While most New Yorkers were watching the Yankees battle the Boston Red Sox last week for the American League Championship, three of the nation’s biggest cable operators were squaring off over the downtrodden New York Mets.
Setting up a nasty squabble likely to be filled with the business equivalent of bean balls and bench-clearing brawls, Time Warner Cable, Comcast Cable and the Mets last week agreed to form a new regional sports network that will carry Mets games starting in 2006. The move was a blow to Cablevision Systems, the operator of Madison Square Garden Network and Fox Sports Net, which currently carry Mets games.
That move raised three big questions.
“You can’t even get them into the same room,” said one executive familiar with the dispute. “They will use every asset available to them as leverage in this fight,” said another executive who does business with Cablevision.
Cablevision is already in a dispute with Time Warner Cable over the subscriber fee for Cablevision’s sports networks and is allowing Time Warner to carry it them under a temporary agreement after a brief blackout this summer. Cablevision and Time Warner are also involved in a lawsuit over carriage of American Movie Classics, owned by Cablevision’s Rainbow Media. Cablevision also believes it was undermined by Time Warner during the arbitration that led to Cablevision’s being forced to carry YES on expanded basic.
After all, Cablevision, having been similarly jilted by the Yankees in 2000, pitched a long-running effort to avoid carrying the Yankee’s new YES Network.
“I think there will be very long carriage negotiations with Cablevision based on how sports programming issues have played out in the New York marketplace,” said Tom Rogers, former president of NBC Cable, who was involved in the mediation efforts that eventually made YES available to Cablevision’s 3.1 million subscribers. Experts say a network cannot be financially viable without carriage on Cablevision.
“We probably have at least one too many regional sports networks in the metropolitan area at this point, and I think the marketplace may address that,” said sports consultant Neal Pilson of Pilson Communications.
Cablevision had no comment other than a statement that said: “MSG Network has had a long and successful relationship with the New York Mets that will continue through the 2005 baseball season. We will continue to carefully monitor the situation and will have no additional comment at this time.”
Somewhere down the road, Mr. Pilson expects Cablevision’s Knicks and Rangers and the Mets to be back on a single channel together, possibly by ending the feud by bringing Cablevision into the Mets network partnership.
“Maybe not today, or tomorrow, but possibly next year or two years from now,” Mr. Pilson said. “These are all business people here and if they felt they could make more money this way, they’ll do it.”
The teams may also be brought together should either Time Warner or Comcast acquire Cablevision, said John Mansell, senior analyst at Kagan Research. “Maybe they even get together on purchasing Cablevision at some point in the future,” he said.
The new, unnamed network will be owned by Time Warner, Comcast and Sterling Entertainment Enterprises, a company formed by the owners of the Mets. Terms were not disclosed, but sources said the Mets will have a majority or the equity, with Time Warner and Comcast splitting the rest based on the number of metropolitan-area subscribers they bring to the plate.
The new network will be available on the expanded basic tier and reach 2.3 million Time Warner subscribers and 790,000 Comcast subscribers. Comcast will oversee the day-to-day management of the network.
In June, the Mets paid $54 million to get out of a 10-year rights deal with Cablevision early. The Mets received $47 million this year from Cablevision. The team negotiated with YES, but opted for its own dedicated network. Oddly, Time Warner did not carry the Mets for 10 days during this past season because of a dispute over the carriage fee for Fox Sports New York and MSG Network. The networks are being carried under a temporary agreement. As a partner in the new Mets channel, it’s unlikely Time Warner will want to black out the Mets next season, thereby lowering their value.
However, it’s clear that the Mets, usually lovable losers, are less valuable that the storied Yankees. In addition to their success on the field, the Yankees draw significantly higher viewership than the team from Shea Stadium. The Mets carriage fee is likely to be less than the $2.08 per subscriber monthly fee charged by YES, which also carries the New Jersey Nets.
After the YES battle, in which New York State Attorney General Eliot Spitzer got involved, a precedent has been established for regional sports networks to be carried on expanded basic, rather than on a special tier. That means carriage negotiations will probably focus simply on how much Cablevision will pay.
“I’m hoping that everyone has learned something from the YES deadlock,” said Mr. Pilson. A blackout costs the network money and would lead to more satellite dishes springing up on Long Island, he added.
But carrying all these regional sports networks is “a real problem for cable operators, and also satellite companies, who want to keep their rates down and offer this programming to as wide a number of subscribers as possible,” Mr. Mansell said. “Right now in New York the money being spent for regional sports networks is somewhere in the neighborhood of $6 per subscriber per month. Unless there’s substantial rebates from MSG and Fox Sports Net, that number is going to go up.” MSG lowered its rate when it lost rights to the Yankees.
Mr. Mansell notes a trend in which teams have been starting their own networks. And Comcast has been active in partnering with teams in other markets.
Owning regional sports networks helps Comcast control costs by cutting out middlemen, Mr. Mansell said. It also gives it the ability to create programming for its video-on-demand platform.