Programmers Address Tense Issues With Ops

They compete on a daily basis to land precious channel slots for their networks, and they are the targets of MSO ire over spiraling program costs. A veritable Who's Who of affiliate-sales chiefs recently gathered in New York City to discuss their take on the state of MSO-programmer relations, in which tensions have reached an all-time high, according to many industry veterans. The all-star group invited by Multichannel News included top distribution executives from four of the major programming houses, and one representing a stand-alone independent network.

At the table were: Sean Bratches, ESPN's executive vice president of affiliate sales and marketing; Nicole Browning, president of affiliate sales and marketing for MTV Networks; Lindsay Gardner, Fox Cable's executive vice president of affiliate sales and marketing; Ron Garfield, Hallmark Channel's senior vice president of national distribution and service; and Bill Goodwyn, executive vice president of affiliate sales and marketing for Discovery Networks U.S. Under questioning from editor-at-large Linda Moss and news editor Mike Reynolds, the network officials — sometimes good-naturedly ribbing each other — sunk their teeth into juicy topics like rising license fees, ratings, retransmission consent, tiering, News Corp.'s play with DirecTV Inc. and volume discounts. An edited transcript follows.

MCN: As you all know, rising program costs are a real hot-button topic with operators. What do you think constitutes a fair rate increase? Some operators claim it's the Consumer Price Index. Mediacom Communications Corp. chairman Rocco Commisso says it should be tied to ratings.

Sean Bratches: I don't think you can draw a line across the industry and suggest that there's any type of metric, like CPI or 10% or 5% or whatever the applicable metric would be. It's a function of every individual network's value. And sitting across the table here, we've got a great assortment of brands and even within our brands there are sub-brands that constitute maybe different metrics, in terms of determining the value.

Nicole Browning: I would concur, absolutely. If you enter into negotiations believing that your rate is not reflective of the value that you bring, then it may be a 15% increase in one case and a 5% increase in another. There's no one-size-fits-all, for any network or not necessarily for any distributor.

Ron Garfield: With us, we're new into the marketplace for the last couple of years. So we're looking at our costs being reasonable for a growing network that is increasing value in the eyes of our customers.

MCN: What about you, Bill?

Bill Goodwyn: The cable operators and [direct-broadcast satellite] providers are more cognizant of the rate increases than they ever have been before. We've had regulation that's been looming. Congress is looking very carefully at the American TV consumer, the rate pressures the cable operator [and] consumers are under.

So if everyone says, 'I'm going to get full value,' then you might have a train wreck at some point, because even though we all would like to get full value for our services, I'm not sure you are going to be able to do that without really gutting the whole financial system.

You have to work with the operator to figure out relative value but also, in the environment that we're in, because I don't think anybody in this room wants actual regulation for à la carte.

MCN: Operators would say that it's 40 networks or 50 networks and 60 networks all seeking fair value. So that obviously adds up.

Bratches: To the consumer proposition, I would posit that $40 a month for the entertainment value that cable has to offer is underpriced in the market from a retail standpoint. You cannot take your family — and I have four sons and a bride — when we go to the movies, it's $100 to see a movie once you buy the tickets, some popcorn and a few drinks. So a lot of focus has to be put on the message and the value, the value proposition, of $40.

And also, there's been a lot of public discourse about ratings and how you judge ratings relative to your service fees. I'm sitting here today in a favorable position because our ratings are going up.

But I'm suggesting that the industry in general is not in the ratings business. It's not in the business of aggregating eyeballs. This industry is in the business of aggregating subscriptions, and there's a difference between networks that provide strong subscription value and contribute to the subscription process that may have lesser viewerships. So viewership is not necessarily tied to the value of acquisition and retention, and the value of the network.

Browning: But on the other hand, it's kind of hard to disassociate viewership from consumer interest and consumer appeal, because it is in fact what is the measurement of people's viewing. So viewership is what sells subscriptions, ultimately.

Bratches: Six, 7% of our customers' businesses, the revenue aspect of it, is the generation of eyeballs for advertising sales. So the [remaining] 90-plus percent of it, they are selling subscriptions, hence why they call them subscribers.

Browning: But you have to retain those subscribers, too.

Bratches: Right. You can have a network that has lower viewership, but has an extremely passionate audience. If you extracted that product from the basic or expanded-basic tier, that individual may not subscribe to that particular platform. So I don't think they're necessarily correlated.

Browning: They are not completely disassociated; they are correlated to a certain degree. So it's not necessarily singularly viewership. It's not necessarily singularly brand.

When you look at what MTV Networks' core networks deliver in terms of viewership, we probably deliver in excess of 20% of the viewership, and we are getting probably below 10% of what an operator pays in programming cost.

So when you ask me what's a fair rate increase, I would say, 'Look, I'd love to get what we deliver in terms of viewership and pull of consumers. We're not getting that. We're a bargain.'

Goodwyn: But again, if you're looking at it from a ratings standpoint, I agree with Sean's point, the fact that the distributors are looking for those consumers to pay that monthly bill, that $40 or $50 or $60 every month. Really, the distributor doesn't care if somebody is watching. Let's say MTV gets a 0.8 or Sean gets a 0.8, or one week you're getting 1.0. They just want to make sure that viewer is satisfied.

Browning: What if someone is not watching at all?

Goodwyn: That subscriber that's paying that monthly bill, sometimes they are light users of TV that are paying the $40 a month to be satisfied. So when they do watch television, even though they may not watch a lot of television, they are satisfied.

Browning: It would be nice to see some rationale reflected in license fees, something that really mirrors value, whether it's measured on viewership, whether it's measured on the subscription pull. There's nothing. There's been a long history that has sort of an artificial kind of rate structure.

Bratches: I totally disagree with that. The process of negotiating license fees for networks is a product of long negotiations that are embodied in affiliation agreements that sometimes are north of 100 pages long. So to suggest that it's not a function of the market and the strength of your brand and your product, I don't think that can be discounted.

Browning: I'm not saying it's not. I'm saying that there is so much that is inherent in the course of history that influenced the way all of our deals have worked out that over the course of time isn't necessarily reflective of marketplace value today.

MCN: Well, Nickelodeon has been the No. 1-rated network for years, but you're not the No. 1 priced network.

Browning: No.

Garfield: I'm being evaluated differently because I'm in the show-me stage, as a growing network with 52 million households. Our customers are asking us to show them that we're going to fulfill the promise that we said the Hallmark Channel is going to do.

MCN: But don't networks like yours get burned because networks like Sean's or Lindsay's are getting double-digit rate increases, and operators have less money to spread around?

Garfield: I'll let Sean and Lindsay talk to their rate increases. I'm trying to give a reasonable rate out there for the product that we have. We don't have people yelling at us about our rates. I wish I was getting Sean and Lindsay's rates.

Goodwyn: Lindsay's just here for the pictures, by the way. [Laughter.]

Bratches: I think that we're all in general agreement that there are many facets of the establishment of value. You look at things like the sports category. Generally speaking, when you produce an NFL game, for instance, ESPN buys the rights [and] we deploy 180 people to produce that game. Lindsay has similar dynamics in some of his businesses. That's really an ephemeral display of that product. There's no syndication market where you can take that great product.

MCN: I've heard [Cox Communications Inc. CEO] Jim Robbins and Bill both suggest this notion of networks that cost over a dollar being put on a tier.

Browning: You said that?

Goodwyn: About a year ago.

Bratches: He was in front of a hostile audience, and he just folded. [Laughter.]

Goodwyn: It was at the NCTC [National Cable Television Cooperative] conference a year ago. Historically, any network — go back in time —that ever charged more than $2, wasn't it à la carte? HBO, Cinemax, Showtime, whatever. So historically speaking, that's the way it's been.

Everyone's looking at getting value. That cable bill is not $40. It's $60. It's $70. [U.S. Sen.] John McCain [R-Ariz.] is worried about the 80-year-old in Arizona when those cable rates keep coming up.

It's difficult for the independents, Ron and some of other networks that are trying to get their fair value.

So you've got a few networks that are taking most of the money out of the marketplace. It makes it difficult for everybody else. There's so much pressure on the operators, so what's really the answer? So that [tiering networks over $1] may be one solution.

MCN: Is that the answer, Lindsay?

Gardner: Our businesses, all of our businesses, are about empowering consumers. And the notion of giving to consumers the choice of what channels they pay for, which channels are available to them on their cable system or satellite platform, is a powerful proposition. There are, however, two problems with it. One is you would have to apply it on a non-discriminatory basis, meaning you've got to apply it to every channel.

Bratches: Segregating specific networks or genres of networks out for any potential tiering is fraught with legal difficulties.

MCN: Because of the way the contracts are written now?

Bratches: No, First Amendment.

Gardner: If you're going to empower consumers, you really need to empower them all the way. Do they want their channel dealing with crime and court issues or not? Do they want this particular news channel, or not, and are they willing to pay extra for it?

Goodwyn: Wouldn't the networks have the ability to decide which business they want to be in? Do you want to be a subscription business where you can have smaller audience; or do you want to be in front of everybody and make up your money through ad subsidy as well? So then networks can sort of pick which bucket they're in if you use a pricing mechanism.

Gardner: I don't see this as about networks or even distributors. I see this as an issue for consumers and empowering consumers. Our focus is obviously is on sports channels, but remember at [the National Show] just several weeks ago, FCC chairman [Michael] Powell urged cable operators to out-local the competition. He was speaking about, presumably, broadcast stations and newspapers and maybe even satellite competitors.

Our channels really emphasize local content. And if anything deserves to be on the basic tier, it's probably your local sports, which are of interest to most people in communities and their elected officials — many of whom have deals with stadiums — have used public funds to build stadiums and keep teams in place.

Browning: That's an interesting twist. [Laughter.]

Gardner: The second difficulty with empowering consumers across the board with this choice of tiering and à la carte is, most cable systems in this country aren't set up technically to do that across the board.

Goodwyn: We were talking about if operators wanted to have the ability to take certain channels off of expanded basic if they meet a pricing threshold. I think that was more the question.

MCN: It was along those lines.

Bratches: Generally, the proposition is one that should be settled through marketplace negotiations as opposed to any type of governmental regulation. That said, à la carte as a premise and as a packaging model we feel, at ESPN, that ultimately it's anti-consumer in as much as that the consumer will likely end up paying more for less.

Browning: I certainly would agree that at the end of the day the rising cost of sports programming isn't good for ESPN, isn't good for the consumer, it's not good for the cable operator. But the place where it should really be resolved is in the market and through market negotiations, certainly not regulated.

But there is fundamentally an issue that is in front of the industry, which does relate to this sports issue. As the [sports] franchises continue to charge more and more, it does take it out of other programmers and other markets.

If you really want to talk about where this tension exists today, it's bad. In all the years I've been doing this, which has been over 20, it's as tense now between the operators and programmers as I've ever felt it. But really, where I think that starts, you've got to talk to these two guys [Bratches and Gardner].

Garfield: I'll never be on a tier. [Laughter.]

Browning: By the way, with all due respect, I think you guys have done a very good job.

Bratches: Listen, I'm not ashamed nor am I going to apologize for our pricing in the market. We think it's truly reflective of the value that we provide. The market has changed, and we look at ourselves as ESPN Inc., not ESPN the network. We've got ESPN, ESPN2, News, Classic, we've got a high-def product, Spanish-language, multiple broadband, interactive television, video-on-demand, pay-per-view and syndication products.

MCN: But that helps fuel the backlash against you. Operators look at you and say, 'It's theme parks — it's a whole industry, and we are a tiny piece of it, and we're getting burned because we're not the main customer anymore.'

Bratches: Our customers are deploying multiple products, very high-margin products — digital cable, high-speed data, telephony, high-def — and everyone represented in this room represents tremendous and extraordinary brands. Our efforts collectively are supporting, strengthening and broadening of the industry's consumer proposition.

Gardner: Sean's right. It has never been a better time to operate cable systems in this country. The best-run cable companies today have cash flow per customer per year of $285, and that's up more than $100 in the past four years. A lot of that is the consequence of the efforts of our colleagues around the table to provide great products, great content, great brands.

We want a healthy industry and we want healthy cable operators, and by all empirical measures that I've seen, the cable-system business is a healthy business.

MCN: I've heard operators argue that the video business is not as healthy as it used to be. Obviously, the higher margins are in the telephony and the high-speed data.

Browning: If an operator believes that the business ultimately won't be a video business, it's myopic and short-term thinking. I'm not suggesting that it's not smart to develop other ancillary streams and really be responsive to technology and to think that that can deliver. But you take that eye off that video business, that core business, that is the minute the competition and any other industry that's willing to snap up what your core business is going to sweep in.

People take cable and satellite, at the end of the day, they are not taking it because they get high-speed access. They are taking it for entertainment. And that's very, very important.

Garfield: Everyone here is helping the cable operators to build their business. All the ancillary services that everyone has developed allows them to increase their RGUs [revenue generating units] and their revenue. But I agree with Nicole. They're watching television. They're watching entertainment.

Browning: The industry should be very vested and want us to continue to develop product. I've had operators tell me: 'I don't want you to spend another dime on programming. We don't care. It doesn't mean anything to us.'

Bratches: Which goes to my point earlier that's it's a subscription business, not a ratings business.

Browning: But it's a combination of both.

Garfield: Sean cited the 6% of local ad sales that's contributing to the operators' business. Look at our friends down in Philadelphia, being in the top 17 markets in the country and putting a footprint down. They're in there trying to compete for the local ad sales business and take that money away from the local broadcasters in each market. So being able — to your point, Nicole – to drive ratings is certainly important.

Browning: Right, exactly, and the offset that creates for them on their license fees, which Sean has definitely put out there.

MCN: This is for Lindsay. Why do you think ESPN has become such a flashpoint, since regional sports services are really the most expensive services in the country? So how has Fox escaped the criticism that ESPN gets?

Bratches: Next question.


MCN: It is a serious question. Certainly, Fox has not been without problems. Time Warner dropped your services in a couple of markets. What's the value-proposition on those networks then?

Gardner: Which networks?

MCN: On your regional sports networks, which are some of the priciest in the country. At the NCTA, the topic of discussion is not Fox's rate hikes, it's ESPN's rate hikes. Why?

Gardner: If you look back through several years, 10 or 15 years in the industry, there are occasional, very often flashpoints, and the object of distributors' ire does shift around from year to year. And this year, these last several months, it appears the sports channels — both regional sports channels and national sports channels — are in the drum.

This period of conflict will pass, as it passed for all previous conflicts, and there will be a new player that we probably can't predict today who it will be, who will be in the drum.

Bratches: I also would say that the regional sports business is a little bit closer to home in as much as virtually every major cable operator owns and operates regional sports networks that are distributed on the basic or expanded basic tier.

MCN: Lindsay, how much easier is your job going to be once Murdoch acquires DirecTV Inc.?

Gardner: I don't think much will change.

MCN: Why not?

Gardner: Remember that if and when the deal to merge with Hughes closes, News Corp. will own 34% of DirecTV. There will be a separate audit committee made up of non-News Corp. employees will evaluate and approve any related-party transactions between Fox and DirecTV. DirecTV has been a vigorous competitor to cable for the last, how many years? Ten years? And it will continue to be a vigorous competitor.

And the tactics that DirecTV employs to lure customers away from competing video-service providers, DirecTV is probably going to continue to employ those tactics, and News Corp. has always been platform-agnostic. Our job is to get our content, all of our 22 channels, into as many homes as possible, irrespective of how they get video service. Fox will continue to be platform-agnostic.

MCN: Now around the table, do each of you believe that?

Bratches: He just read it off a corporate press release. It's got to be true. [Laughter.]

MCN: Will DirecTV try to keep some services exclusive, to give it the edge in markets?

Browning: It's certainly feasible that Murdoch could develop networks that he might want to have exclusively on his platform. But I guess his position, publicly, is that's not the case, right?

Gardner: The company has said that we will abide by the program-access rules even at the point when we're no longer vertically integrated.

MCN: Is anyone concerned about that Fox would use retransmission consent for DirecTV and say, in a particular market, to a cable operator, 'You're not going to be able to carry Fox stations unless we get a 25% rate increase for Nat Geo.'

Goodwyn: Well, they can do that now. Retransmission consent is its own problem, whether the DirecTV-Fox acquisition comes into play or not. The issue of retransmission consent has so many unintended consequences.

Clearly the government was working to protect free over-the-air spectrum. And they gave the broadcasters spectrum for free. If the U.S. Treasury was to auction that spectrum off, either analog or digital, we're talking billions of dollars.

But I don't think they envisioned that giving broadcasters the spectrum, they'd build new businesses for broadcasters. I'm not sure anybody could argue that Fox or ABC would be disadvantaged if you took away retransmission consent. Networks should really stand on their own rather than creating artificial leverage that retransmission consent provides.

Taxpayers are getting hit twice: Once on the spectrum giveaway that the government's given broadcasters, so the broadcasters can build up new businesses; and then No. 2, when the cable operator has to carry new channels that they don't want at rates above marketplace rates.

Gardner: The average cable customer believes that between $5 and $10 dollars of his or monthly bill goes to pay for over-the-air broadcast stations. Cable customers ascribe a lot of value to these local over-the-air stations, and they're surprised when they learn that none of it, none of their monthly bill goes to directly pay the local television stations.

Cable operators recognize this and over the years, cable operators and programmers have figured out ways to compensate the programmers, the TV-station operators, for the right to carry these television stations.

It has never been easy, and it will never be easy, but with very few exceptions, these deals have gotten done out of the spotlight and in ways that both cable companies and the programmers and, since the Satellite Television Home Viewer Act, satellite companies, have been satisfied with.

MCN: Discovery has been very aggressive on the HD front, and ESPN has now jumped in with its own stand-alone service. Can we expect to see a stand-alone HD channel from Fox Cable or from MTV Networks? And why have you guys been slow to the party?

Garfield: Or Hallmark. [Laughter.]

Gardner: We are already providing it. We are on the verge of providing high-definition cable programming. We announced it at NCTA, a deal with Time Warner to produce in its major markets more than 150 professional events per year.

MCN: Why not do a stand-alone service?

Gardner: Much of what we do is in response to our customer's needs. Time Warner told us that it wanted as many games — games — as we could deliver to them each year in high definition, and we negotiated an arrangement.

MCN: Obviously, Discovery has its HD Theater, and ESPN HD. Didn't Time Warner tell you, 'We just want a couple of events on HD, we don't need a whole stand-alone service'?

Goodwyn: The sports business is a little bit different. Lindsay described that very well. For us, I think the natural world plays very well, just as sports does. Whether you do a channel or programming, that's for each company to decide how best to utilize either the existing HD library or their future HD productions.

Bratches: We've been at the same court, asked by our customers for years now to look into launching ESPN in a high-def format. And it is a common-held belief that sports and movies and …

Goodwyn: Natural world?

Bratches: … content such as Discovery is putting out …

Gardner: They don't say documentaries any more.

Bratches: … those are going to be the drivers of high-definition. We feel very strongly that what's going to drive high-def is not the display device but it's the content that's riding on that display device.

And we feel strongly that we have in ESPN the strongest sports brand and the strongest sports network in the world, and felt it appropriate to simulcast that service.

We could have launched ESPN3 in HD and put Williams-Amherst football games on it. But it's just not, from a consumer proposition ... they're going to be looking for the NFL, Major League Baseball, the NBA, et cetera. So that was our foray, and it's been very successful to date.

Browning: We haven't had a lot of requests for The Real World in high-def. But within Viacom, CBS and certainly Showtime are taking a leading position on high-def. CBS's entire primetime is in high-def, along with certain special sports events like The Masters.

MCN: Somebody suggested concerts would be very good.

Browning: Potentially. We're not at the place where we're actually doing anything at MTV Networks yet in high-def, but it's always something that we'll keep our eye on.

Bratches: The business models are very challenging in the high-def world. One of the reasons we went forward, we wanted to respond to our affiliates, but also if we're going to continue to be the worldwide leader, which is our moniker and serves a sports fan, we felt we had to be out there with a product.

Goodwyn: You're not going to have that many more channels of HD over the next couple of years because it is so expensive to get into the business.

For us, one of the reasons we're able to do it is we're privately held. If we were subject to quarterly shareholder reports and earnings, I'm not sure we'd be able to do it. We've got a lot of challenges because there's not a lot of payback in the early years.

Garfield: We did recently an InDemand high-def deal, but that was really done through Crown Media Holdings, which is our parent company, and really was done out of conjunction with any kind of distribution deals that we do with the linear channel. And they're really set up to manage our library of over 700 titles and then another few hundred titles that Hallmark Entertainment owns.

But I do know that we're going to be providing In Demand with product, probably a lot of the first-run movie product, that we've been developing over the last 24 months.

MCN: I assume most of you are involved with VOD. How about MTV?

Browning: We're looking at it.

MCN: I've heard programmers say it's a giveaway. Comcast is giving it away for free. Where does that leave your business as programmers?

Browning: Well, when they give it away for free, they expect that you give it to them for free. We have not yet really found what we believe to be a very viable business plan that mitigates potential risk that we anticipate not only on the advertising — well, generally on the advertising side — driven by moving viewers from your core brand to another.

But having said that, there's some very complicated rights issues on the music side that we are looking at. We don't have a position that says we're just not doing this. We are, in fact, looking and talking to operators, trying to figure out ways that it would be mutually beneficial.

Garfield: We're in the same position, too. We have conversations with people. But again, we've got a lot of rights issues and windows issues with our titles because of how the Crown product and the Hallmark product is being licensed.

MCN: What about everyone else? Why are you not worried about the aspects that Ron and Nicole mentioned?

Bratches: We've got a fledgling VOD business that's based principally in two areas. One is our library, which we have the world's largest sports library that comprises everything from the Thriller in Manila, to old NASCAR races to X-Games and old Rose Bowls. We have clearance rights. We have the ability to populate servers across the country with this content and we are doing that.

The second aspect of what we are providing the industry in terms of VOD is the time-shifting of events. So if we have an NCAA football game on a Friday night, we can encode it and make it available for the next four or five days, sell it for a price, and we split the revenue.

Where, as Nicole mentioned, the discord is coming — relative to our broader participation in the market — is from the free-VOD proposition. We are very concerned that it's a precedent that is developing consumer behavior with an expectation of receiving content for free.

Goodwyn: With the VOD area, the Internet streaming and so forth, we've got to figure out new ways to get the content to the consumer without disrupting the current model. Operators have to look at it as a two-way street. We want to get paid. They want to get paid. So we have to work together.

Browning: Presumably, the library product isn't necessarily the same stuff that's currently on your air. And when you think about for Nickelodeon, for instance, there's generations of children who haven't seen some of the original Nickelodeon content. So that may be an avenue to take.

Bratches: When you look at VOD from a marketing standpoint, one of the things that we've been ardent advocates of is how the product is packaged. We're proponents of having a broad video-on-demand package that is inclusive of all brands as opposed to having a Viacom VOD package for $4.95, an ESPN package for $4.95, Discovery, Fox, Hallmark.

Gardner: Fox has shown rare humility in the VOD space. Last year, Cablevision president Jim Dolan was angry because one of the other broadcast networks had reneged on a deal to deliver for Cablevision's VOD platform a major hit series. And he told us about it.

Within weeks, we cleared all of the internal hurdles — the profit participants, the production company, the network — and delivered to Cablevision for free on VOD all of the episodes of the first season of 24, one of the big broadcast hit series last year and all of the episodes of The Shield, which won the Emmy for Best Drama.

This season, we renewed the association with Cablevision, only we tested a pay model. With other cable operators, we haven't turned a deaf ear to any request. We are making available National Geographic and Speed Channel programming on VOD for free to Comcast.

It's too soon for us to stake out tough positions on what's right and what's wrong in this business and what sets a dangerous precedent and what doesn't.

MCN: Isn't giving something away for free to MSOs and then giving it to consumers for free a dangerous proposition?

Brown: The rare humility might have been compensated in some form or fashion. Just a guess.


MCN: No one's buying it.

Gardner: Fox President Peter Chernin wants the company to be out there with a lot of oars in the water and learn how consumers behave. Within some period of time, we'll make a decision on what we think is right for our businesses. But right now, we're open to all colors and just about all propositions.

MCN: In your business, generally, are volume discounts still a viable part of contracts?

Browning: Why are you looking at me?

MCN: Because [MTVN president] Mark Rosenthal once told me that MTV was trying to move away from them. I've heard it from other programmers, too.

Browning: Over the course of history, we certainly try to condense the differences in terms of the variance, the rates at one end of the spectrum to the other. And to a certain extent, you can't really justify that there's necessarily an added benefit to more and more size.

The problem with doing away with them, in practical terms, is that those that enjoy a greater volume discount, what they'd like to do is keep that. Those that don't would like to migrate to the lower.

Goodwyn: Today it's tried-and-true business practice, in whatever industry you're looking at. Clearly, somebody with scale and size makes our lives a lot easier. It's worked for both sides, and it will continue to work.

Gardner: I don't think this question will come up next time we get together because —

MCN: Because there'll be one cable operator?

Garfield: There'll be one rate for everybody.

Gardner: Rates are only one of many moving parts that we're dealing with, with these distributors. And in the deals that we are typically doing and the business relationships we're typically building these days, the rate is one of 10 material economic and noneconomic issues that we have to satisfy the distributor on.

MCN: Is that your experience? Or is it really pretty much the license fee?

Garfield: We're one service trying to get as broad a distribution as we possibly can. I'm sitting trying to get deals done with people that stepped up to the plate with us three and four years ago versus where we are now.

So everyone is looking for us, because we're the guys that they're going to put the fingers on. We're trying to stay fairly consistent here with our rate structure.

Browning: You're in good company. Don't feel bad.

Bratches: You can't talk about [volume discounts] unless you talk about most-favored nation [clauses].

MCN: I was just going to bring that up.

Bratches: Because they are very interrelated, particularly with the networks' deals being staggered in the marketplace. And the MFNs as a general proposition, I think, are somewhat anachronistic to the business that we're all in today.

Browning: I agree with that.

Bratches: There was a time and a place where they were appropriate, but they've really outlived their usefulness, and probably today more so than anything, they stand to crush innovation and creativity. It really eliminates our flexibility.

Browning: I couldn't agree more. That's so true. I'm sure that's true with many of you, the fact that you can't be very responsive or necessarily responsive to an agenda that may be far more important to one client than another, by virtue of an MFN that exists is ridiculous.

Garfield: Try comparing certain terms and conditions from one to another.

Browning: So they're handcuffing. They are a completely antiquated notion and as for our company, we are moving more and more away from them. It's like just get in there, do the best deal that you can do for your company, and be satisfied with the win-win relationship that you develop with your program supplier.

Gardner: Look who [Starz Encore Group chairman] John Sie just hired. Bob Clasen has been a CEO in our industry for more than 15 years. Bob is not a salesman. Bob is a sophisticated business-relationship executive.

Browning: Excuse me. Does that mean a salesman can't be a sophisticated person? Hello!


Browning: Willy Loman's here.

Gardner: Bob is not a 'mere' salesman. And increasingly what we do is develop and build and establish sophisticated business relationships among big companies.