All Quiet on Program Front

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On the programming-costs battlefield, quiet broke out between operators and cable networks at last week's National Show, at least in public.

Instead, MSOs chose to emphasize new services, notably HDTV, and new revenue streams, notably phone service.

"At the show, the industry operators and programmers tried to focus on positive things in their relationship, rather than the obvious difficult issues between them," said American Cable Association president Matt Polka, who was on hand.

"That doesn't mean the issues aren't still there, and they need to be addressed. From my perspective at ACA, nothing that occurred this week changes our members' view that change has got to occur whether through dialogue, which we're not very optimistic about, or through further action in Washington."

At the opening general session, which included AOL Time Warner Inc. chairman and CEO Richard Parsons, Viacom Inc. president and chief operating officer Mel Karmazin, Comcast Corp. president Brian Roberts and Microsoft Corp. chairman Bill Gates, programming costs were an afterthought.

Parsons and Roberts focused on the promise of Internet-protocol telephony and the success and high returns of cable-modem service. Gates focused on cable operators eventually transporting all their services via the IP platform.

Last Wednesday's closing general session seemed to have the greatest potential for fireworks — among the seven operators on the panel were Mediacom Communications Corp. chairman Rocco Commisso and Cox Communications Inc. CEO Jim Robbins, two of the most outspoken MSO executives on programming cost issues.

But while the pair did voice rather strong opinions, the response from other executives — Time Warner Cable chairman Glenn Britt, Charter Communications Inc. CEO Carl Vogel, Adelphia Communications Corp. chairman Bill Schleyer and Comcast Corp. cable division president Steve Burke — came off as rather bland.

Burke's model

Burke called for a change in the affiliate-fee structure to a model based on MSO performance. "If our revenue goes up, your revenue should go up," Burke said.

But in a separate interview, ESPN executive vice president of administration Ed Durso said that time is basically here.

"There is no doubt that MSOs are making money," Durso said, adding that he was disappointed that Burke called the current affiliate model "arbitrary."

"In actuality, it is anything but arbitrary," Durso said. "Our agreements with Comcast cover multiple services. The last negotiation of those deals took months and months and months to resolve, the documents are several hundred pages long, they cover several years out. To suggest that they are not well thought out and understood and that the negotiation reflects an exchange of value and an awareness of the future of their relationship as arbitrary, strikes me as odd."

Commisso and Robbins perked up when talk moved to the controversial 20% rate increase from ESPN, the dominant sports programmer.

ESPN has said that when local advertising revenue is counted, the channel only costs operators about $1 per subscriber per month. But Robbins — as he has done in stronger terms in recent weeks — disputed that claim, saying his cost for ESPN is about $2.30 per subscriber per month, even after an advertising offset.

In an interview last Friday morning, Durso said ESPN would not disclose individual rates for MSOs, but said that the average rate is a little above $2 per subscriber per month.

Durso also said that operators — even small operators — that claim they don't derive local ad revenue from ESPN are being a bit disingenuous.

"Small operators are engaged quite significantly in selling local advertising sales," Durso said. "It's clearly an overstatement that small operators don't benefit from local advertising sales. They certainly do."

Dinner on Disney

Durso added that most small operators get their ESPN contracts through the National Cable Television Cooperative, a buying group that represents about 14 million subscribers. That, he said, allows smaller operators to get volume discounts.

The two top executives at ESPN parent The Walt Disney Co. appeared to try to smooth over the situation Tuesday night, when CEO Michael Eisner and president Robert Iger hosted a dinner for several MSO executives and NCTA president Robert Sachs.

Robbins did not make an appearance, following a published war of words with Eisner before the show. Cox said Robbins was attending the Vanguard Award ceremony that night (Cox's Gary McCollum and Lynne Elander won awards) and hosted a celebration dinner for them and other Cox employees.

Linda Moss contributed to this story.

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