Views From the Top

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The National Hockey League — dating back to its cable-exclusive programming contract with SportsChannel America in the 1980s — and the National Basketball Association — through its recent $4.6 billion rights deal with Turner Network Television and ESPN/ABC Sports — are arguably the most cable-centric of the major professional sports leagues. In separate interviews, NHL commissioner Gary Bettman and NBA commissioner David Stern sat down with Multichannel News programming editor R. Thomas Umstead to discuss the important and multi-faceted role cable television plays for the respective circuits. The commissioners opine on a number of topics, including the rising cost of sports rights, the continuing battles between operators and networks over those rights and the state of their respective leagues heading into the 2002-03 season. An edited transcript follows.

MCN: The NHL, beginning in the late 1980s, and the NBA, with its most recent TV deal, are easily the most cable-centric professional sports leagues when it comes to product distribution. What is it about the value of cable television that drew both leagues to offer a majority of your live and library content to cable networks?

Stern: We just see ourselves continuing a trend. Each of our deals over the last few years has featured more cable games, and the last deal continues that trend.

The fan who is watching TV in a cable household is not focusing on whether he or she is watching a cable network or an over-the-air network — either they're watching NBC or the Cartoon Network or ESPN or TNT. With that — together with the increasing number of homes with [direct-broadcast satellite] — the originating source of a network is becoming an irrelevant issue for the consumer. As a result, it is also becoming less relevant with regards to the sports league and all programmers.

Bettman: I think cable has been terrific for the growth of the NHL. For a sport that had historically been underexposed, cable represented a way for us to dramatically increase our exposure.

We have a fan base that is the best-educated, most affluent and most tech-savvy of all the professional major sports. Therefore, it is not surprising that we were on the cutting edge with cable 15 years ago and have stayed there, or that we would be on the cutting edge of direct home satellite and the Internet.

MCN: Both leagues are have put a lot of faith in an industry that is currently having its own financial problems. With the Adelphia Communications Corp. scandal and the struggling stocks of Cablevision Systems Corp. and AOL Time Warner Inc., are you concerned about cable's future viability?


Bettman:
Obviously, we want all our business partners to be healthy. But one of the things that is absolutely clear to me is that content, especially with the development of new technology, is still king. That is being reinforced to me on a daily basis, because in light of all of the issues that we have to confront in Buffalo (the Rigas Family was forced to give up the day-to-day operations of the Buffalo Sabres because of their financial and legal woes), we are in the process of negotiating a new cable deal, and there is robust interest from numerous parties. That is a reflection of how important hockey is as content.

Stern: Certainly, we wish all of our partners in the broadest possible sense good financial luck and success. And certainly, we'd like to see their stock performing and in more robust fashion than they are currently. But the reality is that these are very healthy cash-generating industries, and ultimately, the main connectivity to the home. We're at a time when cable viewership shares are increasing compared to the historic over-the-air networks.

I think that a future which includes interactivity and high-definition [television] augurs very well for the cable industry. I just think that it's going to take the stock market a little time to regain the overall confidence that I'm sure is going to happen.

MCN: I'm sure you have read and heard about some of the skirmishes operators have had with regional sports networks, as well as ESPN, over high licensing fees. Some operators have intimated that they would consider dropping high-profile networks like an ESPN or a TNT if they cannot control rising sports costs. Does such industry infighting concern you at all?

Bettman: You always want the widest distribution possible to satisfy for your fans, but that's too simplistic an answer. The fact is, there are certain realities in the business marketplace that always have to be addressed.

There is a business aspect to sports, and you have to rely on the business judgments of those involved to do what they think is right. I think it would be presumptuous for me to suggest [to] one side [that] the other is right. In the final analysis, the entities have to do what is in their long-term best interests.

Stern: I think you have to be concerned about it because it deals with the future direction of the industry, but hopefully it will work itself out, as it has historically. But it is a concern. We like the kingdom to be peaceful.

MCN: Mr. Stern, the NBA tested the cable operators' resolve this summer when you pitched an analog-targeted NBA channel. Where do those negotiations stand now?

Stern: What we do is try to listen, and what the cable operators were telling us was that this is not the time for another full-service, analog sports network. Instead, they wanted a digital network that could take advantage of their efforts to increase digital penetration, reduce churn, and showcase products that consumers might ultimately pay more for — thereby increasing monthly fees. That's where we are now with NBA TV.

MCN: Have you had a chance to make any deals with operators?

Stern: Nothing where the I's are dotted and T's are crossed, but I think it's fair to say we're making progress. I anticipate that the network will be up in all of its splendor on or about Feb. 1, 2003. We'll have minimum of four games a week or more.

MCN: Mr. Bettman, is the NHL looking to launch its own channel?

Bettman:
Yes. We started the channel in Canada last year, and I think that's another exciting opportunity for our fans to get closer to the players and the league. All of this is about exposure and getting our fans more of what they want.

MCN: How do you view that channel developing, if and when it's distributed here in the States? Will it be pretty much be a barker channel for the "NHL Center Ice" out-of-market pay-per-view package, or will it become something more?

Bettman: It's more than a barker channel. It gives our fans up-to-date information on the games that are being played, although we don't carry games live.

It provides game highlights, features on players and other information that appeals to people of all ages, particularly children. We also talk about hockey at all levels and it's meant to give people an opportunity to learn more about the game. It's still in an embryonic stage, but we think it's a good starting point.

MCN: Do you envision a day in which you may go out and actually sell the channel to the operator as an individual service, much as the NBA is doing with its NBA TV?

Bettman: One step at a time. We haven't crystal-balled that far out.

MCN: After the NBA deal was announced last February, [NBC Sports president] Dick Ebersol basically said that the agreement effectively marked the end of the broadcast networks competing with cable for high-profile sports programming packages, due to cable's dual revenue streams. Do you feel that cable now is the dominant force in television, and does that hurt you in terms of your negotiating for higher licenses?


Bettman:
I think the answer to that is twofold. One, broadcast television will remain important for certain aspects of the season, be it the finals, the conference finals and the All-Star game. I think that cable is a great outlet both for the regular season and, in our case, much of the playoffs when we go wall-to-wall, virtually, for a month.

I think the flexibility that cable gives us for that type of intense coverage is something that the broadcast networks can't provide, given the myriad of other programming commitments they have. Having said that, I do believe that the exposure the premiere sports events get will remain an important over- the-air property.

Stern: I think that our relationship with ABC, which is going to have a Sunday-afternoon exposure during the regular season and the playoffs — as well as all of the NBA finals — demonstrates that network appetite will still be strong for quality sports programming. It's just not going to be at the level that we've previously seen.

With network audience shares now down in the 40s, they no longer have the ability to aggregate the audiences that they once did, so they'll be more selective with what they pay for. But good sports programming is something that they'll pay for.

Over the next year, the NBA, the NHL, Major League Baseball, and the [National Football League] will all have product on over-the-air networks, and my guess is that that will remain the case in the future. The bottom line is that there's a ready audience for them.

MCN: Why do you think there's been so much interest in MSOs owning major professional franchises and what are the advantages of such alliances?


Bettman:
There's been a tremendous interest by media companies in our franchises because it's a way to control content. We saw that with the Rigas family and Adelphia in Buffalo; Cablevision [Systems Corp.] with the Rangers in New York; Comcast [Corp.] with the Flyers in Philadelphia; The Walt Disney Co. with the Anaheim Mighty Ducks, and so on. On a local basis, having content represented by what our hockey teams provide is something that has proven itself to be very important to local operators. So I'm not surprised that local operators want to own the teams.

Stern: We benefit by being able to draw upon the expertise in the industry by having the opportunity for us to have access to the leaders in the industry. We've always had that ability to pick up the phone and speak to a [Charter Communications Inc. principal and Portland Trail Blazers owner] Paul Allen; or a [Comcast president] Brian Roberts [Comcast owns the Philadelphia 76ers]; [Cablevision Systems Corp.'s] Jim Dolan [Cablevision owns the New York Knicks] and [Time Warner Cable's] Fred Dressler [parent AOL Time Warner Inc. owns the Atlanta Hawks].

And when you couple that with our ability to speak to our broadcast partners, whether it be [Turner Broadcasting System Inc. chairman] Jamie Kellner or [Turner Sports president] Mark Lazarus or a [The Walt Disney Co. chairman] Michael Eisner or [Disney president] Bob Iger or [ESPN president] George Bodenheimer, we are constantly in contact with both our owners and partners about the shape and future direction of the industry.

MCN: Mr. Bettman, unlike in previous years, the NHL this season will compete for time on ESPN with the NBA. The network has already reduced its number of hockey games this year, from 102 last year to 71 this year. Does that concern you?

Bettman: Seventy-one puts us in the same universe as the NBA and Major League Baseball, and that's about right. For a number of years, ESPN2 has relied heavily — maybe too heavily — on its NHL content. Given how widely we're distributed locally (via regional sports networks), this is probably a better mix or a better balance for us than we had, so I'm very comfortable. And I'm also excited about the fact that ESPN now has all four major sports, which provides an even stronger platform for the promotion of all of its properties, especially and including the NHL.

MCN: So you agree with ESPN when it says that less is best for the league?

Bettman: Less is best, particularly because I thought we had too much before. I think there may have been a bit of over dependence by ESPN2 on NHL hockey, and that's where the majority of the reduction is. If you look at the overall numbers, the NBA, baseball and we are probably within 5 to 10 telecasts of each other on ESPN and ESPN 2, so I think the mix is now better than it was. We also think the combination of Thursday night and Sunday afternoon will really give us the chance to find a good scheduling niche.

MCN: Mr. Stern, ESPN announced that they were cutting back on the number of NHL game telecasts this season. The network claimed that less is better for the NHL in terms of overall ratings. Do you agree with that, considering that there are going to be a lot of NBA games on cable this season?


Stern:
We're doing the same thing with our over-the-air coverage. Where we had two or three games on NBC, we're now going to have a single game on ABC. In the past we had three nights on Turner, but Turner came back and said that one night with more concentrated coverage would be better. So I think that you keep balancing and rebalancing.

We had been through that ourselves, in terms of less being more. Clearly, in the context of our over-the-air relationships, we made a determination that going into (the league's most recent) negotiations, it was time to cut back on the programming.

MCN: So you're confident that the added exposure on cable will not hurt the ratings that you might get on the networks?

Stern: Well, you know, it's interesting. We reduced dramatically the number of our over-the-air games, but not the number of dates during the regular season, which was designed to push people to our games.

On TNT, we've gone to an exclusive, one-night-a-week setup, as opposed to three non-exclusive nights. So on Thursday nights, you have no place to watch NBA but Turner.

And on ESPN, we think that it's such an important factor in the makeup of the average sports fan, that we're going to see a good ratings bump in our first year.

So we don't view ourselves as having quite the [programming] load that everyone else is describing, due to the cutback of the games over the air, the increased exclusivity on TNT and the placement on ESPN for the first time. We think it's the right combination, and I can't wait for the season to begin to see how either dumb, smart, or someplace in between we may look.

MCN: There have been a number of team-created regional sports networks in the past few years. Are such developments a positive or negative in your mind, given the presence and contributions of established regional sports networks to the growth of the league?

Bettman: I think that answer depends on the market and on team ownership. It depends on what the local cable situation is, how much of the region is wired, how upgraded the system is, how much availability there is for distribution and the coverage it seems to get. I don't think you can generalize it.

Stern: Such judgements are being made based on an economic proposition that a team can make more money by eliminating the middleman. Some teams like the middleman because of the services that a middleman provides, and some teams think they can do better on their own. Still other teams feel that they have no choice but to launch their own service in order to deal with the market's realities in the absence of a competitive situation. So it depends very much on the individual market.

I would encourage teams to always have the ability to do it themselves, but then to make the judgment as to whether someone is willing to pay them enough so that they don't have to do it themselves.

Having that capacity and having that ability is an important factor that then allows you to make your other deals comfortably, because you know what the benefits are that are being provided by the networks, whether it be a regional sports network or a national network.

MCN: How valuable have out-of-market pay-per-view packages been for your respective leagues?

Bettman: It's been terrific for us because it enabled us to truly maximize distribution to our fans that want even more NHL coverage than they get either locally or nationally. In the last two years, the number of subscribers, I believe, has increased almost 130 percent, and revenues from that source have more than tripled, so it's represented a real growth opportunity for us. But, most importantly, it has enabled us to connect even better with our fans.

Stern: The "NBA League Pass" has grown every year, and we fully expect to continue its growth. We priced it at a place where we think it's a very good value, and we'll be using NBA TV, together with our other networking relationships, to drive awareness of the opportunity — and as more digital-cable homes come online, we expect to see an increase in NBA League Pass TV. We're having some discussions with EchoStar [Communications Corp.], looking at the possibility of having it carried on that platform [Dish Network] as well.

MCN: Overall, how would you characterize the state and health of your respective leagues?


Stern:
I think that the league is in very good shape. We have six years of a stable network contract in unstable times. We're coming off a season where we had an increase in attendance and gate receipts, and our projections are that we're going to continue to grow.

We are in the middle of launching our own digital network. We are seeing our WNBA (the Women's National Basketball Association) beginning to attract a new generation of fans to our sport. And we are seeing the influx of international stars, strengthening our global appeal as well as making our game more competitive, so we think we have a pretty good proposition.

Bettman: In many ways, we've never been stronger. Last year, for the fifth year in a row, we had record attendance both for the regular season and the playoffs. Our ratings across all of our distribution platforms for the most part were either flat or up in a pretty fragmented marketplace. That's excellent. Our Stanley Cup Finals ratings were up almost 50 percent on ESPN, and they were up as well on ABC. Our revenue growth over the last nine years has been very, very strong.

But we do have challenges on the expense side, and long-term, we're going to need to make sure that we have a system that deals with the disparities that have emerged. There have been disparities in revenues and expenses because as fast as revenues have grown, salaries of the players have grown even faster, and we are seeing disparities among what the teams spend and, long-term, we have to get rid of those disparities.

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