YES Sues, While ESPN Hikes Fees

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Rising sports-programming costs remain one of the hottest issues going into this week's National Show, as both national and regional sports services made moves last week that turned heads in the marketplace.

Yankees Entertainment & Sports Network, embroiled in a bitter carriage dispute with Cablevision Systems Corp., filed an antitrust suit against the MSO, charging it with conspiring to protect its own New York City-area sports dominance by denying carriage to YES.

And ESPN told its affiliates of another 20 percent rate increase, which would help it cover the costs of its recently acquired, $2.4 billion National Basketball Association cable package.

The YES suit, filed April 29 in U.S. District Court for the southern district of New York, accuses the MSO of illegally monopolizing the area's TV-sports business, through its ownership of Madison Square Garden Network and Fox Sports New York, as well as its lock on available cable rights to all other major pro sports teams in the market.

The exception: the New York Yankees, whose games appear on YES.

Cablevision is deliberately keeping the startup network off of its systems to maintain its competitive advantage, said attorney David Boies of the law firm Boies, Schiller & Flexner LLP, which represents YES.

The suit also contends that Cablevision violated Federal Communications Commission rules by initially asking YES to offer the service exclusively to cable, instead of affording direct-broadcast satellite services like DirecTV Inc. an opportunity to carry the games.

YES sought unspecified injunctive relief and monetary damages, as well as a declaratory judgment that Cablevision's conduct violates antitrust laws.

Boies added, however, that YES doesn't want a preliminary injunction to get the network on Cablevision systems.

"We hope to get an early hearing and an expedited trial," he said during a news conference.

Cablevision said the lawsuit was without merit.

"The [lawsuit] is the YES Network's latest ploy to pressure Cablevision into accepting an expensive 'take it or leave it' demand that is not in the best interest of all of our customers," the company said in a statement.

As per its deals with other area MSOs, YES wants its network carried on a basic tier, while Cablevision wants the $2-per-subscriber service offered on a pay tier.

During an analyst conference call last week, Cablevision executives said the company had lost 5,400 subscribers in March and April because of the YES dispute. But YES CEO Leo Hindery last Friday told The New York Times
he believes the number is closer to 40,000.

Even with the legal action, Boies said the dispute could drag through baseball's all-star break in July.

That would certainly not sit well with many of Cablevision's subscribers, who are growing impatient with the situation.

At a recent co-operative meeting in Riverdale, N.Y., residents voiced their frustrations to Hindery and local politicians. Cablevision declined an invitation to the meeting, which drew 200 residents.

"I feel helpless," said one woman during the forum. "When will it all end?"

ESPN HIKES

Meanwhile, ESPN last week told affiliates that it will once again institute a 20-percent rate increase this year, as part of its multi-year agreement with operators.

The increase would push ESPN's licensing fee — already one of the highest in the industry — to the $2 mark for most operators, and even higher for smaller distributors, according to sources.

ESPN believes the value it brings to operators is worth its asking price. In fact, taking into account the revenue and value generated for its affiliates, the network argues that its real cost remains under $1.

ESPN argues that Beta Research Corp. studies consistently rank the network first in such areas as subscriber acquisition and retention, local ad sales revenue, perceived value and importance to cable systems.

"We believe we're worth every penny of what operators have agreed to pay us," ESPN president George Bodenheimer said at a recent ESPN press conference.

Cable One Inc. vice president of programming and strategic marketing Jerry McKenna holds a different view.

McKenna said that from the end of 1999 through 2001, Cable One's ESPN rates increased 45 percent, while the network's ratings suffered double-digit declines.

"There's a dramatic inconsistency," McKenna said.

He added that Cable One is paying "one vendor" nearly 20 percent of its programming costs.

"We have a real problem with that," McKenna said. "It's out of control."

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