Cablevision-Yankees Talks Stall

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Cablevision Systems Corp. is finding out what Major League
Baseball players have known for decades: George Steinbrenner is a stubborn negotiator.

The flamboyant New York Yankees owner wants to retain most of his power over the team,
which apparently has stalled negotiations with Cablevision over the sale of the storied
franchise, sources close to the situation said.

But sources close to both sides still feel that the deal,
rumored to be worth $525 million, will happen sometime next year, giving Cablevision even
more power to dictate how local sports are viewed on cable within the nation's No. 1
television market.

Sources said Cablevision and Steinbrenner were down to the
fine points on a deal that would give Cablevision a majority ownership stake in the
Yankees. But at press time, the deal had stalled over Steinbrenner's role in the new
company.

“This really isn't a big story yet. There are
still some points that need to be worked out,” a source close to Cablevision said.

Cablevision's stock price fell by more than $6, or
about 13 percent, last Monday and Tuesday, but it bounced up by $2 early Wednesday, after
it was widely reported that the sale talks were troubled.

SG Cowen Securities Corp. analyst Gary Farber said he
didn't think that investors were reacting to reports about the deal's price or
expressing a general dissatisfaction with Cablevision's spending spree. The company
has recently acquired management of Radio City Music Hall, as well as a movie-theater
chain and a bankrupt consumer-electronics firm.

“I don't think that it's a Cablevision
issue,” Farber said. “It's a Steinbrenner issue.”

Wall Street doesn't particularly want a loose cannon
like Steinbrenner potentially controlling key Cablevision assets, as he said he would in a
story in The New York Times last week, Farber added.

But industry observers believe that the deal is too
important to both parties for it not to happen. Owning the Yankees would free Cablevision
from having to bid for the team's television rights, industry observers said.
Cablevision's Madison Square Garden Network is in the final two years of a record
10-year, $486 million deal with the team.

Buying the Yankees would also keep would-be competitors
like ESPN from bidding up Yankees rights fees or competing with Cablevision's
regional-sports networks.

For Steinbrenner, the deal would provide a deep-pocketed
partner to help sign free agents and keep the team competitive.

Representatives from Cablevision would not comment on deal
speculation, and officials from the Yankees did not return calls seeking comment.

Industry observers speculated that a Yankees deal, coupled
with agreements with six of the eight local professional teams, could also provide
Cablevision with more ammunition to move its regional-sports programming onto a
subscription or pay-per-view tier.

“Certainly, there is evidence showing that the current
broadcast plan seems to be working well, but your revenues are limited,” said Neal
Pilson, president of sports-consulting firm Pilson Communications and former president of
CBS Sports. “If [Cablevision chairman Charles Dolan] gets the rights to the Yankees
and completes the long-term deals with all of the other teams, he could be in a position
to review that method.”

For the short term, however, Cablevision may choose to
offer a number of games from all of its teams on Rainbow Media Holdings Inc.'s newly
created MSG Metro Channels. The channels — which provide local news, sports and
entertainment — will most likely run carryover games from MSGN and Fox Sports New
York sometime early next year, according to sources familiar with the matter.

Cablevision has come under fire recently for not
telecasting a number of New York Islanders and New Jersey Devils National Hockey League
games because of scheduling conflicts. Both teams have deals with FSNY. If the National
Basketball Association lockout is resolved, the addition of New York Knicks and New Jersey
Nets games will create further scheduling conflicts for both MSGN and FSNY.

In the past, Cablevision opened a third channel for the
overflow games, but MSGN executives said that it was too costly to take that step this
year.

With the additional Metro Channels, however, MSG can
provide coverage of the games, which would build consumer demand and put pressure on other
MSOs to launch the services. So far, the other MSOs within the market — Time Warner
Cable, MediaOne and Adelphia Cable Communications — have declined to run the Metro
services.

Rainbow is asking other operators in the area to carry the
three 24-hour channels on sequential slots for what sources said is about $1 per
subscriber for the package.

But Joe Cohen, executive vice president for MSGN, nixed the
Metro Channels as a potential solution — for now.

“At this point, the Metro Channels don't have the
[needed] distribution for these games,” he said.

Barry Rosenblum, president of Time Warner Cable New York
City, said such a move by Rainbow could cause subscriber backlash if the system isn't
offering the Metro Channels.

“I guess that would be a problem, depending on what
those games are,” Rosenblum added.


Kent Gibbons contributed to this story.

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