Slam Dunk Or Skunked?

Cable World, Oct 14, 2002

Byline: STACI D. KRAMER

As cable heads into what is arguably one of its most important winter sports seasons ever, programmers, operators and especially advertisers can take heart from an important indicator: Sports ratings are moving up. Even when the overall household ratings haven't budged, key demographics are getting a boost.

The NFL hit the field running this year, gaining 23% on ESPN in the first five games - including two of the biggest cable TV audiences on record - and 10% on the Fox broadcast net. Major League Baseball was up 9% this season to a 1.37 rating on ESPN, while the Fox Sports Nets averaged 3.54 for 23 teams in a 4% gain. Despite the scheduling chaos of the MLB division playoffs, ABC Family's preliminary numbers were up 5% in household rating (2.3 vs. 2.2), up 13% in total viewers (2,649 vs. 2,346), up 25% with adults 18 to 49 (1.0 vs. 0.8) and up 23% with men 18 to 49 (1.6 vs. 1.3) over Fox Family last year. And the Fox broadcast network had its best outing since 1999, when the Anaheim Angels and Minnesota Twins met in the first game. Nascar is up, not by the tremendous numbers of its first season in the new contract, but up.

As good as the ratings news is, a look at the overall sports TV marketplace is a lot like watching a three-ring circus in which the clowns successfully balance plates on their noses and the tigers jump through hoops while the trapeze artist misses a catch and falls to the net.

Despite the ratings improvements and the brand building opportunity they present, Fox is in the red zone with the NFL, as in red ink. Turner is bragging about ad sales while looking for more money from MSOs in the form of a surcharge to cover an NBA contract operators said they could live without. With the launch next year of ESPN Deportes and ESPN HD, the Walt Disney Co. continues its push to show operators the real value of ESPN or, in some cases, how they can make money by spending money. Meanwhile, a sport labeled "overexposed" last year plans to increase exposure as the NBA expands on cable with a new deal and its own channel, NBA TV.

Even a return to a normal ad sales environment - forget the boom times - wouldn't fix this mess. There is evidence of how impossible sports on TV have become in the dispute between Cablevision and the YES Network as well as in the NBA's concessions to Turner and ESPN/ABC in its most recent TV contract. Additionally, ESPN passed on Nascar and, most recently, it didn't outbid Turner for the British Open, which has been an ESPN staple. Where, you may ask, is this all headed? Care to take a guess?

As Fox Sports chairman David Hill says, "Anyone who can predict with confidence where sports rights are going to be in five or ten years is either a fool or a liar. There are all these conflicts now which have totally muddied the water in terms of the very simple economic equations that there have been for the last 20 years."

"Sports is still the greatest market driver in the history of television," Hill adds. "More people are watching sports now than they ever have done in the past. Our ratings are going up. In the start of this football season, ratings are climbing - and right across the board - but because we're a one-revenue-stream business, unless the advertising dollars are there to sustain the increases that you find, you're on the other side of a losing bet."

That's where cable is supposed to come in, with its dual-revenue-stream model and its ability to target regionally. This is why more sports are moving to cable, but even with the dual revenue stream, it's getting harder to make the numbers add up.

Criticized by operators for its annual increases in licensing fees (based on contracts they all signed), ESPN is constantly looking for ways to show that it's worth more than the nearly $2 a month per subscriber that it costs operators. The network turns away from deals that don't include video-on-demand, HD or other ancillary rights that represent potential revenue streams.

Meanwhile, ESPN president George Bodenheimer insists MSOs have room to grow at least one of their own revenue streams, that from advertising sales. "When are local ad sales going to stop being the stepchild of the industry?" he asks. "That's nearly 10% of the revenue that doesn't show up on anybody's bill. It's a great business, and to some extent, the industry has not fully taken advantage of it. Ask the broadcasters how seriously they take their ad sales."

That said, Bodenheimer has some potentially good news for operators looking for relief. In response to a question whether an uptick in advertising could cut back the rate of ESPN's increase, he replies, "It absolutely can. We make those decisions annually. We've all been in a slump here in the ad market. Everything's cyclical, and there seems to be some strength back in the market."

Some of that strength is showing up in sales for Turner's exclusive NBA Thursday night, according to Turner Sports president Mark Lazarus, who also heads Turner Sales. "We are right now on a pace that I am astounded by in terms of the reception and the response and the deals that we've got." By early October, Turner sold 70% of its inventory with some existing advertisers upping their buys by as much as 200%.