NBA, Time Warner Looking At New Channel

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In a turn that could alter future relationships between professional sports leagues and cable networks, the National Basketball Association is negotiating with AOL Time Warner Inc. for its own basic-cable channel.

Last week, sources said the league — which is currently negotiating with Turner Sports to extend its current $890 million cable agreement — may tip off a basic network. The NBA hopes the service it's considering would make up for revenues that it may not be able to earn through a traditional TV deal, thanks to the struggling economy.

AOL and the league would jointly own the proposed network, thus sharing in any revenue generated from ad sales or subscription fees, sources said.

Representatives from the NBA and Turner Sports would not comment about any plans for a new network.

Some observers who believe that the concept could take hold point to Nov. 15's announcement that Turner Sports president Mark Lazarus is taking over ad-sales efforts for all Turner Broadcasting System Inc. entertainment programming, following veteran Joe Uva's departure. The move could suggest a downsizing of Turner's sports operation — a large portion of which supports the NBA package.

But Lazarus said he would oversee any new NBA-oriented sports network.

The parties are considering creating a network from scratch, but The New York Times
last week reported that Turner could convert its struggling CNN/Sports Illustrated sports-news service into the new NBA channel.

Since its launch in 1996, CNN/SI has struggled to distinguish itself in the crowed sports-news arena, despite drawing on the name and the resources of the well-known Sports Illustrated
magazine brand.

CNN/SI is currently in 20 million homes — well below ESPNews' 26.6 million subscribers. ESPN's SportsCenter
and Fox Sports Net's regional and national sports-news reports also garner strong ratings in cable homes.

Just two months ago, CNN/SI laid off 11 of its more than 100 employees as part of an "overall restructuring" effort. A CNN/SI spokesman would not comment on the matter.

The NBA also programs NBA.com TV, a 24-hour digital barker channel that accompanies the "NBA League Pass" out-of-market subscription sports package. The channel is distributed by DirecTV Inc. and In Demand.

Industry observers had recently speculated that Turner and the NBA were closing in on a deal after the league agreed to extend the company's exclusive negotiating period beyond the Oct. 15 cutoff date.

Going into negotiations, the NBA — buoyed by the return of league superstar Michael Jordan, the popularity of the two-time defending champion Los Angeles Lakers and the emergence of several young players — was hopeful that it could garner a modest increase in rights fees.

But the Sept. 11 terrorist attacks further depressed an already struggling advertising marketplace to the point that most industry observers believed that the NBA would have to take less than its current $2.65 billion deal with Turner and NBC.

In a pre-opening day press conference last month, NBA commissioner David Stern acknowledged that the league would most likely not generate the television revenues it had anticipated.

At the same time, Stern hinted that the league would have to be "imaginative" with a new TV deal if it is to achieve its revenue goals.

"I would say that we're going to have to be collectively imaginative to continue our strong network revenues in light of what current conditions seem to be — literally, on a daily basis, they seem to be changing, and I would say not necessarily for the positive," said Stern.

Kagan Associates sports analyst John Mansell predicted some short-term revenue problems for the league, if it decides to launch a new network.

"If you're going to create a network from scratch, it will take several years to be profitable, and the owners won't have the guaranteed revenues they're used to getting for years," Mansell said. "But long-term, they would be building a network that could yield significant revenue in the future."

Any new channel would also face scrutiny from cable operators, already weary of rising sports-network costs. Though no league has attempted to launch a national cable network, several pro sports teams have struggled to gain carriage of their own, often expensive regional sports services.

Currently, the Action Sports Cable Network — owned by the NBA's Portland Trail Blazers — is in an ugly carriage dispute with AT&T Broadband over a monthly 50-cent per subscriber fee for 25 Blazers games and programming from ESPN Regional Network.

Though it would be extremely difficult for operators not to carry an NBA channel, it could be the point at which systems finally draw a line in the sand, if it's deemed too expensive, Mansell said.

"It could be the time when operators say we'll carry it, but on a tier," Mansell said.

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