YES, It's On Again: Not a Day Too Late - Multichannel

YES, It's On Again: Not a Day Too Late

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The Yankees Entertainment & Sports Network is finally up and running on Cablevision Systems Corp., as the debate shifted last week to how the on-again, off-again agreement will affect future carriage deals between cable operators and sports networks.

Cablevision and YES finally cut a one-year carriage deal last Monday, less than a half-hour before the opening pitch was thrown in the New York Yankees' opening game against the Toronto Blue Jays.

The agreement is similar to the original deal YES and Cablevision announced March 12, after mediation by New York Mayor Michael Bloomberg, former AOL Time Warner Inc. CEO Gerald Levin and Richard Aurelio, a former Time Warner Cable official in New York.

That March 12 accord fell apart on March 28, three days before the start of the baseball season. On that day, each side blamed the other for not executing the original deal.

Spitzer stepped in

The new one-year deal, mediated by New York state Attorney General Eliot Spitzer last Monday night, allowed Cablevision to add YES to approximately 1.1 million subscribers who already get MSO-owned Madison Square Garden Network and Fox Sports New York as part of a premium tier.

The remainder of Cablevision's 3 million subscribers can purchase YES on an a la carte basis for $1.95 per month, or in a $4.95 trio with the Cablevision-owned sports outlets.

Cablevision will pay YES $2.12 for every subscriber who gets YES, at least 51 percent of the Bethpage, N.Y.-based MSO's subscriber base.

Cablevision executives said "Tens of thousands" of subscribers have signed up for YES since Cablevision began promoting YES.

If Cablevision and YES cannot iron out a long-term deal by Feb. 10, sources said, the two parties would submit their claims to an arbitrator, who would determine the parameters of a permanent agreement.

Arbitration key

Sources said the key to YES's ultimate agreement to terms similar to the March 12 accord concerned the parameters of the arbitration that could be required to extend the deal beyond April 2004.

The ultimate agreement spells out that an arbitrator would determine the fair-market value of YES's programming, including comparisons with similar sports and entertainment channels, sources said.

The agreement potentially opens a Pandora's box regarding YES's already completed deals with other MSOs.

Several operator sources said they were still trying to ascertain whether the deal triggered most-favored-nation (MFN) clauses in YES's contracts with other operators, which would allow those that reached earlier deals to carry the channel on basic, taking advantage of Cablevision's carriage flexibility.

Operators such as Time Warner Cable and Comcast could conceivably seek to bump the costly YES to a premium tier.

"Certainly there's interest and [MSOs] have expressed interest, but nobody has asserted MFN rights at this time," YES spokesman Bob Davis said.

The deal provides financial insurance for YES from Cablevision, should MSOs within YES's "inner market" adjust carriage of the channel in a manner that costs the sports programmer money.

That inner market is said to encompass 5 million subscribers, of which 3 million are in Cablevision systems.

One industry source close to the situation — but closer to Cablevision — expressed confidence that neither Time Warner nor Comcast would risk a subscriber revolt by removing YES from basic.

"They wouldn't do it until at least after the baseball season," said the source.

A Comcast spokesman said MSO executives would examine this development with great interest. "Comcast has consistently been open to program contract arrangements that provide greater flexibility for our customers," the spokesman said. Comcast currently offers YES on basic.

A spokesman for Time Warner, which also offers YES on basic, said the MSO is examining the MFN "to see how it may impact us going forward," but nothing had been decided at press time.

YES sought parity

One of the key provisions in the deal, from a YES perspective, was gaining parity with MSGN and FSNY.

It's unclear whether MSGN or FSNY stand to lose subscribers through the deal.

Cablevision subscribers currently paying for MSGN and FSNY on an a la carte basis or a tier could conceivably drop either service and subscribe solely to YES.

Currently, MSGN and FSNY are in about 1.8 million and 1.4 million Cablevision households, respectively. MSGN and FSNY would not comment on how much of that base consists of pay-tier subscribers.

Conventional wisdom among cable operators seemed to give an edge to Cablevision, which dug in its heels over adhering to the March 12 terms — after YES appeared to balk — and refused to add YES to basic lineups across the subscriber base.

But sports-business analysts said YES got substantially what it wanted.

"From YES's standpoint, they have obtained the fees that they've negotiated with others, so they ended up financially where they wanted to be," said Lee Berke, who runs LHB Sports, Entertainment and Media Inc., which works with pro teams interested in starting up regional sports networks.

"I think Cablevision had to move more than YES did," Berke said. "It's a lot less expensive to put this thing behind [Cablevision] and focus on rebuilding their business rather than worry about this for another year."

Cablevision's ability to tier YES could embolden MSOs to take a harder stance against high-price regional and national sports networks looking to remain on basic.

Tier-ful outlook

Operators such as Time Warner Cable, Cox Communications Inc. and Mediacom Communications Corp. have been calling for the flexibility to shift high-priced sports services out of basic and onto premium sports tiers.

Fox Sports Net president Bob Thompson said he wasn't concerned that the Cablevision/YES agreement would negatively affect distribution for Fox Sports Net's owned-and-operated networks.

"We feel that for Fox and for the cable operators the local nature of our product and the popularity of our product — i.e., the ratings that we deliver — is basically the rationale for us to remain as a basic service," he said.

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