After 25 Years, Small Operators Still Beef About Its Fees, but ESPN Says It’s Now Serving Filet Mignon

By John P. Ourand As ESPN celebrates its 25th anniversary, smaller operators still complain about license fees, which have risen from 38 cents per subscriber in 1991 to $3.02 this year—a 700% increase over those 14 years. What a difference from 1981, when the network actually paid operators 10 cents per sub for carriage. Of course, the rate increases came as ESPN became the most recognizable brand in sports television. Today ESPN is no mere television network; it’s a global media company boasting pro baseball, football, basketball, hockey and tennis, extensive HD product, ESPN Radio, broadband offerings, video-on-demand and interactive applications, a magazine and sports-themed restaurants and clubs. CableWORLD editor John Ourand spoke with ESPN and ABC Cable Networks Group president Sean Bratches and ESPN VP, programming and production Mark Shapiro on the eve of the company’s anniversary. CW: What does ESPN do for smaller ops? Sean Bratches: We have local inventory that’s second to none in terms of revenue generation. We have promotions. We have new products and services that take advantage of the investment they’ve made in their physical plant, which generates new revenues through areas like high definition, broadband, VOD, ITV. It’s a misconception to suggest that the smaller operator is not participating in those revenue opportunities because they’re some of the ones that are leading. CW: Why do smaller operators still complain about ESPN’s rates? Bratches: We just did a very broad deal with the NCTC in which 98% of its membership elected to opt in. That shows the value of that deal. Any business you’re in, you’re going to have people wanting to pay less for anything, whether you’re a baker and you’re buying flour, or you make tires and you’re buying rubber. We take extraordinary steps in terms of leveraging our assets at ESPN across the board, from ESPN The Magazine to ESPN.com, to ensure that our price-value relationship with all our affiliates stays in line. Overall, we’ve done an adequate job addressing a perceived problem in the marketplace. CW: ESPN’s recent deals came off the 20% hikes. Can ESPN ever go back to 20% rate hikes? Bratches: These are arms-length negotiations, and our deals are a product of negotiations. The market will decide. CW: Do the new networks from the NFL, NBA and Baseball give you pause? Mark Shapiro: Everything we’ve been promised is that the leagues are launching networks to supplement our programming. The more people who are watching and talking about the NFL every day throughout the year helps us when the main event comes on in September—that is a good thing. The minute they start staying with those networks in lieu of us, it’s a bad thing. We’ll be keeping an eye on them. Bratches: If ESPN continues to do what it does best—focus on our brands, our content and our position in the market—we’re gonna be very well positioned for the next 25 years. CW: Do you need rights from those leagues to be successful? Bratches: It is a component of our success. In turn, a component of their success is their relationship with ESPN. Not only our ability to write them a check, per se, but also our ability to tell their story, day in, day out, 24 hours a day, seven days a week. Nobody else can do that. Shapiro: I don’t think there is any one sport that will halt our growth if we lost that league. We’re still going to grow and prosper without one respective property. CW: Are the costs of sports rights coming down? Bratches: You’re going to see rights fees for certain sports come down. And you’re going to see stronger sports and sports negotiating deals in better economic environments hold the line or increase. A lot of factors go into that, such as the number of participants vying for those rights. We feel very good about our ability to compete in that marketplace. Shapiro: Astronomical rights fee increases aren’t warranted, given the fragmented marketplace. CW: How do you balance competition for the league rights with audience fragmentation that’s leading to lower ratings? Bratches: Our ratings have gone up the last 10 quarters in a row, so you’re going to have to ask that question to somebody at a network where ratings are going down. CW: What’s a more important business for you right now, HD or VOD? Bratches: At this point, it’s unequivocally high-definition television. If you look at it from the eyes of a sports fan, the hi-def experience right now exceeds that of time-shifted sports. The essence of sports is generally in the now, not in the tomorrow. CW: What’s next? Shapiro: We’re not done launching networks. In the next 10 years, you’ll see the first ESPN-branded feature film in the movie theaters. We’ll be launching five to 10 more news bureaus. CW: What new networks are you considering? Shapiro: We’re always looking. We’ve looked at action sports, outdoors, college sports. Given the success of the X Games this past summer, there’s something there.