July 28, 2003

BY MAVIS SCANLON

Against a backdrop of simmering tensions between Cablevision Systems and the YES Network, former Primedia CEO Tom Rogers and former Madison Square Garden president Bob Gutkowski will serve as mediators at the behest of New York Mayor Michael Bloomberg in an effort to shepherd negotiations for a long-term carriage deal. At press time, no negotiations had been scheduled.

In mid-March, following a bitter feud that kept New York Yankees games from millions of fans last season, Cablevision and YES signed a one-year deal that gave both sides part of what they sought: YES got its $2.12 per-subscriber license fee — the highest per-subscriber fee in sports — and Cablevision got to carry the network on a separate tier. The deal was almost scrapped but then saved just hours before opening day. Unless the parties can cut a long-term deal by Feb. 1, they will be forced into binding arbitration, a prospect neither side relishes.

“There is a sword hanging over everybody's head if they can't negotiate,” says Lee Berke, president of LBH Sports Entertainment & Marketing, and one of the architects, along with Gutkowski, of the YES Network's business plan. “If they take it to binding arbitration probably everyone will be unhappy.” Both Cablevision and YES Network declined to comment.

To be sure, the Cablevision-YES situation is singular in that it is one of very few efforts on the part of teams to get involved in distribution. The New York market is also rare in that the YES Network is the third regional sports entrant, and Cablevision controls the other two. While the outcome may not rewrite sports programming and distribution rules immediately, cable operators, sports teams and programming networks are all watching the situation closely. It does have the potential to affect the economics of the sports programming business, not to mention the way cable and satellite operators approach high-cost programming.

“The most direct effect has already taken place,” notes Berke. “Since YES essentially agreed to be placed on some form of tier, other operators have started to explore or are already doing the same thing.”

In June, Time Warner Cable said it would give its New York and New Jersey subscribers the option to drop YES from basic, a move YES claimed was a breach of its contract, yet it has not to date filed a legal challenge.

Says Dean Bonham, CEO of sports consulting firm The Bonham Group, “This could have an impact on how regional sports networks approach cable systems to carry their programs — it could affect the entire broadcast industry.”

Cable operators are complaining about the expense of ESPN, with many calling for the largest sports programmer to be distributed on a tier. Ed Durso, VP of administration for ESPN, says he doesn't think Cablevision-YES will affect ESPN. “We look at it obviously as an issue to be followed,” he says. “Ultimately it is always a product of negotiation between distributor and rights holder.”

Rogers and Gutkowski each has a long history with the Dolans. Rogers, as head of NBC Cable in 1989, paid $137 million for a 50% stake in Cablevision's sports and entertainment networks, which included SportsChannel America and five regional sports services, Bravo and News 12 Long Island. Gutkowski, as head of MSG, famously butted heads with Chuck Dolan in 1988, ironically over carriage of MSG Network, which had just signed a rights deal to run the Yankees. Gutkowski, who left MSG in the mid-90s after Cablevision assumed control of the Garden, has a reputation as a consensus builder and knows sports TV cold. That will surely come in handy in this last-ditch effort to forge a pact beneficial to both sides — and, oh yes, to Yankees fans.