News

Execs Debate Costs of Ancillary Services

9/17/2003 9:23 AM Eastern

New York -- A cable operator and a programmer -- namely Insight
Communications Co. Inc. and ESPN -- sparred Wednesday over the issue of networks
levying programming costs for ancillary services such as HDTV, broadband and
video-on-demand.

"I’m not interested in replicating a linear business model in
high-definition, VOD or broadband," Insight vice president of programming Terry
Denson said during a panel at the Kagan Broadband Summit here.

The debate over programmers charging MSOs license fees or other charges for
new programming services that have been spawned as a result of new technology
took place during a panel session on "The Great Conversion: Programming Costs
and Revenue Opportunities in an All-Digital System."

At the session, Denson lobbed the first shot when he complained about costs
that programmers are charging for services like HDTV.

"What’s important to me is not so much the linear programming costs, but it’s
the nickel-and-diming on the ancillary services," Denson said. "If you have an
HD service, or if you have VOD content, it’s helpful to me if you help me with
the marketing and, also, if there is no cost associated in the early years."

His remarks drew a quick response and rebuttal from panelist Sean Bratches,
ESPN’s executive VP of affiliate sales and marketing.

Bratches pointed out that the new programming services are costly to create.
"It takes capital investment," he said. "It takes manpower, creativity to
develop a lot of these products. And it’s important that it’s done right the
first time."

He added that content created for new services is critical to the growth of
new products like digital and HDTV, and operators have invested $75 billion to
rebuild their plants so they can sell these new products.

ESPN’s core networks can be used to market these new services, as well,
according to Bratches. "We have these extraordinary platforms to promote our
customers’ new products and services," he said.

In turn, Denson claimed that it is just too early for programmers to assign
prices to new services like HDTV.

"I know that there are significant costs involved [to programmers creating
new services]," Denson said. "There are rights issues involved, but what is
important is that I don’t think it’s necessary to replicate the linear business
model, and I think it’s too early in the distribution of these services to
really have a determination as to how you are going to monetize them."

He added that MSOs and networks must decide how to divide revenue from new
offerings like HDTV.

"Once you figure that out, then we take a look at it and say, ‘Here is the
revenue stream, let’s figure out a way to divide it up in an equitable basis so
I’m not necessarily hurt and you’re not necessarily hurt,’" Denson said.

He also suggested that these ancillary businesses represent "a great way to
offset the linear programming costs."

While Denson and Bratches had a difference of opinion, the sports programmer
maintained that relations between operators and networks are smoother than
ever.

"Yes, there’s a lot of rhetoric out there, but when you really pull the sheet
back, there is more cooperation going on between the programming community and
the operator community than there ever has been," Bratches said.

"So don’t be fooled by those few who are out who are putting a negative cast
and are negotiating in the press," he added. "Cooperation is at a height."

Denson agreed that as far as coming to terms for programming costs relating
to traditional linear networks, "We can work these things out at the negotiating
table and expect to get a reasonable result."

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