MSOs Await Bill as ESPN Grabs NFL

Author:
Publish date:
Updated on

As the top-rated basic cable network, TNT has lots of otherentertainment and sports to fall back on, such as the National Basketball Association, hesaid.

ESPN, however, contends the deal will be lucrative for thenetwork and for its affiliates, even though they'll have to pay 'a few centsmore' per subscriber as part of their affiliation deals, Steve Bornstein, presidentand CEO of ESPN and ABC Sports, told reporters.

ESPN plans to add advertising 'inventory' toaffiliates, during games and during related programs, such as a plannedfive-night-per-week recap show on ESPN2. George Bodenheimer, ESPN's executive vicepresident of sales and marketing, said ESPN has delivered 18-percent better ratings thanTNT, and that should improve under the new deal because consumers will always know whereto find the Sunday night game.

No doubt, ESPN and local affiliates will jack upadvertising rates. Resistance is already being voiced on Madison Avenue. Tom Winner,director of broadcast media at ad agency Wieden & Kennedy, noted that 'there areseveral places we can go to buy NFL, so the ability of any one network to chargesignificant increases is limited.'

ESPN shouldn't expect to recoup all of its increasesfrom ads, he said, warning, 'I'll be surprised if they get more than high singledigits from us.'

'We know [ESPN] will try to push the pricingenvelope,' added Steve Grubbs, executive vice president at ad agency BBDO. 'Butjust as NBC had its'walkaway price' in their NFL negotiations, at some point wehave to establish some parameters,' and mull 'other opportunities' thatreach similar audience demographics.

The extent of the affiliate fee increases probably variesaccording to MSO deals. One source said ESPN's contract called for a 10 percentpass-through if ESPN retained its half of the package and another 10 percent add-on if itgot the whole Sunday night package. Assuming an MSO was paying around 88 cents persubscriber for ESPN, a 20 percent increase could mean an additional 18 cents per month.

Multichannel News reported in November that some smallaffiliates said their ESPN contracts provided for up to a 30 percent increase after givingat least three months' notice. Bodenheimer last week would only say the 30 percentfigure was too high for three-quarters of ESPN affiliates.

Some operators grumbled about the huge rights hike and theinevitable ESPN rate increase that will follow. Tele-Communications Inc. president Leo J.Hindery Jr., who blasted TNT's latest deal with the National Basketball Association,called the NFL's cable and broadcast deals 'truly egregious' and saidESPN's higher tab for the games would be borne 'on the backs of mycustomers.'

'It isn't going to help,' Rifkin &Associates chief financial officer Kevin Allen said. 'If you look at sports rights,that is one of the biggest factors' in rate increases.

'With all the noise about cable rates and to continueto see this stuff go on, it's disconcerting,' Allen said.

Other operators said they would be forced to swallow ESPNhikes because it's virtually a must-carry network and, under affiliation deals,can't be offered a la carte.

'We're stuck,' said Mediacom L.L.C. chairmanRocco Commisso.

The deal drew at least some attention in Washington, D.C.,last week, where lawmakers and the Federal Communications Commission's new chairmanare renewing calls to control rising cable rates. Cable has been trying to put the blamefor much of rate increases on higher programming costs, singling out high-profile sportsfigures and entertainers.

Ken Johnson, spokesman for House TelecommunicationsSubcommittee chairman Billy Tauzin (R-La.), said cable rates will inevitably rise as aresult of the NFL deal.

'That's a no-brainer. ESPN and Disney are goingto have to recoup their costs,' Johnson said.

A spokesman for Rep. Ed Markey (D-Mass.) said thecongressman was concerned about the NFL contract causing cable rates to rise.

Some analysts and MSO executives said the NFL deal'stiming could benefit cable as it argues on Capitol Hill that much of what is drivingabove-inflation cable increases are programming costs outside their control.

'I think the timing was excellent,' one seniorMSO executive said. 'The more educated the legislature is as to what's going on,the more likely it is to make a rational decision.'

Classic Cable president Steven Seach called the footballdeals 'mind-boggling,' and said, 'without naming names,' that the NFLcable contract will result in a pass-along increase to his subscribers of 30 percent.

While it exacerbates programming cost increases that werealready up 12 percent, Seach said 'the timing couldn't be better' foroperators that are raising rates in January. When Classic attributes part of the rise tohigher programming costs, consumers are likely to remember the ESPN story, he said.

Merrill Lynch & Co. analyst Jessica Reif said the NFLcontracts 'should help their [MSOs'] cause.'

NBC, meanwhile, lost the rights to broadcast AmericanFootball Conference games to CBS Inc.'s CBS network, which regained NFL games afterpromising the league $500 million per year. And News Corp.'s Fox network retained theNational Football Conference games (snatched from CBS four years ago) for $550 million peryear.

In all, the NFL managed to double its take from thebroadcast and cable networks. The last batch of four-year deals was for $4.38 billion,while the new, eight-year deals will net the NFL $17.6 billion, not counting escalatorsthat kick in after the fifth year.

James Forkan and Ted Hearn contributed to this report.

Related