Regional sports networks cheered last week after an arbitration panel ruled Cablevision Systems Corp. must position Yankees Entertainment & Sports Network on expanded basic, not a la carte.
The ruling — a culmination of nearly two years of publicly bitter bickering between the parties — sets a precedent for basic carriage of future team-owned regional sports networks, network executives said.
Distributors weren't conceding anything. They said the ruling does not give startup RSNs a free pass to a majority of their subscriber bases.
The long-awaited arbitration decision puts YES onto Cablevision's expanded-basic tier for the next six years, and forces Cablevision to guarantee payments on 90% of its customer footprint, sources said of the confidential terms.
Cablevision has been offering YES as an a la carte service to non-digital subscribers for $1.95, or $4.95 if packaged with Cablevision-owned Madison Square Garden Network and Fox Sports New York.
Now Cablevision will charge subscribers an extra 95 cents per month as part of rolling it back into basic.
The decision could put YES before some 2.5 million Cablevision customers, up from an estimated 1.5 million.
YES televises New York Yankees baseball games, which formerly aired on MSGN, and New Jersey Nets pro basketball contests, which had aired on FSNY.
The decision wasn't a total home run for YES, as arbitrators retroactively slashed the channel's license fee to $1.85 per subscriber per month, from the network's $2.12 per-subscriber price tag in 2003.
Still, YES — which could not disclose terms of the arbitration deal — said in a statement it's "very grateful to the arbitration tribunal for its careful and timely award, which will greatly benefit the public and sports fans throughout our region."
Cablevision CEO James Dolan responded the ruling was "disappointing" for customers "who wanted to choose whether or not to pay for the Yankees on cable.
"This ruling is a significant step backward that ignores the consumer's desire for fairness and choice — core principles that were the basis of Cablevision's dispute with YES," Dolan's statement said.
Startup regional-sports networks hailed the ruling as an affirmation that their services' ad sales and ratings value demand broad carriage.
Many operators, concerned about the high price of programming, have targeted both regional and national sports networks such as ESPN for sports tiers or a la carte distribution.
"It reaffirms that local sports is the most powerful programming that television can offer," said LHB Inc. president Lee Berke, who's consulting with several pro sports clubs seeking to start standalone networks. "It's positive for the teams, because it establishes throughout the country that the distribution of these networks should be expanded basic."
While the decision doesn't preclude operators from seeking tier distribution, Burke said that if a disagreement should go to a binding arbitration situation, "the precedent is now all over the country that says that RSNs are not offered on a pay tier."
Network executives say with placement no longer an issue, they can now concentrate on negotiating an equitable carriage fee.
"[The ruling] puts the emphasis back on pricing rather than tiering, which is where we think it needs to be," said Matt Hutchings, COO of Denver-based Altitude Sports Network, scheduled to launch in October. "It goes to what is best for the business and consumers."
Victory Sports president Kevin Cattoor said the decision could expedite distribution deals with Minnesota-area operators, which he believes were hesitant to reach carriage agreements until the final arbitration ruling.
Victory will offer Minnesota Twins baseball games beginning next week, but has yet to reach carriage deals with any of the major MSOs.
Distributors say the deal does not automatically give regionals a seat on expanded basic tiers.
"I think teams looking to launch their own regional sports networks will look at this as a positive development," said one MSO executive. "But I don't think you can say that expanded-basic carriage for a new sports network is a foregone conclusion."
DirecTV Inc. senior vice president of programming acquisitions Michael Thornton called the YES situation unique.
"I think the big difference is it's the Yankees and its New York City," he said. "It's the No. 1 media market in the world and arguably the No. 1 sports brand in the world. That situation doesn't exist in every other city in the country."
Berke said the deal includes a silver lining for operators as well. With arbitrators rolling back YES's affiliate fee to $1.85, it more or less sets bar on how much new regionals can expect to charge.
In the short term, the license-fee rollback could cost YES if affiliates such as Time Warner Cable, Comcast Corp. and DirecTV Inc. opt to exercise most-favored nation clauses.
"We will go back and discuss with YES our MFN and what effect [the decision] will have on that," Thornton said. DirecTV offers YES on an expanded-basic tier.
A Time Warner executive would not speculate on how the ruling would affect YES carriage. A spokesman said the MSO is awaiting a letter from the network explaining the arbitrators ruling and "how [YES executives] believe it will affect our current carriage agreement."
Comcast would not comment on the matter.
Both Comcast and Time Warner offer YES on basic, although Time Warner has provided consumers the option of dropping YES and taking $1 off their bill.
Sources indicated YES initially asked for an 8% bump from a $2.18 base this year that would have taken the monthly fee to $2.35 per subscriber.
Ultimately, over the course of the deal, the arbitrators decided that YES will receive 4% annual incremental increases, sources said, rather than the 8% it had sought.
A report on the arbitration ruling from Sanford C. Bernstein & Co. estimated the decision would cost Cablevision an extra $28 million per year in programming fees.
As a setback to a la carte progress, the YES ruling prompted Senate Commerce Committee chairman John McCain (R-Ariz.) to say in a statement: "It appears the decision strikes another blow to consumer choice."
After not carrying YES in 2002, Cablevision and the network agreed to binding arbitration last April, after an 11th-hour interim accord was brokered by New York Mayor Michael Bloomberg and New York State Attorney General Eliot Spitzer hours before the Yankees' 2003 season opener.
The arbitrators were former federal judge Stanley Sporkin and former Time Warner Cable executive Richard Aurelio, under the chairmanship of another former federal judge, Louis Bechtle.
Mike Reynolds contributed to this story.
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