Ops Rip ESPN Hike… - Multichannel

Ops Rip ESPN Hike…

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Cable operators continued applying heat to ESPN's toes last week, after the total-sports network officially notified the industry via letter of its plan to levy yet another 20% annual license-fee increase.

Several operators confirmed that ESPN, effective Aug. 1, will indeed enact a 20% hike — the maximum allowed under its long-term affiliation deal with the industry.

While full terms of the deal were not revealed, for some small and midsized operators the arrangement could push ESPN's rate near $2, a mark that's unprecedented for a nationally distributed basic network.

At the same time, ESPN is seeking new long-term affiliate deals that would lessen the annual rate of the increase in exchange for expanded carriage of new services.

Ops cry foul

Although many of the larger MSOs declined comment on ESPN's proposed rate increase, several small and midsized operators again seized the opportunity last week to lambaste the network for seeking such a large hike.

Without naming names — but clearly alluding to ESPN — Mediacom Communications Corp. chairman and CEO Rocco Commisso said the total fee for his subscribers' most popular network, Lifetime Television, is less than the sports channel's proposed incremental bump.

Commisso, who spoke at last week's Kagan Broadband Summit in New York, added that ESPN accounts for 23% of Mediacom's total programming costs.

Many continued lobbying for the need to shift ESPN and other high-priced networks to pay tiers, which would soften the financial burden that programming costs continue to place on operators.

"One way to get to them is at contract renewal time, to say we're going to carry you on a tier, and if that is not acceptable to you, we're not going to carry you at all," Insight Communications Co. CEO Michael Willner said at the Kagan Summit.

Added Commisso: "If we had the option of carrying this one channel on an a la carte basis, they would never dream of raising rates 20%."

But ESPN executives remain adamant that the value that ESPN and ESPN2 provide to operators from brand-recognition, quality and local ad sales standpoints mandates that the services remain positioned on basic cable.

Company executives said they are open to tiering for new services such as ESPN Deportes and ESPN HD — as well as to offering ESPNews on a digital tier — and the new long-term affiliation proposal includes terms allowing operators to do so.

The proposal, which would usurp the current agreement, would extend carriage until 2014. But operators have complained that by the end of its terms, ESPN's license fee would be in the range of $9 per month.

In a proposal ESPN has floated to small operators, it would reduce the cap on the annual rate hike it can levy, dropping it to 16% from its current 20% clip.

From there, rate increases narrow, with sources indicating that the proposed contract in its latter years calls for an annual hike of 11% per year.

Executive vice president of affiliate sales and marketing Sean Bratches said ESPN is in "active negotiations" with many MSOs, but no deals have been reached.

"The deals that we can negotiate in the market whether today or in 2005 [when the current agreement expires] will be reflective of the value of ESPN provides its affiliates and sports fans," he added.

Harder sell

To that end, ESPN has long talked up its role as an industry leader in driving local ad sales.

On the ratings front, ESPN enjoyed a 15% gain to a 1.5 household ratings average in primetime during 2002.

In April, ESPN — bolstered by its coverage of the National Basketball Association playoffs — scored a 38% jump in primetime ratings to a 1.1 average, while notching a 20% gain in total-day to a 0.6.

Yet, ESPN's value relative to its price is becoming an increasingly harder sell to operators.

"When multichannel television stopped growing, that's when the real revenue opportunity was cut off and the burden was put on consumers," Willner said. "That can't go on forever."

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