SBJ/September 18 - 24, 2006/This Weeks News
No middle ground for tiers
Published September 18, 2006
Comcast’s threat to move the NFL Network to a digital sports tier has renewed the debate that’s been brewing in the cable industry for the past several years: one where cable operators love them, and programmers hate them.
Sports networks are scared off by sports tiers’ poor penetration levels, which translates into virtually no ad dollars and paltry license fee revenues. But operators contend that sports tiers are the most effective way to manage the costs of carrying sports networks, which consistently are the most expensive.
“Every time [programmers] tell me sports tiers don’t work, I always respond, ‘They’re not working for whom?’” said Fred Dressler, Time Warner Cable executive vice president for programming. “They’re working for me. They’re working very well for the customer. Two out of three ain’t bad.”
Similarly, Cox Communications defends its digital sports and information tier, which is subscribed to by about 30 percent of its customer base, among the highest in the cable industry.
“How do you define what does and doesn’t work,” said Bob Wilson, Cox’s senior vice president of programming. “We think they are very successful.”
The conundrum is that sports tiers would have better penetration rates if the more popular sports networks were part of them. But networks can’t bring in enough ad revenue if they are on the poorly penetrated tiers.
As a result, some networks, such as ESPNU, have only 7 million subscribers because they refuse to be put on tiers.
“I don’t believe we can be successful on sports tiers,” said Burke Magnus, ESPNU’s vice president and general manager. “The digital sports tier concept has been out there for a long time and there’s some interesting content on those, and it’s shown no traction in terms of customer appeal.”
Naturally, distributors disagree.
“Every network loves to be paid by all of the people who don’t watch their network,” Dressler said. “We don’t think that any of these networks in the long term can or are willing to control their costs. They all believe in their absolute heart of hearts that even if they offer a network at 20 cents today, within two years they want to get it to 75 cents and three years after that they’ll have it up to $1.50 and the next thing you know it will be $5.”
To boost penetration rates, Time Warner Cable is looking at packaging the tier with another service, Dressler said.