Getting in the Game

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When The Golf Channel teed off in 1995, industry naysayers said the network would miss the green. The reason: Its niche was too narrow in a cable sports arena already crowded by ESPN and several regional networks.

Eight years and 54 million subscribers later, the network has found an audience among golf enthusiasts and casual fans, even though it doesn't hold live-TV rights to any Professional Golfers' Association tournaments.

Now, several independent programmers hope to follow in Golf's spikes, with networks aimed at fans of sports such as tennis, figure skating, football and the martial arts.

Given the enhanced channel capacity of digital cable — and fans' seemingly insatiable appetite for anything related to their sport of choice — executives with these channels are confident that televised sports are on the cusp of a new era.

But some operators argue that sports on cable have reached a saturation point — not just with viewers, but in terms of their share of basic-cable programming costs.

If new niche sports networks are to survive, many operators maintain, they'll have to operate under a business model that place such channels on a tier, rather than on basic cable.

From January through the next six to eight months, cable and direct-broadcast satellite operators talked with — or can expect to hear pitches from —at least eight independently owned sports nets looking for distribution.

Services like the Ice Channel (ice skating), The Martial Arts Channel, Martial Arts Network, the Football Network, HorseRacing TV, BoxTV-The Boxing Channel, CSTV: College Sports Television and The Tennis Channel — as well as offerings from such established players as ESPN (ESPN HD, ESPN Deportes) and Fox Sports (Fuel) — are all clamoring for slots on cable lineups.

They're all looking to join such established niche networks as Comcast Corp.'s Golf and Outdoor Life Network, Fox's Speed Channel and independent The Outdoor Channel in competition with national sports services ESPN, ESPN2 and ESPNews — as well as the regional sports networks — for the attention of cable's sports fans.

Even the leagues are getting into the action. The National Basketball Association and National Football League are trotting out full-time channels — NBA TV and The NFL Network —to satisfy fans' perceived desire to absorb information that extends beyond the action between the lines.

Executives from these upstart sports services believe that operators, seeking to boost sluggish digital-cable sales, will gravitate to their niche offerings that provide differentiated programming.

"The consumer is driving the demand threshold," said Martial Arts Channel president and chairman Tony Court. "If you look at any local community, you have everything from pee-wee leagues to minor leagues to major leagues in every conceivable sport.

"Also, many consumer brands are also spending a lot of advertising on the local, regional and national levels. So it almost lends itself to say that if people are interested in playing it, they're also interested in watching it — and if people are interested in advertising on it, then maybe they'd be interested in watching it on a designated channel."

Executives have also been emboldened by operator expansion into a digital-cable environment that is providing more opportunities for emerging networks than at any time in the past five years.

"For many years, there's been talk of a 500-channel environment, and I think it's now coming to pass," said Football Network president and CEO Jerry Solomon. "The world of sports is highly popular and it's fragmented to the point that there are many fans interested in very specific sports rather than being general sports fans."

Indeed, executives maintain that consumer demand exists despite the multitude of broadcast, cable and Internet outlets that currently televise sports. Outside of traditional services like ESPN and the regional sports networks, USA Network, FX, TBS Superstation, Turner Network Television, MSNBC, Black Entertainment Television and MBC Network — along with broadcasters ABC, NBC, CBS and Fox — offer a variety of marquee professional and college sports fare.

Nevertheless, executives from niche sports networks said those outlets fail to provide enough in-depth coverage of any one particular sport for true or casual fans, because of commitments to other sports or entertainment programming.

"When [Ted Turner] launched [Cable News Network], people said there wasn't a need for 24 hours of news, or when ESPN launched, people said there isn't a need for 24-hour sports network," said NBA TV president Ed Desser. "But both found audiences that wanted more than they were getting from the broadcast networks."

Despite such proclamations, some MSO executives already feel that sports is well-represented on the dial, and the advent of these more dedicated services add very little to their lineups.

"With all the networks that we already carry, it's very difficult to see how we achieve the goals of getting more new customers or retaining the ones we have by continuing to carry more programming and incurring more and more costs," said Cox Communications Inc. senior vice president of programming Bob Wilson.

Tier horizons

One solution: Aggregate the upstart sports networks on a pay sports tier. Operators say tiers allow for carriage of niche sports services without the imposition of additional fees for digital-basic service.

Time Warner Cable has already traveled the tiering route, establishing digital tiers within most of its systems. The MSO, which charges from $2 to $5 for its sports tiers, will not launch a niche sports network outside the pay platform, according to senior vice president of programming Fred Dressler.

Only a small minority of cable subscribers are true sports viewers, he added. Given the high cost of sports programming, Dresser believes that sports tiers provide avid fans with access to their favorites, while allowing operators to manage programming costs.

Given the explosion of new niche services, Cox's Wilson said the MSO is considering breaking sports networks out from their current digital-tier package, where the channels are bundled news and information networks. He still has some reservations, though.

"Right now, we're just getting to a point where we have enough content to split those [tiers] apart," Wilson said. "But we don't think we're at a point where these start-up networks yet create such a compelling proposition for the customer that it makes sense to carry all of them and to make us think that we're going to get significant take rates for that tier."

For its part, No. 1 DBS leader DirecTV Inc. has been successful in selling a sports tier. Penetration for the $12 monthly package stands at about 10% to 20% of the carrier's base of 11 million subscribers, with mostly wraparound programming from the various regional sports networks.

DirecTV executives said they're still unconvinced that adding several niche-targeted networks will equate into a significant boost in tier subscriptions.

"The biggest hurdle that we have is that we've achieved our [sports tier] size without these new networks, so it's hard to go back and pay extra [to retain] existing customers when arguably they're happy without these additional networks," said senior vice president of programming acquisitions Michael Thornton.

Several niche sports networks concede that tiers will inevitably become the most viable option for getting into the cable distribution game.

CSTV president and CEO Brian Bedol said given operators' desire to manage costs, new networks cannot be choosy over distribution. He equated the distribution dilemma to a football fan asking for exclusive tickets to the Super Bowl, but then questioning the position of the seats instead of being grateful for being inside the venue.

"Our goal is to get into the stadium and sit facing the field," Bedol said. "To the degree that we have the opportunity to roll out into dozens of markets very quickly because of an operator's sports tier strategy, that's great for our business. But it's up to us to figure out once we get into those markets how to maximize our distribution."

Despite signing an unprecedented, 16-year deal for distribution on Time Warner's sports tier, Tennis Channel CEO David Meister questions the long-term viability of tiers — for networks and operators.

Given operators' efforts to sell such other services as video-on-demand, high-speed data and telephony, he said pushing programming tiers could be confusing to both subscribers and to systems' customer-service representatives.

"When you cut through, the idea of sports tiers intrigues people because the hot button right now is sports rights being passed along," Meister said. "If you're a cable operator, you're going to look and see how to avoid the enormous [content fee] increase, and a tier is a one way to look at it.

"Long-term, the history is that a lot of tiering doesn't work."

Others believe that their channels offer too much alternative programming to be considered sports services.

Along with combat sports tournaments, the Martial Arts Channel — slated to launch this December — will offer lifestyle and educational programming surrounding the martial arts, as well as classic karate movies and animated programming.

Thus, Court feels the channel should not be pigeonholed on a sports tier. Discussions initiated with operators have focused more on digital basic, proffering a free rate card for a period of "five to six years."

"We have programming that's sports-related, and we can provide programming that supports sports tiers in systems," Court said. "But it would be very hard to put a 24-hour channel that has programming that is not sports-related on a sports tier."

Despite setting network ratings records with last month's Tour de France cycling race, Outdoor Life Network executives also characterize their channel as a "lifestyles" network that should be offered on basic. Of OLN's base of 40 million cable homes, 37 million receive the channel on analog basic. (Another 13 million OLN subscribers come from DirecTV and EchoStar Communications Corp.'s Dish Network).

"Sports are traditionally your stick-and-ball activities," CEO Roger Williams said. "The good thing about OLN is that it is a lifestyles network and it can cover a lot of activities that people do today.

Nevertheless, Williams realizes that operator trends may force the network toward more tier distribution, and a handful of systems already sell OLN as part of a pay tier.

The network has a different rate card for such arrangements that sets rates substantially higher than its "mid-teens" analog price, Williams said.

"If someone is going to use the product in more of a pay environment, it's a different kind of price structure than if they put us on analog," he said.

The Ice Channel is also touting itself as more of an entertainment channel than a sports network, since figure skating is the sport most watched by women. The network, set to launch in December 2004, will feature profiles, instructional shows, and an American Idol-style competition that will result in the winner earning a contract with the Champions on Ice Tour.

"Figure skating is also a large entertainment vehicle," said president and CEO
Jay Rosenstein. "Our strong feeling is that it would benefit everyone if it could have the broadest appeal it could possibly have."

League transcendence

Executives from the NBA and NFL believe the wide popularity of their leagues means that their networks should reside among the general-entertainment channels.

The NFL Network, set to launch in November, will feature programming from the vast library of NFL Films. In 2004, it will add preseason games to the schedule.

"The operators make a mistake if they want to turn NFL Network into a sports product. This is a lifestyle network," said NFL Network president and CEO Steve Bornstein. "We're filling a void in the media landscape in that we're providing an outlet to support the No. 1 franchise in entertainment."

The NBA is seeking wider distribution for NBA TV, which currently resides on DirecTV's sports tier. The 25-cent-per-subscriber channel — which offers 96 regular-season games, classic content and talk-and-information shows —is close to several cable-distribution deals, according to Desser.

"These are challenging times for any new product, whether you're launching as a packaged good or a cable network," Desser said. "In a crowded marketplace, distribution is always a key element, but the important thing is to have a good brand and a good project."

And an audience: Unlike some of the new entertaiment channels, niche sports services come with brand awareness and built-in viewership, executives said.

"The advantage that sports services have is that its pre-sold in terms of consumer demand and advertiser support," said CSTV's Bedol. "If you have strong sports service, a built-in advocacy base and pretty easy access to sponsorship resources, it allows you to focus on primarily getting your distribution message across to operators."

Tennis Channel's Meister said such awareness allows some niche sports networks to avoid the initial learning curve meeting with operators and delve right into carriage negotiations.

"The cable and satellite companies that don't have deals [with Tennis] still recognize its value and understand the breadth of its appeal," said Meister, whose network also has carriage pacts with Cox and the National Cable Television Cooperative. "Rather than going in there and convincing them that the Tennis Channel is a good idea, our conversations are on the deal itself. That's further evidence of the acceptance that we see in the cable world."

Options such as video-on-demand could help a network seeking to further define its brand, executives said. The Football Network will attempt to build awareness by providing some of its programming to Spike TV.

TFN's Fantasy Football 2003
and Football 101
will run on the men's channel from 9 a.m. to 10 a.m. on Saturdays from Aug. 30 through Dec. 27,with rebroadcast times to be determined.

"We're not afraid to move outside of our own platform to expose our product, and if we do a good job and present a quality product, they'll look to get the network on their cable systems," Solomon said.

Operators concede that niche sports networks don't need much of a marketing and promotion effort, and may have an edge over general-entertainment channels in terms of gaining distribution.

Comcast Corp. has yet to launch a sports tier, but executives admit that such a package would most likely sell better than any tier that could be created from the mix of upstart entertainment-based digital services.

"If you look at the kinds of tiers that you could launch, genre tiers are not a great way to sell cable, but with respect to sports it seems to be the converse — it seems that it's something that you could sell," said executive vice president of programming Matt Bond.

And then there's the issue of licensing fees.

Operators, fearful of the spiraling costs of sports rights, are seeking long-term deals from these upstart services. Operators maintain that such deals lock in costs for the foreseeable future while providing some sense of relief from potential bidding wars for marquee sports content.

Such considerations pose a dilemma for niche sports networks: Do they keep costs low to appease operators, or eventually seek to build network value and bigger audiences by pursuing high-profile content, hoping to pass the costs on to distributors and viewers?

For now, the answer for most is cost restraint. The NFL Network can't present live games until the league's current television deals are up in 2005. Instead, it will provide league-based fare.

According to sources, the price of entry: around 10 cents per subscriber per month. The channel already has a basic-tier distribution deal with DirecTV, as part of its renewal rights to the league's NFL Sunday Ticket package through 2007.

Tennis Channel's Meister also believes the network can thrive without the sport's four grand slam tournaments — the U.S. Open, Wimbledon, French Open and Australian Open.

"Would we like to have them? Of course," he said. "But if the cost of getting them is outbidding somebody, where is the net gain for the community as a whole? It's good for the rightsholder, but for the cable operator, it's not going to help them."

Besides, Meister said Tennis can offer hundreds of tournaments featuring the top players that aren't covered by the broadcast and cable networks.

In fact, CSTV's Bedol argues that such niche services actually improve the awareness and interest in marquee programming for a particular sport.

"To the degree that we succeed, we will see the ratings for college sports on ESPN and Fox go up because we're going to bring more people to the party," Bedol said.

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