Ganging up on sports fees

Cable operators are eyeing the lack of damage to Cablevision Systems from its refusal to carry the New York Yankees' regional sports network. In fact, it may be providing fresh ammo for negotiations with one of their biggest irritants, ESPN, which costs them dearly.

Yes, Yankees fans are screaming over Cablevision's failure to carry Yankees Entertainment & Sports (YES), but they're not canceling service in great quantities. Cablevision has lost just 10,000-20,000 of its 2.9 million subscribers over the fight.

Operators have seen themselves with little leverage in negotiations with ESPN, fearing subscriber revolt if ESPN went dark on their systems. But just as ESPN is tripping its annual 20% rate escalator, Cablevision Chairman Charles Dolan is giving them some hope.

"A lot are ruminating, 'If Chuck can get away, maybe I can get away with blowing ESPN off and let ESPN take the publicity hit," said Morgan Stanley analyst Richard Bilotti.

The CEO of one cable operator agreed: "There seems to be a sense of that, yes."

Debate over rising sports-programming costs of percolated at the National Cable Show last week. Operators like to say that 20% of customers watch sports and the other 80% pick up the tab. And, because they can pass only so much of the cost on to consumers, sports cut deeply into an operator's bottom line.

Several top MSO execs—even programmers Discovery Networks' John Hendricks and MTV Networks' Tom Freston—slammed YES and its chairman Leo Hindery at NCTA for trying to strong-arm Cablevision. The cable operator has resisted YES demands for $2 per subscriber, instead offering to sell YES as a pay service.

YES has filed an antitrust lawsuit against Cablevision, which controls rival regional nets MSG Network and Fox Sports New York. MSG lost TV rights to the Yankees last year.

AT&T Broadband Chairman Bill Schleyer said, "Good partners don't say, 'Here's the contract; here are the terms. Put it on or we'll sue you.' I support the Dolans fully. The are standing up for the subscriber." The Dolan family controls Cablevision.

Cox Communications Chairman Jim Robbins chimed in, "I called Chuck two weeks ago and said, 'Hang in there. You're doing the right thing.'"

YES Chairman Hindery was dismayed by the backlash. "If the industry wants to have the à la carte debate, then it needs to have the debate about every service on basic."

Top Disney and ESPN brass, headed by Disney Chairman Michael Eisner and President Robert Iger, tried to cozy up to the cable industry in New Orleans. Eisner, in a rare appearance at a cable convention, hosted a dinner for top MSO executives. Iger was featured in a general-session panel. They're also pushing to increase rates for ABC Family, which Disney acquired from Fox last year.

"We have nothing to be apologetic about and everything to be proud of," said Iger. "We don't need to be defensive about the rates we are charging because of the value we deliver."

ESPN inflicts the deepest wounds, with an average $2 per subscriber. The sports net is seeking 20% rate increases, thanks in part to its new National Basketball Association contract, which kicks in next season. "We take the brand and utilize it in at least 25 different ways to support operators," ESPN President George Bodenheimer said last month at a press conference. "We believe we are worth every penny we seek and operators agreed to pay us."

MSOs did, to their chagrin, agree to the escalators in ESPN's carriage deals. But, as one cable executive warned, "Those contracts won't last forever."

In negotiating carriage for another cable net, ESPN is usually Disney's best bargaining chip, although Disney has a mighty weapon in ABC: Operators need retransmission consent to air local ABC O&Os. Operators could take a shot at ESPN's splinter services: ESPN2 (ESPN leverage fueled its growth into 82 million homes), ESPN Classic and ESPNews.

In the end, it may be easier for a cable system to say no to YES: After all, ESPN has a lot more than baseball, and, as sports pros know, "fan" is derived from "fanatic."