Bundle of Grief for Networks

Time Warner Cable has introduced a $99 “triple play” of television, Internet and voice services in New York City that excludes some of basic cable’s big programming names, including the sports channel ESPN, FX and Court TV.

That angers some programmers, who are excluded from the digital channels provided in this package. They said this means of attracting new customers is a backhanded way for the cable giant to, in effect, place some of the more expensive basic-cable networks, such as ESPN, on a tier.

“This at the very least goes against the spirit of [an] affiliation agreement and at the worst is in definite violation,” said one network executive who asked not to be named. “This was introduced without our knowledge. We feel pretty confident that one of two things will happen — either the tier is pulled or that it includes the networks that were not originally available.”

Time Warner Cable corporate spokesman Mark Harrad said the New York promotion was created by that local division and that there are no plans to expand it into the MSO’s other markets. He added that in the New York market, this type of promotion has been used by several other cable operators and direct-broadcast satellite companies to attract new customers.

“That is not any sort of tiering,” Harrad said. “It’s your classic introductory offer.”

According to the Time Warner Cable offer New York City and Hudson Valley region (Sullivan, Orange, Ulster, Dutchess, Greene and Delaware counties in New York) customers can receive 150 digital cable channels, high-speed Internet service at 384 Kilobits per second download speeds and digital telephone service for $99 per month for one year. After the expiration of a promotional period, the price rises to $104 per month.

But what has some programmers up in arms is the digital cable offering — called the DTV Intro Package — that offers 150 channels of programming minus basic cable staples like ESPN, Madison Square Garden Network, Court TV, Bravo, FSN New York, FX Network and the Yankees Sports & Entertainment Network.

ESPN is arguably one of the more costly networks for operators, charging MSOs roughly $2.50 per month, per subscriber for the service. Operators have long wanted to place the sports network on a tier, but ESPN has resisted mainly because it receives more advertising revenue when it is on the more widely distributed basic tier.

The other networks in question aren’t as costly as ESPN.

According to data from Kagan Research, for 2004 carriage fees for Bravo were about 13 cents per subscriber per month; ESPN2 about 23 cents; Court TV 11 cents and FX about 33 cents. According to Multichannel News research, Fox Sports New York and MSG combined average about $4 per month, per subscriber, while YES averages about $2.

Pali Research media and entertainment analyst Richard Greenfield — who highlighted the Time Warner Cable promotion in a recent research report — ESPN could lose as much as 5% to 10% of its subscriber base in New York City as a result of the promotion. Given Time Warner Cable has about 1 million subscribers in Manhattan, that could translate into $1.5 million to $3 million in lost annual carriage fee revenue.

That is a small amount compared to ESPN’s overall annual carriage revenue of about $2.7 billion for its 90 million subscribers nationwide.

While Time Warner Cable is technically not violating any carriage agreements with the programmers because they are still carried on its widest available tier, if other operators followed suit it could represent a significant revenue impact to the networks, Greenfield said.

Losing 5% to 10% of its base could cost ESPN between $135 million to $270 million in carriage fees. And that doesn’t include lost ad revenue if the network were available in fewer homes. ESPN’s estimated 2005 advertising revenue is about $1.6 billion, according to a recent research report from Sanford Bernstein & Co.

“I don’t think the programmers ever envisioned being able to create digital tiers that didn’t include the standard basic channels,” Greenfield said.

ESPN spokeswoman Catherine Brett said that the network was in discussions with Time Warner Cable about the offering. She declined further comment. A spokesman for YES also declined comment. Officials at Fox Cable Network Group, parent of FX, and NBC Universal, parent of Bravo, did not return calls for comment.

But other networks are hopping mad.

Harrad added that like most introductory offers, the Time Warner Cable New York promotion is aimed at getting consumers to upgrade to the more robust package — more than 250 digital channels (including those dropped off the digital intro offering), 5 Megabit per second high-speed Internet service and digital phone for $129.95 per month.

“Most people will end up getting the triple play at $129 per month,” Harrad said.

Time Warner Cable New York spokeswoman Harriet Novet said that the introductory digital package is available to new and existing customers as a standalone for $39.95 per month. That compares to the $55.95 per month price point for the standard 250-channel digital package.

Novet also downplayed the significance of the DTV Intro package and stressed that the lineup for the introductory package was not chosen to weed out more expensive networks.

“We took a look at the wide array of networks available and assembled channels from the Basic, Standard and Digital tiers that we felt met the information and entertainment needs of consumers and priced it attractively,” Novet said.

She added that the vast majority of Time Warner Cable customers are expected to take the more robust offering.

Leichtman Research president Bruce Leichtman, a former marketing executive at Continental Cablevision Inc., said the Time Warner Cable promotion is typical of other promotions by other service providers.