In 1982, when Getty Oil Co. sold a minority stake in its upstart cable sports channel to ABC, one of the first things Getty's new partner did was take a hard look at the channel's economics. The top executive of ABC's cable programming division, Herbert Granath, concluded the two-year old channel would never survive just by selling advertising time.
Instead, the Connecticut-based Entertainment and Sports Programming Network would need a second source of revenue — a license fee paid by ESPN's cable affiliates.
Granath did what just about every cable programming executive of the era did when there was a major deal to be done. He got on a plane, headed to Denver and called on the chief executive of Tele-Communications Inc., John Malone.
DEAR JOHN …
Granath wasn't just asking for money. He was about to tell Malone, the most powerful man in the cable business, that ESPN was halting its practice of paying distributors for carriage.
When it launched in 1979 as the brainchild of an out-of-work public-relations man named Bill Rasmussen, ESPN had followed the prevailing broadcast network model in which networks compensated their TV-station affiliates for distribution.
Now, faced with a slim audience base and no hope of raising its ad rates high enough to cover expenses, Granath was setting out to turn the tables. Effectively, ESPN was about to be transformed from a cable industry revenue producer to a cost item with an asking price of 10 cents per subscriber per month.
Granath calls it the “longest negotiating day” of his life.
But when he returned to ABC's headquarters in New York, he had his deal. Malone agreed to ESPN's affiliate-fee demand. With TCI in the fold, the rest of the cable industry followed.
Together, the cable industry and ESPN exhibited a near-perfect symbiosis in the 1980s. Cable operators needed better programming, and more of it, to advance penetration and to court customers as the industry migrated into urban and suburban markets.
For ESPN, the cable industry was a direct conduit to America's living rooms. “We needed them, and they needed us,” says Matthew Polka, president of the American Cable Association and a former cable industry attorney.
By 1984, when ABC purchased Getty's remaining interest in ESPN, operators were providing not just a connection to viewers, but a big part of the revenue base that would support ESPN's quest for better programming.
BEYOND TRACTOR PULLS
With its dual-revenue foundation established, a network once derided as a wellspring of tractor pulls and Australian football and labeled by a Connecticut sports reporter as “the stupidest thing I'd ever heard of,” had begun a long drive to legitimacy. And unknown to anybody at the time, the seed for what would become a fractious, divisive wedge between ESPN and its cable affiliates — a modest license fee — had been planted.
“In the early days, when we had Australian Rules Football, wrist wrestling and darts, that didn't take a lot of rights payments,” says Granath, who remains involved with ESPN as its chairman emeritus.
But Malone and leaders of the cable industry recognized they would need to pay up to help drive high-profile sports events cable's way, and most were happy to comply with ESPN's rising fees.
The most obvious demonstration of this recognition came in 1986, when ESPN won widespread cable industry support to pursue the biggest plum in television sports: the National Football League.
In March 1987, ESPN beat out a separate operator-organized initiative to bring the NFL to cable, winning a three-year rights deal to televise eight primetime football games on Sunday nights (another eight games went to Turner Broadcasting System).
To help pay for the rights, ESPN again turned to its cable affiliates, asking for surcharge of 25 cents per subscriber.
Few operators refused, and some that did were embarrassed by vocal protests from their subscribers.
In the history of ESPN, and perhaps the history of cable, there was no bigger symbolic moment than when the Chicago Bears and Miami Dolphins trotted onto the field on Aug. 16, 1987. ESPN produced a then-record 8.9 rating for the game.
“That was the true turning point,” according to Cable & Telecommunications Association for Marketing senior vice president Seth Morrison, who was working in the corporate office of Viacom Cable at the time. “We got a degree of legitimacy that other sports just didn't bring.”
The NFL on ESPN coincided with another historic industry achievement. For the first time, cable TV penetration of U.S. television households surpassed 50%.
The two feats seemed almost intertwined. Cable had gone from a media also-ran to a media power, and a big part of its new prominence stemmed from industry-associated networks that were fast becoming household names: Home Box Office, MTV: Music Television, Cable News Network and ESPN.
Kevin Dowell, a corporate vice president in charge of local advertising for Insight Communications Co., recalls 1987 as a seminal year for the sports network — and not just because of football.
As a manager with Times Mirror Cable in San Diego, Dowell easily sold out the local advertising inventory made available by ESPN when it televised The America's Cup yacht race won by San Diego's Dennis Conner.
“For me, personally, that was the defining moment in really crystallizing what this network would become,” Dowell says.
ESPN wouldn't stop at covering the NFL and yachting, of course. Its revenues increased as new cable subscribers signed up, and as wider distribution and rising ratings supported higher rates for advertising time.
In the 1990s, under the helm of then president Steve Bornstein, ESPN's stature only grew. Aiming to populate cable's expanding channel capacity, ESPN added new, sibling networks, first ESPN2, and later ESPNews and ESPN Classic.
Bornstein, who started at ESPN as a production assistant, also began the network's migration to new media. The ESPN consumer Web site launched in 1995, and a national biweekly magazine made its debut in 1998.
None of these initiatives, though, would match the impact produced by the February 1996 merger of Capital Cities/ABC and The Walt Disney Co.
One of the first during the new era of media mega mergers, the $19-billion deal introduced a new corporate parent to the cable industry — one whose size, standing and historical insistence on double-digit earnings growth would put new demands on ESPN.
“I felt like I'd joined the corner store and now I worked for Wal-Mart,” says ESPN's executive vice president of affiliate sales and marketing, Sean Bratches.
Some in cable say the ownership change disrupted the colloquialism that had long characterized the network.
Polka remembers negotiating in the late 1980s with Bratches, then a new-to-the-industry affiliate representative who was making the rounds of regional operators. Polka says that in the pre-Disney era, ESPN reps were empowered to make deals and negotiate terms on the spot. Now, he contends, they're bound by prescribed corporate directives on everything from rates to marketing support.
“A lot of the 'before and after' of ESPN has a lot to do with the media consolidation that has taken place,” according to Polka, whose trade association represents operators serving about 7 million customers. “Back then it was truly a partnership. Now we have to ask, are we really partners or not?”
The tension that exists today between ESPN and cable operators springs almost exclusively from the amount of money ESPN demands from its affiliates — close to $2 per subscriber per month, according to industry reports.
The highly public confrontation over a license renewal between Cox Communications Inc. and ESPN earlier this year brought to the forefront the severity of the strain.
Both companies set up warring Web sites, with ESPN claiming Cox “wants to rip ESPN from your basic cable lineup” and Cox retorting that ESPN's 20% rate increase was wholly unjustified when the average wage-earner received only a 4% salary increase.
The dispute eventually was settled, with Cox managing to win concessions over the amount that ESPN license fees would increase over time. But the issue cast light on the serious gulf that has arisen between one of cable's seminal channels and the cable industry that once seemed so tightly aligned with it.
“We need their programming,” says Polka, “but they're not our partners anymore.”
ESPN executives acknowledge the nature of their dealings with cable operators has changed since the early days. But they say that's partly due to an evolution in the cable industry at large.
Rampant consolidation and increased attention from Wall Street have pressured both networks and distributors, Bratches notes. “A lot of the changes have been a result of the maturation of the business itself,” he says. “There's much more economic scrutiny today.”
As for a more regimented approach to affiliate deals? Bratches says that's a reflection of a more stable, long-term plan that, among other things, spells an end to the wide rate disparities of the past. “I can look everybody in the eye and tell them they're paying the same rate,” he adds.
ESPN executives also blame the sports business in general for fostering rate increases. Granath, who has watched ESPN's affiliate fee rise from 10 cents in 1982 to $2 in 2004, attributes the rising cost of carrying ESPN not to corporate greed — ESPN's profit margins actually fall below those of many ad-supported cable networks — but to the excesses of sports leagues and player salaries.
“As our rights prices increased, their payments have increased on a per subscriber basis,” Granath says. “And unfortunately, that's escalated at a considerable rate. And obviously, nobody's happy with that.”
The discord over rights fees is primarily an industry issue, removed from the general visibility of the consumer populace. At 25, there is no denying ESPN's profound influence across the mainstream television audience. ESPN, which launched in 1979 to fewer than 2 million households, is now available in more than 88 million — representing 85% of the nation's homes.
It shows no signs of losing momentum as it ages: Since 2002, ESPN has racked up 10 consecutive quarters of audience growth. And its influence on the intersection of television and sports is far-reaching. A Georgetown University graduate student even wrote a 2002 thesis on how ESPN has forced local TV stations to change the way they cover sports.
Some say ESPN's most significant contribution over the last 25 years isn't a sports-league affiliation, but the network's own signature prime-time program, “SportsCenter.” The evening telecast is a one-hour summation of highlights, news and interviews, all backed by an irreverence and attitude that has changed the way millions of people think about, and even talk about, sports.
“What ESPN does is to merge this modern ironic attitude with the world of sports,” says Robert Thompson, director of Syracuse University's Center for the Study of Popular Television and the author of Television's Second Golden Age. “ESPN sets the agenda for our conversation about sports.”
Granath, too, cites “SportsCenter” as one of the momentous achievements made during ESPN's 25-year history. To him, “SportsCenter” matters not only because of its infamy as a sports-culture signpost, but because of an economic factor that ought to make even margin-pressured cable companies happy.
“For that program,” Granath says, “we don't have to pay any rights fees.”