Cablevision won’t say YES to Hindery

Mar 25, 2002  •  Post A Comment

Leo Hindery, chairman of the just-launched YES Network, says the current standoff between the network and Cablevision Systems in New York is the result of consolidation.
“The consequence of consolidation is that larger players get treated best, and they should,” he said. “They bought the privilege. So by signing deals, as we have with Time Warner Cable, Comcast, DirecTV and RCN, “it narrows the opportunities for Cablevision.”
But by not signing on Cablevision’s nearly 3 million subscribers, YES is already racking up losses.
If it remains that way for long, YES forfeits any hope of first-year profitability and sustains a blow to its self-ascribed $900 million valuation, off of which it sold 40 percent equity investments to partners Goldman Sachs and Providence Equity, analysts said.
Despite the potential losses, Mr. Hindery won’t budge.
“I don’t believe that sports belongs on premium, and I simply won’t allow it in the case of YES,” he said. “I will not get in the debate of TV sports a la carte vs. big basic.”
Time Warner Cable, Comcast Corp., DirecTV and RCN agreed to pay a universal $2 per subscriber per month fee to carry YES on its basic tier. Cablevision-the lone -area holdout-doesn’t want to have to pass that cost on to all its subscribers and has offered to pay less than $1 per subscriber and share revenues it generates from offering YES as a premium service.
That would, however, violate YES’s carriage agreement with the other cable and satellite operators that says YES cannot give another provider a better deal. Any concession YES agrees to with Cablevision must be offered to the other carriers, sources said.
Last week, executives at YES and Cablevision were discussing several potential creative solutions to the standoff, though the companies have held no high-level executive talks since January, sources said.
The biggest loser in this fight is the viewer. Because of a corporate pissing match, 3 million viewers located mostly in Long Island and the Bronx won’t get to see Yankees baseball games on television.
Mr. Hindery, who has sunk nearly $25 million of his own money in the venture, has been funding an aggressive -area newspaper and broadcast ad campaign to curry public favor and pressure Cablevision to concede to YES’s terms.
YES is also encouraging Cablevision subscribers to switch to DirecTV satellite service if they want to have access to Yankees games. DirecTV is helping pay for the ad blitz and has personnel going door to door, signing up new subscribers in Cablevision’s ZIP code areas.
Without Cablevision, YES loses three-eighths of the subscriber fees it expected to generate and three-eighths of the costs per thousand it sold to advertisers, including blue chippers such as Anhauser-Busch Cos., Ford Motor Co., Hertz and Nissan Motors.
About 75 percent of YES’s $200 million annual revenue base is supported by subscriber fees, with the remainder coming from advertising.
An estimated $66 million in subscriber fees and $9 million in advertising is attributable to Cablevision. “You can’t offset that. You just simply wait it out,” Mr. Hindery said.
However, since the network’s March 19 launch, YES has been crediting its advertisers by reducing their payments accordingly. YES is committed to paying $54 million annually to the Yankee Nets, a holding company, for rights to air the Yankees games.
Cablevision doesn’t win from the standoff either. The multiple system operator could sustain considerable financial losses, including what could be 5 percent to 10 percent erosion of its subscriber base to direct broadcast satellite providers such as DirecTV, which could mean losing an estimated $6,000 per subscriber, or at least $140 million in annual revenues.
But Cablevision claims YES is the most expensive new cable service to be launched and doesn’t want to pay. YES insists its $2 per subscriber is in midpoint in the fees imposed by the nation’s 27 basic cable regional sports networks.
Cablevision officials, which have had little to say publicly in their defense, declined comment late last week. Cablevision and YES also declined to comment last week on the numbers of telephone calls and e-mails they received from Cablevision subscribers angry about not being able to see Yankees games.