Small Ops Face Deadline to Opt Into ESPN Deal

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Smaller cable operators — facing a deadline this week — are hopping on board for a new carriage deal with ESPN, although some are complaining that they’ll have to shuffle their channel lineups and buy equipment in order to fulfill the terms of the pact.

“There’s a lot of things about the agreement that we’re not happy with,” said Herb Longware, president of Cable Communications of Willsborough, N.Y., and a member of the National Cable Television Cooperative. “It will force us to move channels around, because ESPN’s placed some very stringent demands on carriage of some of the channels, like ESPN Classic …

“I don’t mean to sound so negative, but it’s one of those things. You do it, but you’re not terribly pleased about it.”

Members of the NCTC, a buying group of small independent operators that represents roughly 15 million subscribers, have until Tuesday (June 15) to decide whether or not to participate in the co-op’s new, long-term master affiliation contract with ESPN. The NCTC has 1,100 member companies.

“The vast majority of our members have chosen to participate in the new ESPN agreement, and we believe more will do so up until the Tuesday deadline,” NCTC spokesman Dan Mulvenon said last week, declining any additional comments.

The NCTC’s new ESPN contract, which runs to 2014, reportedly calls for annual license-fee increases in the neighborhood of 7%, way below the 20% hikes that were part of the old contract.

SOME WHO’RE IN

NCTC members such as Cable One Inc., Cebridge Connections, Buckeye CableSystem, Massillon Cable TV and New Wave Communications are among those who’ve confirmed their participation in the new ESPN pact.

One of the NCTC’s biggest members, Adelphia Communications Corp., plans to negotiate its own pact with ESPN for the programmer’s core channels, according to an MSO spokesman. Mediacom Communications Corp. is still looking at the cooperative’s ESPN pact.

The co-op’s revamped ESPN deal, announced in March, is similar to affiliation agreements that the giant sports programmer forged earlier this year with MSOs such as Cox Communications Inc., Charter Communications Inc. and Cablevision Systems Corp.

While the new ESPN contracts give cable operators a break on annual rate hikes, systems in exchange must launch the programmer’s additional services and hit penetration benchmarks.

And while cheaper than the old pact, the new arrangement is still pricey, according to some critics. ESPN is getting its annual single-digit increase on a base rate of roughly $2.60 a month, per subscriber — in addition to getting fees for its additional channel launches.

DUNCAN PASSES

That’s why 2,700-subscriber Duncan Cable TV in Wilmington, Vt., is passing. Duncan Cable is in the minority in that it has notified the NCTC it won’t sign on for the new ESPN deal.

“At the end of the contract, we’re going to be required to carry ESPN, ESPN2 and ESPN Classic on basic,” said Cliff Duncan, the owner-operator of the system. “So it will be over $6 a month by the end of deal. That’s absurd … I feel strongly that my customers deserve a better shake than that.”

Duncan is a veteran in terms of taking a David-vs.-Goliath-like stance against rising sports costs, concerned that subscribers who don’t watch sports are footing the bill for skyrocketing player salaries and television rights.

“Basically, it’s Cliff against ESPN Inc.,” said colleague Longware, whose Cable Communications has 500 subscribers.

DROPPED NESN

About a year ago, Duncan dropped New England Sports Network, a regional network that carries Boston Red Sox baseball and Boston Bruins hockey games. “And I bet I didn’t lose 15 customers because of that service,” he said.

ESPN confirmed the NCTC’s assertion that co-op members have embraced the new contract.

“The majority of NCTC members have opted in the agreement and we are literally swamped with more elections every day,” ESPN spokeswoman Katina Arnold said. “No one is being forced to move in, and operators can remain in the current agreement if they would like, since everyone is under contract.”

For some small operators without deep digital penetration, the complicated new ESPN deal essentially means they have to carry ESPN, ESPN2 and ESPN Classic on basic, with requirements that the networks be adjacent and positioned on lower-numbered channel slots, reportedly below 30.

For Duncan — who groups networks by genre — that would have meant moving ESPN’s service down to channel slots where he now carries news and information services like Cable News Network and The Weather Channel.

“They’re [ESPN] second-guessing me,” Duncan said. “They’re micromanaging me to the point of not only asking me, they’re now telling where they think their services should be.”

SOME GEAR NEEDED

Longware and Gary Fiske, owner and operator of 1,100-subscriber North Country Cable in Enosburg Falls, Vt., also pointed out that in some cases, operators will have to buy equipment in order to carry ESPN Classic on basic, adding to their costs.

Fiske, for example, is carrying ESPN Classic on digital. To move it to basic in order to hit the required penetration benchmarks, North Country Cable will have to spend from $1,500 to $2,000 for a satellite receiver, descrambler and modulator.

“ESPN hasn’t helped us with any of this,” Fiske said.

And these costs have to be amortized over a small subscriber base, while the channel changes will cause some subscriber confusion, according to Longware. Fiske anticipates raising his rates because of the switches.

In fairness to ESPN, Longware said that the programmer is giving operators time to make the changes. One operator noted that some of the ESPN Classic benchmarks don’t kick in until the end of 2005, and pertain to systems at capacities of 550 Megahertz or more.

So despite their reservations about the new ESPN deal, Longware and Fiske are part of the majority of NCTC members who have decided to participate in it.

“While I certainly admire Cliff for what he’s doing … we did go with the agreement with the co-op,” Longware said.

Any reservations he has about the new ESPN deal are “no reflection on the co-op,” he added.

“They’ve done the best that they can. It’s probably the best that’s on the block right now. But it’s disconcerting how programming costs are going up right now.”

Fiske said he “can’t put my company at risk” by rejecting the new ESPN deal, which means he would have to negotiate a contract on his own down the road with the cable-sports giant.

Duncan acknowledged that in a year or so, when his old ESPN deal expires, “That’s the risk I run, and they may hit me for a 20% increase.”

'SUPER, SUPER DEAL’

Fiske credited the NCTC with doing a “super, super deal” with ESPN.

“They’ve got this little teeny system in northern Vermont plugged into the co-op, which can represent a lot of subscribers, so I’m benefiting from that,” he said. “What they got was the best that could be gotten out there. It’s these contracts with the sports folks that are killing us.”

Bob Gessner, president of Massillon Cable in Massillon, Ohio, said that while the NCTC’s ESPN deal is “the best deal we’re going to get … It’s still very, very expensive. And for someone like us, it’s going to require some significant changes to our channel lineup.

“It’s more important for us to make those changes than to say no and suffer for another few years with 20% rate increases, with no real guarantee of what happens at the end.”

Buckeye CableSystem, with 150,000 subscribers in Toledo and Sandusky, Ohio, is taking the new NCTC ESPN deal.

“We just felt the economics of it were reasonable,” Buckeye executive vice president Brad Mefferd said. “The risk is that it’s a long-term deal. We’re putting faith in ESPN that the programming’s going to remain top-quality.

“It’s nice to get away from the 20% annual increases. That was outrageous.”

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