Comedys Rate Hike Makes Ops Smile

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Surprising some operators, Comedy Central is only seeking
modest single-digit license-fee increases next year from smaller and midsized MSOs.

Comedy -- which has made ratings gains during the past few
years with hot programming such as South Park --has started to talk with
some cable operators about a new rate card and rate hike.

At the National Show in Chicago last month, Comedy
president Larry Divney accompanied senior vice president of affiliate relations Brad
Samuels on some calls to discuss the new rates with affiliates.

And Divney -- a former ad-sales chief who became head of
Comedy in February -- will go on additional affiliate-sales calls this year.

A number of small and midsized MSOs have carriage deals
with Comedy that expire at the end of this year. While the deals vary, in general, these
operators have been paying monthly license fees per subscriber in the neighborhood of 14.5
cents, once volume and penetration discounts are taken off the 19-cent base rate.

For next year, Comedy is floating monthly license-fee
increases of 1 to 2 cents per subscriber, depending on the operator, with a penny more
each year after that, cable-operator sources said.

A 1-cent increase on the 14.5-cent license fee amounts to a
7 percent hike, or 5 percent compared with the 19-cent base rate before discounts.

"They've been a hot network, and they're being
reasonable," one smaller-operator source said. "[The rate increase is] something
we can live with."

However, Comedy apparently hasn't started its round of
talks with large MSOs yet. The network reportedly has yet to do new rate cards for the
jumbo operators carrying the service, which make up the bulk of its distribution. But many
of those affiliation deals expire at the end of 2000, and not this year.

Because of volume discounts and charter affiliation terms,
those gigantic MSOs are typically paying much lower monthly license fees than the small
and midsized operators -- in the range of 9 cents per subscriber or so.

Since these major MSOs have been paying so much less for
Comedy than smaller operators do, their rate adjustments may be different from, and
possibly larger than, the ones the smaller MSOs are seeing levied right now, sources said.

Comedy officials declined to talk about specifics regarding
their negotiations with operators.

But Samuels said, "Comedy Central consistently
delivers great value for our affiliates, both on the screen and off. As our agreements
come up for renewals, we will be seeking reasonable rate increases that reflect the
channel's market value."

He pointed out that Comedy has seen 16 consecutive quarters
of ratings growth, it has added more than 10 million subscribers during the past year, it
is a proven local-ad-sales performer and it has offered affiliates innovative marketing
programs.

Especially in light of the network's success during the
past few years, some operators conceded that Comedy has been an underpriced service. So
some smaller operators feared that the network would really try to jack up their license
fees for the next contract, like other programmers have done.

For example, this year, A&E Network is asking for a 33
percent rate increase, reflecting the investment it has made in original programming.

Comedy just hit 59 million subscribers, and it expects to
be in 62 million homes by the end of this year. By seeking a rather modest increase from
smaller and midsized operators, the network is reportedly hoping to encourage those MSOs
to roll out the service in more systems, increasing its penetration.

Most of Comedy's revenue now comes from ad sales, and not
license fees. According to Paul Kagan Associates Inc., the network netted $130 million in
advertising last year, and it is projected to net $162 million this year. In contrast,
Comedy's license-fee revenue was $51 million last year, with $56 million projected for
this year, according to Kagan.

Although Comedy Central has seen steady ratings growth over
the past year, it had a soft second quarter. As South Park's ratings cooled
compared with their peak a year ago, the network just posted primetime ratings of 0.6 in
the second quarter, down 14 percent from 0.7 a year ago.

The network just premiered a slate of new primetime shows,
as well as new episodes of South Park,which it hopes will boost viewership.

While South Park'sratings slipped this year,
Comedy officials hope the show will get a lift from this week's release of the movie South
Park: Bigger, Longer & Uncut
, which earned some glowing reviews.

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