ESPN Remains Strong Despite Ratings Dip

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New York -- Amid declining ratings for the first half of
the year, operators and national-advertising executives are mulling over options to
alleviate the high cost of doing business with ESPN.

But short of a major collapse by the sports juggernaut,
executives feel that there's not much that they can do to stem increases in
ESPN's cable-licensing fees or advertiser rates.

Still upset over ESPN's proposed 20 percent
licensing-fee increase, which was announced two months ago, operators are contemplating
their options -- even though the new deal goes into effect in August.

Some operators will attempt to get back at ESPN through
diminished distribution of other ESPN-related services or networks owned by ESPN's
parent, The Walt Disney Co.

While still negotiating with ESPN, Cable One has decided not
to renew its affiliation deal with ESPN Classic Sports, which expired April 30.

Cable One has already dropped Classic Sports in Prescott,
Ariz., and it will be taking the network off at four other systems once customer notice is
given, for a total of about 85,000 subscribers, said Cable One president Thomas Might.

Cable One also decided not to do an affiliation deal with
Toon Disney -- a contract that it planned to sign at one point.

"We're continuing to cut back on other ESPN
products to make up for ESPN's increase," Might said. "We'll have to
save the money on other Disney channels. Ultimately, it will hurt Disney Channel. ESPN is
more important for us to have to compete against DBS [direct-broadcast satellite] than
Disney Channel."

Representatives from Disney's corporate offices could
not be reached for comment at press time.

Fred Nichols, president of TCA Cable TV Inc., said the MSO
is looking at other potential solutions to the ESPN problem, like creating a tier of
sports services. Nichols asserted that sports only constitutes 10 percent of viewing,
"so we're asking 90 percent of our customer base to pay for something that they
don't want."

But ESPN has continually stated that tiering is not a
viable option under its contract. ESPN's licensing agreement call for stiff and
escalating penalties if operators drop below certain penetration levels, starting at 93
percent.

Nichols readily conceded that as TCA's deal with ESPN
stands now, the network can't be put on a tier.

"Contractually, there would have to be some
modifications to let that happen. But it's a conceptual idea that makes sense to
me," Nichols said.

Other MSOs, such as MediaOne, have already signed
ESPN's new deal. "You're sort of stuck with what they hand you," said
Jedd Palmer, senior vice president of programming for MediaOne.

Meanwhile, ESPN confirmed that it has been negotiating with
the National Cable TV Cooperative for the first time since the co-op's inception in
1985. ESPN and the group representing small operators are in the final stages of trying to
nail down a deal, said Frank Hughes, senior vice president of programming for the NCTC.

While such a deal wouldn't spare the NCTC from the
rate increase, it would give members the benefit of the volume discounts that large MSOs
enjoy.

But the NCTC and operators can't be too happy with the
recent decline in ESPN's ratings, which has also caused national advertisers to sit
up and take notice. The network has suffered a significant ratings decline since the first
quarter; ESPN averaged a 0.66 full-day rating this year, 12 percent below last year's
0.75 rating. In primetime, ESPN has fallen 18 percent, from a 1.32 rating to 1.08, the
network said.

ESPN pointed to the Winter Olympic Games and to a decline
in college-basketball ratings for its lower first-quarter numbers. Also, a two-week break
in the National Hockey League season due to the Olympics hurt ratings, ESPN said. Finally,
the network pointed to fragmentation from its own services, such as ESPN2 and Classic
Sports.

Nevertheless, some national advertisers are concerned that
the decline is more a trend than an aberration, as more networks compete for the
all-important male viewer. Several ad executives said ESPN's viewership base is being
nibbled away by the Fox Sports Net regional-sports networks and CNN/SI -- and, to a
certain extent, by nonsports services such as Comedy Central, which are effectively
reaching the male demographic.

"It concerns us, and we're resisting any rate
increases," said one ad-agency executive.

But an ESPN spokesman said the ratings decline has not
impacted on its business, and the network is receiving "positive" feedback from
traditional and national advertisers.

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