BY STACI D. KRAMER It’s that moment when anything and everything is possible. Opening day 2003 is just around the corner. The Chicago Cubs haven’t lost yet, the star that signed the megabucks contract hasn’t fizzled and that new rookie pitcher still has promise. For cable, where most viewers watch regular-season games, this baseball season could be a home run or end up as a ground-rule double. Given the uptake in advertising, overall baseball should be in a good position — and indeed, Fox Sports Net says its regional sales are up low double-digits over last year — but prospects of war might paint a murkier picture on the national front. Combined regional sports network ratings were flat last year but could pop if teams in the right regions are hot. The potential viewing roster expanded last week with YES finally making it to Cablevision and Time Warner settling a dispute with Fox Sports Net that puts Fox Sports Net North and the Minnesota Twins back on 180,000 households. On the programming side, Comcast will be airing some games in HD on two regional sports networks while ESPN launches ESPN HD on March 30, the simulcast version of ESPN. HD is arguably the biggest change in baseball broadcasting since grass turned from gray to green. ESPN says it has multiple distribution deals but will not announce them until launch; DirecTV and Time Warner Cable are among those who told Cable World they have not yet struck a deal to carry the expensive new network. Meanwhile, MLB enters the fragmentation fray with MLB TV.com, a broadband out-of-market package aimed at computer users that could pose problems down the road for MSO out-of-market sales. And the Kansas City Royals jump the Fox reservation and join the ranks of do-it-yourselfers with a new network knowing it might take years to gain full distribution. Despite providing the bulk of the audience, nationally cable gets less than one dollar to every three dollars spent on the broadcast networks, according to Nielsen Media estimates published recently in Sports Business Daily. In 2002, the research company said advertisers spent an estimated $418 million on MLB with $317.7 million going to network and $96.9 million to cable. In part, that’s because cable doesn’t have rights to most of what MLB calls the “jewel events,” although Fox was able to use Fox Sports Net during the 2002 playoffs. The bulk of the network money is spent during the playoffs and World Series, which explains some of the difference. More importantly, that number excludes advertising expenditures on the regional sports nets or local cable channels. Add in the Fox RSNs alone — roughly $250 million, according to one estimate — and cable’s share of the baseball advertising apple pie is actually larger than the broadcast. Kyle Sherman, EVP of national spot sales for Fox Sports Net, won’t talk details but says every RSN gained ground this year. He attributes Fox’s relatively comfortable position despite the war talk to the programmer’s early upfront starting last October. “We know by the end of December where the baseball season is going to finish for the most part,” Sherman explains, adding that most of the incumbent advertisers returned, including one that held out a little longer than usual due to concerns about war. FSN’s position is bolstered by a number of major national advertisers like Quaker State and AFLAC that buy the home team network in every market. ESPN says it’s too soon to talk about advertising numbers although the network was buzzing about its NBA sales in the weeks before that season’s debut. For media buyer Larry Novenstern, EVP and director of national TV buying for Deutsch Inc., it’s “tough to say right now especially with the war potential hovering over everybody…. Certain categories you need to lock in — the beers, automotives. It might be tough this year with airlines. There are a lot of luxury-based advertisers who are hesitant to put their money down early this year because of the war.” That’s money that can’t be recaptured once the geopolitical situation settles down. According to Sherman, FSN isn’t as affected as other networks might be because they don’t usually get a lot of that business. “The main bulk of our advertising tied into tourism is going to be airline,” he says. Southwest Airlines is already committed for the season. “Traditionally, advertising revenues have been rising at 10% to 14% annually, and I think this year has got to be better than last year,” says Kagan analyst John Mansell. Beyond the war talk, says Novenstern, “It’s not America’s sport anymore. I hate to say it. I’m a kid of the ’60s. I’ve been a baseball fan my whole life. Look at Fox — it’s not the game of the week anymore; it’s the regional game.” But MLB executives argue that anyone who thinks the sport has moved down the ladder is reading the wrong numbers. Jacqueline Parks, MLB VP of advertising and marketing, points to the ESPN Sports Poll that shows baseball increasing its fan base by 9.5% since 1995 while other major league sports (also carried by ESPN) have lost ground. “I feel very positive about the reach, the breadth, the popularity of the brand,” she says, sounding like someone who could earn a good commission in sales. ESPN’s Home Run Derby is the only MLB “jewel” on cable. The 2002 event was one of the highest-rated sports events on cable at that point in the year, with a rating of 6.11 comparable to NFL games — up 18% in ratings over the previous year and nearly 1 million more viewers. Cable plays an important role in MLB’s strategy for brand and audience building. When the league unveils its 2003 campaign later this month it’s likely to repeat an effort that paid off last year — trading in-game inventory for out-of-game inventory to promote baseball. MLB’s Parks attributes the Home Run Derby increase, especially the 55% hike in the key 18-to-34 male demographic, to the targeted promotions that included SportsCenter. The league tried it again during the postseason on Fox and had its “best year ever since we’ve been on Fox. We’re using all of our marketing dollars to support that growth,” Parks adds. The most significant programming change is the introduction of HD as a baseball staple, not just a special event. ESPN’s simulcast HD version of the most popular sports network sounded like a potential grand slam when announced last fall, especially with MSOs rolling out HD as fast as they can. The programmer is looking for licensing fees of about 80 cents per sub and is pitching the network as part of an HD tier. The deals would run the length of the current contract with ESPN. At Time Warner Cable, Fred Dressler says he is opposed to paying for — and passing along the costs — of a network that is the simulcast version of one currently being delivered. ESPN gets about $2 per sub on expanded basic, which means that the cost of delivering both to an HD subscriber could be just under $3. “In my view there shouldn’t be an incremental charge to the consumer,” says Dressler, who describes current talks as a “philosophical discussion.” Michael Thornton, SVP of programming acquisitions for DirecTV, says discussions are underway while DirecTV decides how to form its HD tier. “We don’t have to make a rash decision or a hasty decision.” Says ESPN deal maker Sean Bratches, “We have a number of deals done, and we are actively negotiating others. We are pleasantly surprised by the interest in the activity.” Bratches won’t name names, hoping instead for a launch blitz. Playing it that close to the vest means some viewers who need to acquire equipment or sign up for service to see the new network — remember fan is short for fanatic — might miss the launch. What will subscribers with the right stuff see? “A wider, clearer, better picture,” promises Brian Burns, who says seasoned broadcast veterans gasped at the clarity during test runs with a new state-of-the-art truck earlier this month. “You could read Spalding on the basketball.” ESPN’s HD programming is being shot in native 720p and will be down-converted for its standard-definition broadcasts. Jed Drake, ESPN’s SVP of remote productions, says that should make for an improved viewing experience. Instead of producing a separate HD broadcast, ESPN opted for spending the money on replicating their current production. “We have things like the K Zone for baseball, the first-and-ten line, robotic imaging,” says Burns. “None of that was ever made for high definition. We have spent a ton of money to make them work in a hi-def environment. We think the viewer is going to be better served by getting a hi-test model.” Drake and Burns aren’t fretting over starting out with a small audience. “There’s a line from a baseball movie — ‘If you build it they will come,’” says Drake. MLB would like to see more networks follow the trend. Viewers in Japan already see Seattle Mariners home games in HD. Another significant change this year comes from within baseball as the league pushes an effort to speed up the game. “We’re sort of buoyed by the fact that as we speak there are a number of teams probably sitting down to watch the 20-minute video on how to make a baseball game faster,” says new Fox Sports Net president Bob Thompson. “I don’t like anything longer than three hours. My personal feeling is 2.5 hours first pitch to last out for a regular nine-inning game.” He’s intrigued by MLB’s efforts to deliver baseball outside the usual channels. “I’m comfortable with the concept of the games showing outside the team’s own territory. Condensed games airing on delayed basis, I’m comfortable with that, and we’re working with baseball to make sure it’s produced at a reasonable cost.” Fox gets a token fee for the use of its games in such situations with the bulk of the money going to the league and the distributor. “To date, our discussions with the rights holders have focused more on assuring them that our goal is to grow the pie,” says Chris Tully, SVP of broadcasting for MLB. “Certainly the potential exists for some conflicts in the future.” The league has made an effort to prohibit local access to the broadband out-of-market package, priced at $14.95 a month or $79.95 a season, so it should not compete directly with Fox or other local rights holders for viewers. Still, it competes with In Demand’s Extra Innings package. DirecTV’s Thornton says the DBS provider is exploring the possibility of a package that would allow access online and on satellite. In addition, says Tully, MLB continues to explore the possibility of its own cable network a la NBA TV and the NFL channel scheduled to launch later this year. “It’s something we’re looking at because even in a vacuum it’s something that makes sense for us,” says Tully. “In the theoretical, the notion of cannibalization is something not only are we concerned about but MLB Advanced Media would be concerned about. Right now the goal is to be incremental and grow the pie. If it becomes an issue at some point in the future it will be subject to discussion.” Thompson, a Fox veteran who moved up when Tracy Dolgin left earlier this year, has been involved in more than 100 rights deals and isn’t at all surprised by the plethora of owners exploring options for their own networks — especially since it comes at a time when Fox is trying to stem rights fee increases. Explains Thompson, “By and large our deals have back-end negotiating rights, matching rights. It’s going to be an interesting situation if MSO-owned networks or proposed RSNs run up the rights fees price only to have us match and see them turn around and cry foul over the price we charge for our networks. That’s the double-edged sword of them potentially entering this business.” He does see the potential for compromise. “We think there’s ways we can all work together on this thing and create a paradigm mutually beneficial for all — the teams, Fox, cable operators, advertisers and, ultimately, the viewers.” What the form of that compromise would be is another story. MSOs are intrigued by the possibility of local and regional exclusivity as they create or carry channels so small DirecTV or EchoStar are unlikely to make room for them. On the other hand, DirecTV benefits every time an MSO and a programmer can’t come to terms. Cablevision lost at least 30,000 customers to DirecTV during its standoff with YES; more recently, DirecTV and EchoStar likely picked up customers in Minneapolis and Orlando during the Time Warner-Fox dispute that was resolved last week. And regionals, ultimately, are where it’s at for baseball. Fox averaged an audience of 2.6 million households during the regular season last year on its weekly broadcasts, up 1% but down 4% in the ratings, to 2.5. The national cable networks averaged 933,000, up 13% in households and 7% in ratings, to 1.08. Regionally, though, baseball can own a market. In Seattle, the Mariners brought in a 13.2 for Fox Sports NW. The Arizona Diamondbacks delivered a 10.4. In St. Louis, a Cardinals game often tops the ratings. Even coming off a dismal season, the Cleveland Indians are selling well for Fox. As Sherman puts it, “We don’t have any teams where we’ve gone backward in sales.”

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