Disney NHL Bid Worries Ops

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The escalation of professional sports television rights hit
another milestone last week when the Walt Disney Co. bid an unprecedented $400 million for
National League Hockey rights -- nearly double the previous contract.

The price could go even higher if NHL broadcast rights
incumbent Fox Sports decides to do Disney one better and up the ante to keep the low-rated
package from its fiercest competitor. Either way, operators are worried that the NHL
rights could lead to yet another increase in already expensive sports licensing fees.

Disney's reported high bid took both operators and
industry observers by surprise, since the company was fiercely criticized by operators for
shelling out over $600 million earlier this year to obtain the full National Football
League cable package for its owned and operated ESPN service. The network then turned
around and levied a controversial 20 percent licensing fee increase to operators.

Even more surprising is the fact that Nielsen Media
Research ratings for the NHL continue to decline year after year. ESPN generated a 0.7rating
for 26 regular season NHL telecasts, down 13 percent from last year. ESPN2 ratings were
flat. ESPN2, however, suffered a 38 percent drop in playoff ratings. ESPN playoff ratings
dropped 29 percent from last year.

Fox Sports' ratings have consistently dropped each
year since averaging a 2.1 rating in 1996. Last season's numbers fell to 1.4, down
considerably from a 1.9 for the 1996-97 season.

Nor did the league receive an expected uptake this year
from the Winter Olympics. A poor performance by both the U.S. and Canadian teams, coupled
with an ugly off-ice incident involving U.S. players, generated more bad than good public
relations for the sport.

Fox has until the end of this week to make a counterbid on
the package. A Fox Sports representative would only say that the network is
"evaluating our options."

Despite the low ratings, the NHL package would provide
either company with a major feather in its cap in the battle over cable and broadcast
sports rights. Fox Sports has won most of the skirmishes on the regional level --
including ESPN's ill-fated attempt

to launch a Southern California regional sports network.
ESPN did outbid Fox for the rights to Classic Sports Network last September.

"This is all about competition between ESPN and Fox
Sports Net," said one sports executive who wished to remain anonymous. "Price
concerns often go out the window when you're battling for turf supremacy."

Also, with new NHL franchises in Nashville, Tenn.; Atlanta;
Columbus, Ohio; and St. Paul, Minn., due to debut in the next two years, Disney may be
hedging its bets that the sport will generate more interest nationwide throughout the
length of the deal.

"Most networks lose money on most rights agreements,
but having both the cable and broadcast packages provides some strategic advantages,"
said John Mansell, sports analyst for Paul Kagan Associates. "They can customize and
cross-promote the product, and it provides some advertising advantages."

But for cable operators who often bear the brunt of such
battles in the form of increased licensing fees, such reasoning is unacceptable.

"Very soon we're going to have to say to hell
with increased rates and offer these sports products on an a la carte basis," said
one top 10 operator. "If [the NHL deal] causes any kind of increase, we may have to
draw the line."

But an ESPN spokesman said that the network does not plan
to add an NHL surcharge to its rate card, nor does it plan to increase its current
licensing fee, which ranges from 80 cents to $1.

The spokesman also said that unlike the NFL, NHL
programming will be spread across several different channels, including ESPN2, ESPN
Classic and ESPN International.

With Congress looking very closely at the rising cost of
cable rates and sports rights fees, analysts feel ESPN could hurt itself in the long run
if it decides to try to pass the NHL cost to cable operators.

"There's a little more risk for the programmer
nowadays," Mansell said. "At some point, Congress may give operators the
flexibility to offer [expensive sports services] on an a la carte basis -- even though
ESPN's contracts prohibit it."

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