SBJ/January 24 - 30, 2005/This Weeks Issue

DirecTV, ESPN sign for 10 years

DirecTV has reached a new 10-year carriage agreement with ESPN, part of a much broader agreement encompassing all Walt Disney Co.-owned television networks.

The deal calls for DirecTV to pay the same annual rate increases for ESPN as does Cox Communications, which reached a precedent-setting accord with ESPN last year that cut annual increases from 20 percent down to 13 percent, and then to 9 percent in later years.

“I think the assumption that it’s similar to the ESPN deals that went before us is largely correct, although given the overall size of the deal there are differences here and there,” said Michael Thornton, DirecTV’s senior vice president of programming acquisition.

He would not comment on any details of the agreement, which was reached after a marathon final negotiating session that stretched past 9 p.m. ET on New Year’s Eve.

Thornton said DirecTV reached a similar agreement with Fox Entertainment, including the Fox Broadcast Network, Fox Sports Net and all Fox-owned cable channels.

Central to both agreements were broadcast “retransmission rights,” allowing DirecTV to continue retransmitting signals from local broadcast affiliates, and also start offering the ABC and Fox networks in high definition.

“The thing of most value is probably the retransmission consent,” Thornton said.

Licensing fees for cable networks like ESPN and Fox Sports Net generally followed industry precedent under the new agreements, and were a secondary concern in the negotiations.

DirecTV also agreed to carry the soon-to-launch ESPNU channel, which it will likely launch when ESPNU debuts on March 4, as well as ESPN2 HD.

Earlier in the negotiations, DirecTV had voiced an objection to the terms ESPN proposed for a “most-favored-nation” clause, which exempted Comcast Corp. The most-favored-nation clause says that if any other cable or satellite operator negotiates better terms for ESPN, then DirecTV would be entitled to those same terms. But by exempting Comcast, the nation’s largest cable operator, ESPN would be able to offer better terms to Comcast without doing the same for DirecTV.

“That was definitely an issue with us early on,” Thornton said. “Suffice it to say we got comfortable with it based on market forces and other things we were able to get, and the overall value of the deal.”

DirecTV’s agreements with Disney expired Sept. 30 and the new agreement is retroactive to that date.

There was never a deadline to negotiate a new agreement, as all the networks continued to provide their signals to DirecTV.

However, DirecTV had planned to announce at the giant Consumer Electronics Show that it would offer all four broadcast networks in high definition. The show was held Jan. 5-8 in Las Vegas, and the timing prompted DirecTV to hurry negotiations as the calendar year came to a close.

The last round was via conference call, with Disney executives working out of the company’s Times Square office as hundreds of thousands of New Year’s revelers were gathering outside.

Neither Disney, Fox nor DirecTV have made any official announcements regarding their new agreements, other than to say the broadcast networks would be available in high definition.

In the last year, ESPN has reached deals with several major cable operators that call for the lower annual rate increases. The old deals involved 20 percent annual increases.

Sean Bratches, president, affiliate sales and marketing at Disney and ESPN Networks, would not comment.

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