Cable's Pricey Ticket

Operators struggle against high-cost sports networks
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No battle in the TV business gets hotter than cable- and satellite-TV operators' struggle over the escalating cost of sports networks. Any operators resisting a network's carriage or license-fee demands can count on attacks through advertising, sports talk radio, and even local politicians and Congress.

Unfortunately for operators, pro and college sports teams aim to push costs even higher, hatching expensive plans to create networks and beef up existing channels. Ultimately, subscribers end up footing the bill.

Sports networks are the most expensive programming on basic cable. The license fees for all the networks on an 80-channel basic-cable package cost an operator around $12 per subscriber last year, Morgan Stanley estimates. Nearly half of that stems from just a handful of programming networks: ESPN (around $3 monthly), at least one regional sports networks (around $2), and smaller channels like ESPN2, ESPNews, ESPN Desportes (another 35¢ cents for the package).

By comparison, the license fee for other basic-cable networks can be just pennies per subscriber; some networks, such as MTV or TBS, commonly run 25¢-50¢. (Disney Channel, however, gets $1 per sub.)

The average basic-cable subscriber pays $41.40 a month.

For years, the problem was that sports networks habitually increased their license fees dramatically. In a study of rising cable rates, the Government Accountability Office found that they rose an average 19.6% per year, three times the pace of non-sports networks.

New networks will only add to that. The NFL Network wants 75¢ per subscriber. Two college athletic conferences—the Big 10 and Mountain West—have teamed with established programmers to launch their own networks. Mountain West TV wants 75¢ per sub. Big 10 TV (managed by Fox Sports) could cost up to $1 per subscriber.

Major League Baseball team owners have delayed plans for their own network, waiting for the outcome of the NFL Network's groundbreaking campaign to secure hundreds of millions of dollars a year in new license fees.

Teams and networks love the idea of the potential profits, as well as feeding their die-hard fans with far more content than the general sports networks could ever offer. But many cable and satellite executives get angry because they risk annoying subscribers by raising prices for all, not just for the fans, or angering investors with lower margins.

However, cable operators often play both sides. Comcast is a major owner of regional networks. Even harsh sports critics Cox and Time Warner own part of a channel or two.

Because fan is short for “fanatic,” teams and networks are expert at using them to secure carriage and good license fees.

“These networks put together a business plan and expect us to eat it,” says Time Warner Cable Executive VP of Programming Fred Dressler. “Then they put the onus on us. We didn't ask for this network. Do I need a tennis network? I don't need a tennis network.”

Sports networks see no need to apologize. “Historically, the two primary drivers of cable and satellite television were sports and movies,” says Brian Bedol, CEO of college sports channel CSTV, which is partnering with colleges that make up Mountain West TV.

While having games appear on ESPN gives teams a wider audience, Bedol says college teams love the idea of offering deeper programming to their biggest supporters both at home and nationally. Referring to Mountain States Conference member Brigham Young University, Bedol says that, to millions of Mormons around the country, “BYU is like Notre Dame.

“This really is a great partnership,” he adds. “I think it's a very fair deal that benefits the conference, benefits the fans, and benefits the operators.”

Who's to blame? George Steinbrenner. The New York Yankees boss built regional sports network YES into an operation worth $1.2 billion, primarily on the back of the baseball team's local-TV rights. A few years earlier, he had proposed selling the entire team—TV rights included—to Cablevision Systems, owner of MSG Network, which at the time licensed the Yankees' games.

Few networks will see that kind of payoff (the Yankees are the most successful team of any kind in history, plus they're based in the nation's largest city). Some ventures may fizzle the way a few pro-sports networks did. Still, many in the sports are willing to give it the old college try.

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