ESPN Sweetens Bitter Pill of Next Rate Hike
Byline: JON LAFAYETTE
Weeks before it sends out notices to cable operators letting them know how much its rights fees will increase, ESPN is launching new services and stressing value to affiliates.
In its contracts with MSOs, ESPN has the right to raise rates as much as 20% annually, and over the last couple of years it has done just that. And MSOs squeal every year.
Rate notices are scheduled to go out at the end of the month, said Sean Bratches, ESPN EVP-affiliate sales and marketing. ESPN’s main parent, Walt Disney Co., has been hurt as much as any company during the post-Sept. 11 entertainment industry recession and can use all the revenue it can squeeze out of the cable business. But Bratches declined to say whether ESPN would seek the full 20% rate hike. “We’ll talk with our affiliates first,” he said.
ESPN, with rights to all four major professional sports, already is the most expensive national basic service, with many MSOs paying more than $2 per month per subscriber. But ESPN president George Bodenheimer, speaking at a pre-National Cable & Telecommunications Association show briefing for reporters, said looking at the network’s cost was only part of the story.
“I defy anyone to name anyone that has done more to support our affiliates,” Bodenheimer said.
“No story is complete without some affirmation of the value that comes along with it…. We believe we’re worth every penny we seek, and operators agree to pay.”
With about 86 million subscribers, a 40 cent increase per subscriber would generate $412 million a year in added revenue.
ESPN properties and projects ranging from ESPN the Magazine to ESPN Clubhouses on the Internet are being used in promotions designed to help local operators add subscribers, sell cable modems and digital cable and generate additional ad sales.
Affiliates generate $670 million in local ad sales on ESPN, more than on any other cable network, Bodenheimer said.
ESPN last week announced it is launching EXPN, Action Sports on Demand. The service will offer extreme sports video and information over two platforms: subscription video-on-demand and broadband. “It’s the first convergent SVOD-broadband service in the marketplace,” said Bodenheimer.
The SVOD service will be heavy on video and music, while the broadband service will offer message boards and instant-messaging capabilities.
ESPN expects to charge $3.95 a month for each (less for each for subscribers taking them both), with the operator sharing in the subscription revenues.
“We’re going to listen to consumers and work collaboratively with affiliates,” Bodenheimer said.
The service will launch in February, during the Winter X Games.
The service will offer some of the content that doesn’t make it onto the cable network coverage of the X Games. Original content may appear as well.
Bodenheimer noted that extreme sports, and the X Games in particular, got a big boost during the recent Salt Lake City Winter Olympics, during which NBC announcers frequently referred to ESPN’s X Games.
ESPN is also close to its first deal with a cable operator for a virtual channel that will make sports scores and information available on an interactive basis. Bratches said he expects to announce the deal during the NCTA convention.
In the future, Bratches said ESPN is considering launching a 24-hour Spanish-language network.
ESPN has been offering operators ESPN Deportes, a Sunday night package of Major League Baseball and NFL football games broadcast in Spanish. The games are carried in about 13 million households. ESPN offers the service for free, and operators have used it to generate $2.7 million in local ad sales.
“It’s a sought-after audience,” Bratches said. “Affiliates have told us they want this.”
ESPN is considering buying another vehicle for its ESPN the Truck promotion. The truck is used to help local operators promote ESPN and their local digital cable, cable modem and other offerings. In ten stops in major markets between September 2000 and September 2001, the truck helped local operators generate $1 million in revenue. ESPN is also talking to some of the large MSOs about jointly buying a truck. If an operator like Cox helped buy a truck, it would appear only in Cox markets, promoting Cox services.
The new EXPN product is something of an offshoot of some of the broadband products ESPN has been testing and rolling out with operators.
During the last X Games in Philadelphia, ESPN and Comcast offered highlights of the extreme sports on a site available only to Comcast broadband subscribers.
Last month ESPN Broadband was launched in several markets by AT&T Broadband and Comcast and is available to 2 million subscribers.
In addition to helping to drive cable-modem penetration, ESPN Broadband offers operators local advertising and commerce opportunities, Bratches said.
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