channel for the game and as you settle in for a night's worth of baseball action, a message scrawls across the bottom of your screen thanking you for paying $3 to view the game.

As regional-network fees and team costs continue to rise, some industry executives believe this scenario will become commonplace in cable households.

In the near future, operators and regional sports networks-or the teams themselves-may look to move games currently running on basic regional sports networks to pay-per-view in order to generate incremental revenue.

Observers believe that while subscribers would initially balk at moving "free" games to PPV today, digital technology and the interactive and on-demand services enabled by that platform will indoctrinate subscribers to paying for specialized programming and open the door for regional PPV events.

Operators and sports networks have consistently waged public and often bitter battles over the rising cost of regional-sports-network licensing fees. As licensing fees for regional sports networks continue to climb-industry observers estimated that some could approach the $2-per-subscriber mark soon-operators said they may be forced to find alternative ways of paying for such programming.

One possibility, according to operators, is offering sports events on a PPV basis, or at least as premium channels.

"If the need from teams for revenue grows, then you will need different mechanics to provide that revenue," said Cablevision Systems Corp. chairman Charles Dolan, interviewed recently while attending a Paul Kagan Associates Inc. seminar. "The old idea of taking the events and putting in basic or family [doesn't work]. Those higher fees will stress that too much. You'll have to do something else, and some form of premium pay or PPV service may help."

Another MSO executive, who wished to remain anonymous, also said the industry would need to find alternative ways of paying for the high cost of sports services.

"I don't know if it's a pay TV or PPV model, but something has to be done to curtail the rising cost of sports," the operator said. "It can't remain within the basic package."

That likelihood is exaggerated for vertically integrated companies such as Cablevision, which own regional sports networks and pro-sports teams. With Madison Square Garden Network, Fox Sports New York, the National Basketball Association's New York Knicks and the National Hockey League's New York Rangers within its ownership portfolio, the MSO has to manage rising costs on both sides. Pay TV and PPV revenues could help.

"At some point, the operators are going to say no to the costs that the regional sports networks are passing along to them," In Demand senior vice president of distribution and product development Robert Jacobson said.

"Once that happens, there could be a time when certain games could be offered on a PPV basis to recoup costs, with the majority of contests distributed through the regional sports networks," he added.

COMCAST RULES OUT

Comcast SportsNet CEO Jack Williams ruled out any possibility of offering local pro-team games on a PPV basis. This came even though network parent Comcast Corp. owns the NBA's Philadelphia 76ers, the NHL's Philadelphia Flyers and the First Union Center where the teams play through Comcast's partnership with Ed Snider, Comcast-Spectacor.

"We've based our network to be available to as many people as possible, and PPV doesn't accomplish that," Williams added.

Also, regular-season games would be difficult to sell because they don't carry as much significance as playoff or specialty games.

"When you look at a regular-season schedule, it would be difficult to go back and put games on a PPV basis," Fox Sports Net senior vice president and Southwest region general manager Jon Heidtke said. "There's also a public-relations issue when you take back something that you've given virtually for free."

Indeed, the concept of moving what are essentially considered "free" games from basic-cable-based regional sports networks to pay TV and PPV has been met in the past with outrage and condemnation from subscribers, politicians and consumer-advocacy groups.

But while moving games from basic to PPV may cause a problem in today's predominantly analog-PPV environment, some cable executives believe that once digital boxes are in a majority of homes, viewers will not have as many objections to paying for specialized programming.

With services such as high-speed Internet access, video-on-demand programming and other pay-based interactive services, consumers may be more willing to spend money to watch their favorite games.

"As digital rolls out, people will increasingly be used to paying for programming. To ask those people to pay $2 more for some type of specialty service won't be that great of a reach," Kagan sports analyst John Mansell said.

"From a consumer point of view, they probably want them on the lower tiers, but if the revenue requirements are greater, I don't think that structure will be able to provide that kind of money," Dolan added.

The idea of offering local PPV pro-sports games, while frowned upon by much of the industry today, does have some precedents.

In the mid-1980s, several teams-either due to a lack of a regional sports service or to a desire to generate incremental revenue-offered packages of games via PPV. Major League Baseball's Los Angeles Dodgers, San Diego Padres and San Francisco Giants; the NBA's San Antonio Spurs, Phoenix Suns, Seattle SuperSonics, Portland Trail Blazers and Houston Rockets; and the NHL's Chicago Blackhawks have all offered regular-season or postseason games via PPV.

HAPPY IN PORTLAND

Many of those efforts were successful, particularly during playoff time. The Blazers-which have offered home games exclusively on PPV since 1983-enjoyed double-digit buy-rates during successful playoff runs.

But success stories like the Blazers are few and far between. Portland and the Spurs are currently the only pro-sports franchises still offering either regular-season or playoff games on PPV.

Instead, many teams-seeking a more stable and lucrative revenue stream than PPV offers-have reached distribution agreements with regional sports networks.

But some team executives haven't ruled out the possibility of using some form of PPV to generate incremental revenue, especially in a multichannel digital environment that could provide room for a team-based channel.

MSO Adelphia Communications Corp. owns the NHL's Buffalo Sabres. "It's difficult to predict the future," team vice president of communications Michael Gilbert said. "Obviously, you're looking for new streams for revenue. But whether that's through PPV or another revenue source remains to be seen."

With the appeal of sports at its greatest on a local level, MSO executives said teams and operators could create attractive PPV offerings that wouldn't hurt teams' broad fan appeal, but that would generate incremental revenue for both entities.

AT & T Broadband regional director of communications Kevin Mulligan said his MSO's PPV relationship with the Blazers has generated revenue for both parties and has fostered a strong relationship with the franchise-the only major-league sports entity in the market.

"Fan interest in sports is first and foremost local, and I would think that more and more teams would consider PPV, especially with the potential of digital technology," Mulligan said. "You can't put all of the games on PPV, and you have to price it right, but there are a number of teams today with strong followings that could easily build a PPV business."

ENHANCED EVENTS

Rather than offering the actual live telecast of the game on PPV, some industry executives said enhanced versions of the event could be offered on a PPV basis. Viewers would be able to watch the traditional telecast on a regional sports network, while avid sports fans could pay an additional $2 to $3 to see the game from different angles, or to get a commercial-free version with additional interviews or audio enhancements not found on basic cable.

"There may be some enhancements that would offer several different viewing options for the consumers that could generate some additional revenue," Williams said.

"I think there will inevitably be some PPV, but it remains to be seen what form it will take," Mansell said. "It could be an enhancement of what's already on television. The day could come when you'll have the Super Bowl on broadcast TV and some upscale, interactive version that people would be willing to pay for."

Jacobson said In Demand-which offers NHL and NBA out-of-market games via PPV to digital subscribers-has contemplated other forms of PPV programming such as time-shifted game telecasts or highlight packages that work well within a VOD environment.

"I think there will be a significant market for that type of programming," Jacobson added.

Operators could also offer a package of specialized and unique games that could fetch incremental revenue via PPV.

"Maybe it's something much more simple, like a package of interleague games or maybe some playoff games," Mansell said. "If it's during the regular season, it probably has to be a special game or a special package of games."

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