SBJ/August 28 - September 3, 2006/This Weeks News

Comcast to pay surcharge, carry NFL Net games

Comcast has quietly agreed to pay the NFL Network a surcharge that will allow it to carry the channel’s slate of eight Thursday and Saturday night NFL games that start in November. Both sides have stayed mum about the deal, however, as they negotiate how the network should be offered on Comcast’s cable systems — a decision that is critically important for both the cable industry and the network.

The NFL Network has already targeted Time Warner Cable with ads aimed at Dallas fans.
NFL Network wants to be on cable operators’ highly penetrated expanded basic tiers, which represents roughly 68 million U.S. subscribers. But the cable companies, frustrated over the high cost of cable sports networks, are trying to place NFL Network on their poorly penetrated digital sports tiers, where digital sports networks are grouped and offered for about $5 per month.

“No one does or will ever have the right to offer our channel on a sports tier,” said NFL Network spokesman Seth Palansky.

Under a deal signed two years ago, Comcast carries NFL Network on its second level of digital service, called Digital Plus, which has about 7 million subscribers. Comcast’s expanded basic service has more than 20 million subscribers.

At the rate NFL Network is seeking from the bigger operators (roughly $0.70 cents a subscription), that’s a difference of nearly $10 million a month from Comcast alone. If cable operators are successful in placing NFL Network on a sports tier, the channel’s license fee revenue will fall even farther.

That’s why Comcast’s decision about how to offer the NFL Network is so important. If cable’s largest multisystem operator moves the channel to expanded basic, other operators will be pressured to cut a similar deal. However, if Comcast decides to keep the NFL Network on Digital Plus or move it to a digital sports tier as a way to try to contain sports costs, NFL Network would be pressured to allow other cable companies to follow suit.

Even though Comcast is paying a surcharge for the games, its overall payout to the network would be lower if it’s placed on a sports tier. That’s because MSOs pay programmers a fee based on the number of subscribers that have access to their channel.

It’s not known how much Comcast’s surcharge is, but it’s less than the $2 per sub that NFL Network is seeking from smaller operators that carry the Network on a digital tier.“We have a pre-existing affiliation agreement with the NFL,” said David Cohen, executive vice president of Comcast. “We are talking with the NFL, but expect that we will make the games available on some level of service.”

As the NFL’s regular season nears, negotiations with most cable operators have reached a stalemate. The fourth largest MSO, Cox, already has a deal in place to carry NFL Network on a digital tier, but has not yet agreed to pay the surcharge to carry the games. Negotiations with other MSOs, such as Time Warner, Charter and Cablevision have been fruitless, so far, meaning that the NFL Network doesn’t have carriage in important NFL markets such as New York City.

NFL Network is not allowing cable operators that don’t already have a deal in place to carry it on a digital tier, a stance that cable operators are prepared to fight.

“In order for us to have a healthy business, I don’t know that we have to have every sports network in the world on,” said Fred Dressler, Time Warner Cable executive vice president of programming. “But we’re happy to have it on for those people who want it.”

Cable executives privately complain about the $0.70 price tag NFL Network is seeking, which would make it the third most expensive national ad-supported cable channel after ESPN (at about $3) and TNT (a little less than $1) if its demands are met, cable industry sources said. They also want a strong brand like NFL Network to help drive penetration on digital sports tiers, which were rolled out several years ago but have yet to catch on with customers.

Cable executives appear unconcerned that their competitors are carrying the network. Last week, EchoStar launched a national campaign based on the fact that most cable operators don’t have NFL Network and promoting its carriage on Dish Network. The campaign used NFL players such as Tiki Barber and Drew Bledsoe to tout the message “Football Playing 24/7 at Dish Network.” The campaign also included a sweepstakes and a Web site.

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