The long-running, contentious impasse between Yankees Entertainment & Sports Network and Cablevision Systems Corp. reached an interim conclusion last week, when the parties agreed to a one-year deal, after pushing by high-level mediators.
The pact — announced March 12 at Gracie Mansion, the New York City mayor's official residence in Manhattan — means Cablevision's 3 million customers in the New York DMA will now be able to view 129
New York Yankees games in 2003 after losing the whole 2002 campaign.
Mayor Michael Bloomberg and two mediators, former AOL Time Warner chairman Gerald Levin and former Time Warner Cable New York City president Richard Aurelio, helped to bring the parties together and to hammer out a deal over the course of two weeks.
The parties agreed to binding arbitration on Feb. 1, 2004, if they can't conclude a long-term deal on their own before that point.
This should halt the finger-pointing, backbiting ad campaigns, litigation and legislative efforts between YES and Cablevision over the past 15 months.
YES CEO Leo Hindery and Cablevision CEO James Dolan were at the leading edge of a nationwide dispute about rapidly escalating sports-programming costs.
The regional sports network had sought expanded-basic positioning and about $2 month per subscriber. Cablevision, which owns Madison Square Garden Network — the Yankees' television rights holder prior to YES — held out for premium-service treatment.
The fight also has hung over plans by as many as 20 pro sports franchises that may be examining whether to start their own regional networks.
"The Yankees were able to force their way onto Cablevision, maybe not to the extent they wanted," said Neal Pilson, principal of sports consultancy Pilson Communications. "Still, some may view this as vindication."
The compromise enabled Dolan and Hindery to declare at least partial victory.
"In keeping with our longstanding philosophy, Cablevision will now be able to let its customers choose whether or not to receive YES," Dolan said in a statement.
"This was always about the fans of these wonderful teams, and we are grateful that all those fans throughout the area will once again have access to their teams," a Hindery statement said in part.
Several sources close to the process said Levin, in particular, played a key role in getting the parties to agree to the deal — especially Hindery.
"What happened was the mediators listened to everybody and then went off and came up with a proposal they thought was fair," one source said. "Cablevision said yes, and Leo kind of twisted and turned. Gerry basically beat him up and said 'Leo, I'm your mediator and I'm telling you this is fair and do it.' And so, he did it."
Hindery — who was said to be traveling after the deal was announced — could not be reached for comment.
One published report said Cablevision would pay YES $2.12 per month based on 51 percent of its sub base, or some $38 million.
About 1 million subscribers that take Cablevision's digital iO: Interactive Optimum Silver and Gold premium packages will start getting YES, which also offers New Jersey Nets basketball games, at no extra charge starting around opening day, March 31.
Cablevision said it will offer YES, MSG and Fox Sports New York in a package to retail for $4.95 per month.
Cablevision customers also can buy YES, MSG or Cablevision-owned Fox Sports New York on an individual basis, for $1.95 a month. MSG and FSNY carry New York Mets baseball games.
It was unclear at press time if other operators — which gave YES basic distribution — would revisit their contracts now.
But sources also indicated Cablevision would help YES recoup any losses if other distributors migrate the network to premium placement.
"The issue is whether [the Cablevision deal] triggers the MFNs," a source familiar with the negotiations said. "They are sufficiently different deals. I think Gerry Levin felt he had some insights on how Time Warner would feel."
A Time Warner Cable spokesman said the company "is trying to better understand the nuance of the Cablevision-YES deal and if it might change our own agreements going forward."
Time Warner Cable carries YES in the New York DMA on its standard package.
Comcast offers YES on expanded basic to 1 million customers in New Jersey and Connecticut, within the New York DMA. A spokeswoman said the MSO "was not in a position to comment about Cablevision's deal with YES."
Mediacom Communications Corp. chairman and CEO Rocco Commisso, whose company wants the right to sell costly networks individually, saw the Cablevision agreement as vindication.
"Clearly, this agreement seems to be consistent with what I've been talking about for the past two years: that the operators should have the choice to carry an expensive product à la carte or not," Commisso said.
"This opens up a window to be able to negotiate with" regional sports networks in the Fox Sports camp, Commisso added. In most Mediacom systems — all of which are outside the New York DMA — Fox Sports Net affiliates are carried on basic.
"The point is that Leo Hindery was somewhat defeated here in that the service, at least this year, will not be carried throughout the 3-million subscriber base," he added. "It's a win for the consumer."
Stifel, Nicolaus & Co. cable analyst Ted Henderson agreed. "The most positive part for the cable industry is that the agreement moves three regional sports networks to a premium tier, and that will be a difficult genie to put back in the bottle from a consumer standpoint," he wrote in a note.
CS First Boston cable analyst Lara Warner called the YES deal bittersweet for Cablevision. She estimated it would cost Cablevision about $20 million this year — $27 million on an annualized basis. That's substantially lower than the $75 million YES originally wanted Cablevision to pay. But the current cost is "unaccompanied by incremental revenue."
And, she added in a voice-mail message to clients: "The subscriber losses are unlikely to be recovered."
Much of Cablevision's subscriber erosion had been attributed to customers defecting to direct-broadcast satellite provider DirecTV Inc., which has trumpeted the availability of YES.
Cablevision estimated it lost 30,000
customers to DirecTV Inc. last year; YES put that number at roughly 100,000.
An insider said Cablevision probably lost 50,000 subs to DirecTV Inc., while 40,000 downgraded to broadcast basic.
"They weren't off the subscriber rolls, but they were getting a lot less revenue from these customers," said the source, noting that broadcast basic is available to Cablevision homes for $10 to $14 per month.
"Putting aside any financial guidance [Cablevision] might come up with, it was a strategic positive that ends what was a fairly acrimonious dispute," SunTrust Robinson-Humphrey cable analyst Gary Farber concluded.
Bolsters ad sales
The Cablevision deal will allow YES to fill in much of the hole in the middle of its advertising lineup, which had kept some advertisers on the bench.
Alison Shapiro, a local media buyer at Zenith Media, said the shop did not buy YES last year because it "didn't reach the full New York DMA. Instead, we bought it locally on Time Warner for a quarter of the price."
HN Media Services principal Howard Nass said: "Depending on how the distribution winds up, YES will be a player for significant sports dollars this season. It will definitely pull some dollars from Fox Sports New York."
Cablevision, too, should be able recoup some of its losses with local-advertising avails. And a source downplayed possible subscriber losses for the liberated MSG and FSNY.
"There are people that were buying MSG and Fox Sports New York as stand-alone premium channels at $10 per month. Now they get all three networks for $4.95," the source noted.
Last year, YES averaged between 140,000 and 150,000 households viewing 130 Yankees games. In 2001, MSG had 220,000 households on average for the Yankees. MSG and FSNY, each of which carried 50 Mets games, combined to average 183,000 households.
The year before, Fox Sports New York registered 175,000 households on average for 100 Mets contests.
Mike Farrell contributed to this report.