SBJ/20090330/This Week's News

ESPN to offer Classic-for-ESPNU swap

ESPN Classic’s days as one of the country’s biggest sports channels may be over.

Executives in Bristol are set to allow cable and satellite distributors to swap ESPN’s classic sports channel for its college network, ESPNU, which they hope presents a newer, hipper alternative to Classic’s staid, dated programming.

As part of the offer, ESPN also is looking for added distribution for its Spanish-language channel, ESPN Deportes, and its broadband network, ESPN360.

An interesting wrinkle to ESPN’s proposal would allow operators to move ESPN Classic to a sports tier, where it would be ESPN’s first channel to reside on the traditionally low-penetrated mantle.

Right now, ESPN Classic is in more than 63 million homes, typically on analog and digital basic tiers.

By contrast, ESPNU is in about 25 million homes, mainly on digital basic tiers, and ESPN Deportes is in fewer than 5 million homes. ESPN360 has not yet been able to reach carriage deals with the top cable operators, though it has reached broadband agreements with Verizon and AT&T.

Though ESPN executives have spent the last several weeks pitching this plan to cable operators, talks are expected to heat up this week as the cable industry gathers for its annual trade show in Washington, D.C.

“The conversations we are having explore ways to provide operators greater distribution flexibility, especially with respect to ESPN Classic,” said an ESPN spokesman, in a prepared statement. “We are interested in increased distribution of other services, primarily ESPNU, ESPN360.com and ESPN Deportes.”

If cable agrees to this proposal, speculation about the future of the Classic brand should end. Once a viewer favorite for its extensive library and Emmy-winning documentaries, it has seen its viewer numbers drop sharply in the last three years. Last year, it averaged only 74,000 viewers in prime time, which was down 31 percent from 107,000 viewers in 2007. In 2006, it averaged 118,000 viewers in prime time.

For years there has been speculation that ESPN was looking to rebrand the channel, which it purchased from a group including Brian Bedol for $175 million in 1997.

 One widely circulated rumor had ESPN turning Classic into an ESPN3-style channel, with original programming and live games. Another had it merging with a league on a single sport channel, like NFL Network or the planned U.S. Olympic Committee channel. Still another rumor had Classic folding as a stand-alone channel in favor of video-on-demand, where it would offer specific games from its library under the ESPN Classic brand.

Under ESPN’s current proposal, ESPN Classic would remain a stand-alone channel, albeit in far fewer homes.

So far, distributors contacted by SportsBusiness Journal are withholding judgment. One distribution executive expressed interest in the proposal, but said a decision would come down to pricing. The executive said ESPN was at the beginning stages of what was expected to be a long negotiation.

Typically, negotiations like this heat up in the months before networks’ carriage agreements with operators run out. One unique aspect to this negotiation is that ESPN Classic still has several years left on many of its deals. ESPN has staggered ESPN Classic’s cable contracts so that they don’t expire all at once. Rather, the majority of them expire over the next three years.

It’s difficult to break out the license fees that operators pay for a specific channel like Classic, since it typically is bundled into larger deals. Figures from SNL Kagan have cable operators paying between 15 cents and 17 cents per subscriber per month for ESPN Classic, ESPNU and ESPN Deportes.

A deal clearly would mostly help ESPNU, which is battling another collegiate sports channel, CBS College Sports Network, for carriage deals on the nation’s cable and satellite systems. The channel, which launched in the spring of 2005, has been at the center of ESPN’s most recent media deals. ESPNU will pick up a significant part of ESPN’s SEC schedule and is expected to run shoulder programming that supports ESPN’s BCS package.

ESPN Deportes also should benefit if deals are completed. ESPN is continuing to push the channel in markets with significant Hispanic populations.

A wild card is ESPN360. So far, ESPN has had little success convincing the biggest cable operators to pay a TV-style affiliate fee for the broadband network. But the service has signed deals with 45 Internet service providers, including some cable operators, like the eighth-largest, Mediacom, that are typically hostile to the cost of sports programming.

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