ESPN: Launch Spinoffs, Get Us Cheaper

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ESPN is floating a proposal to cable operators that would supersede its
existing carriage deals: a long-term pact that calls for smaller annual rate
increases than in the programmer's current contracts in exchange for rollouts of
its other services.

ESPN's proposal would essentially amend existing affiliation deals with
operators, which are staggered and expire anywhere between 2004 and 2010,
depending on the MSO, according to executive vice president of affiliates sales
and marketing Sean Bratches.

The current contract permits rate increases of up to 20 percent per year,
which would be lowered under the new proposal, sources said. Nevertheless, the
compound annual increases over the life of the proposed pact would push ESPN's
rate near the $9-per-month mark for some operators.

According to a proposal sent to the National Cable Television Cooperative --
members of which received letters from ESPN over the past few weeks -- the
amended deal for them would extend until 2014, according to four sources
familiar with the situation.

The proposal is comprehensive, and it discusses the launches of not only
existing services such as ESPN2 and ESPN Classic, but also new offerings,
including ESPN Deportes, ESPN HD, ESPN Broadband and a video-on-demand service,
among others.

In the six-page proposal outlining the new deal for the NCTC, ESPN said it
would reduce the cap on the annual rate hike it can levy against operators,
dropping it from its current 20 percent. The maximum license-fee increase ESPN
could charge would be 16 percent this year.

From there, several sources said, the proposal calls for the following hikes:
15 percent in 2004; 14 percent in 2005; 13 percent in 2006; 12 percent in 2007;
and 11 percent each year from 2008 through 2014.

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