MJZiggy
08-21-2007, 11:33 AM
From the Wall Street Journal:
GRIDIRON CLASH
NFL Network Gets Blocked
As Cable Takes Tough Stance
League's Bornstein
Feuds With Comcast;
Too Much Football?
By PETER GRANT and ADAM THOMPSON
August 20, 2007; Page A1
As football season approaches, the cable industry is gang-tackling a fledgling network created by the powerful National Football League.
Time Warner Cable Inc. and Cablevision Systems Corp. are refusing to carry the NFL Network, launched in 2003, on the league's terms. Charter Communications Inc., whose controlling shareholder owns the Seattle Seahawks, stopped carrying the network in late 2005 because of a contract dispute. Comcast Corp., the country's largest cable operator, yanked the NFL Network out of millions of homes after a bitter battle. The NFL tried to stop Comcast by suing, but lost. The case is now on appeal.
At the heart of the debate: how much pro football is enough for America's already robustly served TV fans. The NFL, which has long been able to command top dollar by packaging its games myriad ways, says viewers are still insatiable. But after years of budgetary woes caused by the skyrocketing cost of football, cable executives say they -- and viewers -- have had enough. Die-hard football fans can now watch as many as 16 regular-season games a week via broadcast, cable and satellite operators.
Complaints about the cost of cable, driven in large part by the cost of sports, have been escalating. "Not all our customers are passionate sports fans," says Steve Burke, Comcast's chief operating officer. "And many of them are not interested in paying more" for football programming. In New York City, roughly 20% of an average customer's standard cable bill goes to sports channels, regardless of whether the customer watches them.
Cable executives say the NFL finally got tripped up by its arrogance. "They believe no matter what they do, you have to have it," says Fred Dressler, who was Time Warner Cable's lead negotiator on programming before he retired late last year. The network says it is currently available to 44 million homes, although Comcast says the figure is millions less than that; at least one team owner expected the number to be closer to 70 million.
[Steve Bornstein]
It doesn't break the hearts of cable executives that the man quarterbacking the struggling NFL effort is Steve Bornstein, whom they largely hold responsible for the high cost of football. Prior to the NFL, Mr. Bornstein headed Walt Disney Co.'s ESPN unit and honed its strategy of paying the league large sums to broadcast football games -- and then charging cable companies massive fees to carry ESPN.
Mr. Bornstein insists demand for additional football programming is strong and the NFL Network is performing as expected. "To me the glass is half full," he says. Indeed, viewership of over-the-air television broadcasts of NFL games climbed every year between 2003 and 2006 and this year's Super Bowl, which aired on CBS, ranked as the third-most-watched program in U.S. TV history.
Feeling it has fans on its side, the NFL retaliated with "an email blast" and a Web site (www.iwantnflnetwork.com) accusing the cable companies of "unsportsmanlike conduct." "Some cable companies are penalizing you -- forcing you to pay more to watch football or blocking the games completely," it continues, asking visitors to switch to satellite, complain to their cable operator or contact government officials.
Cable's rebellion represents a rare setback for the NFL. Considered the gold standard of sports programming, the league now earns $3.7 billion in fees annually by selling games to the likes of ESPN, NBC and CBS. That's more than the National Basketball Association, the National Hockey League, Major League Baseball and Nascar combined. Skyrocketing fees have allowed team owners to pay football stars enormous salaries, like the $98 million the Indianapolis Colts are reportedly paying quarterback Peyton Manning over seven years.
The NFL's recent problems are emboldening cable operators in their dealings with the proliferation of other sports networks. For example, most large operators are arguing against including the Big Ten Network in their most popular digital packages. A new channel being launched this month, the Big Ten Network is a venture of Fox Cable Networks and the Big Ten Conference, a collegiate-sports association.
In the middle of this maelstrom is 55-year-old Mr. Bornstein, a tall, swaggering executive with a reputation for hardnosed tactics at the bargaining table. In a New York Post interview, Mr. Bornstein once described operators who don't offer the NFL network as "brain dead." Now he jokes about how that quote got him in trouble.
While he can be charming, Mr. Bornstein does little to discourage his tough-guy image, former employees and business executives say. Hanging in his office is a quote from a conversation he once had with heavyweight fighter Mike Tyson. "Steve," the quote reads, "everyone has a plan until they get hit."
A former sports cameraman for a Milwaukee TV station, Mr. Bornstein joined ESPN in 1980. Back then, all major live sporting events in the U.S. were on broadcast networks ABC, CBS and NBC and supported solely by advertising. ESPN was relegated to obscure sports like table tennis and Australian-rules football.
But over the next two decades, Mr. Bornstein honed his pay-more, charge-more strategy. Former colleagues say Mr. Bornstein, who can become religious about an idea when he's convinced of its merit, constantly reminded his underlings never to underestimate viewers' desire for sports programming. There's almost no such thing as market saturation when companies have great products, he would argue. "Has that stopped Starbucks from being on every corner of America?" he would ask.
In 1987, ESPN stunned the sports world by buying the rights to eight NFL games per season in a three-year, $153 million deal that helped forge "Sunday Night Football," a regularly scheduled game televised nationwide. The cost of the deal, plus a healthy margin, was passed on to the cable companies. Eleven years later, Mr. Bornstein outdid himself by agreeing to pay the NFL $4.8 billion in an eight-year deal. That one deal eventually helped ESPN jack up its rates to cable companies 20% annually for several years.
The strategy was hugely profitable for ESPN -- and a major headache for cable and satellite operators. Today, cable companies pay ESPN more than $3 a month for every household that gets the signal, compared to 30 to 50 cents for popular cable networks like CNN and MTV.
The NFL, meanwhile, struck oil with its programming packages. First there was Monday Night Football and Sunday Night Football, which expanded the offerings beyond the typical two Sunday daytime games already available. In the 1990s the NFL hit pay dirt again by selling "Sunday Ticket," a package that allows viewers who pay a fee to watch up to 14 games every Sunday, to satellite TV operator DirecTV Group Inc.
Mr. Bornstein's success at ESPN propelled him higher at Disney. He became president of the company's ABC unit in 1999. His Southern California home, once owned by Fred Astaire, boasts a wine cellar and a pool house with a cigar bar and mini-theater, where he entertains friends. Among other things, he participates in a charity wine event that has included sports figures like former Olympic figure skater Peggy Fleming and Duke University basketball coach Mike Krzyzewski.
Mr. Bornstein doesn't seek the spotlight, although one former associate says that he was keenly aware of where his name fell when trade publications ranked the most powerful people in entertainment.
Mr. Bornstein left Disney in 2002 for undisclosed reasons. At the time ABC was slumping, but most of the problems were not of his making. Shortly afterward, he was drafted by the NFL, which had been mulling the idea of creating its own network. After watching ESPN ride the popularity of their games to huge profits, NFL owners thought they could sell programming to cable and satellite operators directly.
Although the network initially didn't have any regular-season games, it still got off to a good start. With Mr. Bornstein acting as a consultant, the NFL convinced DirecTV to broadcast the NFL Network to all 11 million of its subscribers in exchange for continued exclusive rights to Sunday Ticket.
Cable operators have long coveted Sunday Ticket as well, but the NFL has preferred to limit it to DirecTV, fearing wider distribution would upset broadcast-television customers who pay so much to air their Sunday games.
Mr. Bornstein was named president and CEO of the NFL Network in early 2003. But he ran into problems with cable companies, which have long been annoyed with the NFL over Sunday Ticket and for driving up the cost of ESPN. Executives at some cable companies griped that the NFL Network's price of 15 to 20 cents a subscriber was too much for a network then focused on second-tier programming like preseason games, highlights and historic footage.
From day one, Time Warner and Cablevision played it tough, scoffing at Mr. Bornstein's warnings that they would lose subscribers to satellite TV if they didn't carry the NFL Network.
Then there was Comcast, the country's largest cable operator with more than 24 million subscribers. In 2004, Mr. Bornstein let Mr. Burke know that the NFL was considering creating a new package of nationally televised games. If Comcast carried the network, it might be able to purchase the games for its struggling Outdoor Life Network. As Mr. Bornstein explained it, Comcast first needed to be a member of the "NFL club," according to people familiar with the talks.
Comcast executives were intrigued -- getting the games would be a huge coup. But they were wary. What if Comcast agreed to run the NFL Network, building viewer interest, but didn't get the additional new games for its own use? "You're asking us to build the runways for you to land the planes to invade us," Mr. Burke told Mr. Bornstein, people familiar with the talks said.
The two sides came up with a solution. In September 2004, Comcast announced it would carry NFL Network on one of its most-popular digital packages that had close to eight million subscribers. But there was also a secret agreement. Comcast had the right to greatly reduce the number of households the NFL Network would reach if it didn't get the new package of football games.
Comcast offered the NFL $415 million a year for the right to carry eight Thursday and Saturday night games a season on Outdoor Life, later renamed Versus. Comcast also offered the NFL an equity stake in the channel, which already reached 55 million households.
But a rival bidder emerged: the NFL Network itself. In early 2006, the then-NFL commissioner, Paul Tagliabue, called Comcast Chief Executive Brian Roberts and told him the NFL Network had won the games. The NFL declines to say how much its in-house network paid. A few months later, the NFL Network informed Comcast that because it is airing regular games it planned to increase the cost of carrying the network to about 70 cents per subscriber -- far more than CNN or MTV -- from about 15 cents. That would have increased the cost of carrying the network to Comcast by over $50 million a year.
Comcast had already been steaming over the dual role Mr. Bornstein played both as a rival bidder and an adviser to the NFL. Mr. Bornstein denies any conflict because he wasn't involved in the actual decision making.
[chart]
In any case, Comcast agreed to pay more for the NFL Network, but began taking steps to kick the network off of its popular package. Instead it planned to stick the NFL Network on a "sports tier," a separate programming package only available to those who pay an additional fee of about $5 a month. That would ultimately reduce the NFL Network's subscribers to 750,000 from eight million -- and vastly lower Comcast's expense. Comcast felt the secret deal gave it the right to do this, but the NFL Network filed suit in New York state court.
Comcast executives felt betrayed by the lawsuit, which was filed under seal. Mr. Roberts phoned Roger Goodell, the new NFL commissioner, to complain, according to people who were briefed on the call. "What are you doing? You know we have a right to do this," Mr. Roberts said. "Is this any way to treat a partner?" Mr. Goodell replied that he felt the NFL was exercising its rights, people said.
The NFL argued in court that Comcast gave up its right to move the network to a sports tier when it agreed to pay more for the NFL Network with the eight-game package. But in May, New York State Supreme Court Justice Bernard Fried sided with Comcast. "I do not find any ambiguity in the various agreements," he stated in his ruling. The NFL is appealing.
Since the ruling, Comcast says it has moved the NFL Network to a sports tier in all of its systems. "While there's a tremendous passion for NFL programming, most of that's being satisfied," says Marc Ganis, a sports consultant. "The cable companies have found this weakness and are using it to push back against the NFL."
That said, some cable companies are playing both sides of the issue. Many of the operators, Comcast included, have invested in their own sports networks that apply the same strategy used by ESPN and the NFL.
The NFL Network regularly got top Nielsen ratings in its time slot among cable networks when it aired regular-season games last year. But viewership of those games still falls far short of Monday Night Football, the other nationally televised game on a cable network. Also, the NFL Network usually doesn't crack the top-40 cable-network shows of the week during the offseason.
NFL Network officials continue to insist that a sports tier is out of the question. Mr. Bornstein says the NFL Network has helped cable, satellite and telephone companies gain customers while some "holdout" cable companies have lost them. This shows, he says, that Time Warner and Comcast's rivals "made the right choice by partnering with us -- America's most popular sport."
GRIDIRON CLASH
NFL Network Gets Blocked
As Cable Takes Tough Stance
League's Bornstein
Feuds With Comcast;
Too Much Football?
By PETER GRANT and ADAM THOMPSON
August 20, 2007; Page A1
As football season approaches, the cable industry is gang-tackling a fledgling network created by the powerful National Football League.
Time Warner Cable Inc. and Cablevision Systems Corp. are refusing to carry the NFL Network, launched in 2003, on the league's terms. Charter Communications Inc., whose controlling shareholder owns the Seattle Seahawks, stopped carrying the network in late 2005 because of a contract dispute. Comcast Corp., the country's largest cable operator, yanked the NFL Network out of millions of homes after a bitter battle. The NFL tried to stop Comcast by suing, but lost. The case is now on appeal.
At the heart of the debate: how much pro football is enough for America's already robustly served TV fans. The NFL, which has long been able to command top dollar by packaging its games myriad ways, says viewers are still insatiable. But after years of budgetary woes caused by the skyrocketing cost of football, cable executives say they -- and viewers -- have had enough. Die-hard football fans can now watch as many as 16 regular-season games a week via broadcast, cable and satellite operators.
Complaints about the cost of cable, driven in large part by the cost of sports, have been escalating. "Not all our customers are passionate sports fans," says Steve Burke, Comcast's chief operating officer. "And many of them are not interested in paying more" for football programming. In New York City, roughly 20% of an average customer's standard cable bill goes to sports channels, regardless of whether the customer watches them.
Cable executives say the NFL finally got tripped up by its arrogance. "They believe no matter what they do, you have to have it," says Fred Dressler, who was Time Warner Cable's lead negotiator on programming before he retired late last year. The network says it is currently available to 44 million homes, although Comcast says the figure is millions less than that; at least one team owner expected the number to be closer to 70 million.
[Steve Bornstein]
It doesn't break the hearts of cable executives that the man quarterbacking the struggling NFL effort is Steve Bornstein, whom they largely hold responsible for the high cost of football. Prior to the NFL, Mr. Bornstein headed Walt Disney Co.'s ESPN unit and honed its strategy of paying the league large sums to broadcast football games -- and then charging cable companies massive fees to carry ESPN.
Mr. Bornstein insists demand for additional football programming is strong and the NFL Network is performing as expected. "To me the glass is half full," he says. Indeed, viewership of over-the-air television broadcasts of NFL games climbed every year between 2003 and 2006 and this year's Super Bowl, which aired on CBS, ranked as the third-most-watched program in U.S. TV history.
Feeling it has fans on its side, the NFL retaliated with "an email blast" and a Web site (www.iwantnflnetwork.com) accusing the cable companies of "unsportsmanlike conduct." "Some cable companies are penalizing you -- forcing you to pay more to watch football or blocking the games completely," it continues, asking visitors to switch to satellite, complain to their cable operator or contact government officials.
Cable's rebellion represents a rare setback for the NFL. Considered the gold standard of sports programming, the league now earns $3.7 billion in fees annually by selling games to the likes of ESPN, NBC and CBS. That's more than the National Basketball Association, the National Hockey League, Major League Baseball and Nascar combined. Skyrocketing fees have allowed team owners to pay football stars enormous salaries, like the $98 million the Indianapolis Colts are reportedly paying quarterback Peyton Manning over seven years.
The NFL's recent problems are emboldening cable operators in their dealings with the proliferation of other sports networks. For example, most large operators are arguing against including the Big Ten Network in their most popular digital packages. A new channel being launched this month, the Big Ten Network is a venture of Fox Cable Networks and the Big Ten Conference, a collegiate-sports association.
In the middle of this maelstrom is 55-year-old Mr. Bornstein, a tall, swaggering executive with a reputation for hardnosed tactics at the bargaining table. In a New York Post interview, Mr. Bornstein once described operators who don't offer the NFL network as "brain dead." Now he jokes about how that quote got him in trouble.
While he can be charming, Mr. Bornstein does little to discourage his tough-guy image, former employees and business executives say. Hanging in his office is a quote from a conversation he once had with heavyweight fighter Mike Tyson. "Steve," the quote reads, "everyone has a plan until they get hit."
A former sports cameraman for a Milwaukee TV station, Mr. Bornstein joined ESPN in 1980. Back then, all major live sporting events in the U.S. were on broadcast networks ABC, CBS and NBC and supported solely by advertising. ESPN was relegated to obscure sports like table tennis and Australian-rules football.
But over the next two decades, Mr. Bornstein honed his pay-more, charge-more strategy. Former colleagues say Mr. Bornstein, who can become religious about an idea when he's convinced of its merit, constantly reminded his underlings never to underestimate viewers' desire for sports programming. There's almost no such thing as market saturation when companies have great products, he would argue. "Has that stopped Starbucks from being on every corner of America?" he would ask.
In 1987, ESPN stunned the sports world by buying the rights to eight NFL games per season in a three-year, $153 million deal that helped forge "Sunday Night Football," a regularly scheduled game televised nationwide. The cost of the deal, plus a healthy margin, was passed on to the cable companies. Eleven years later, Mr. Bornstein outdid himself by agreeing to pay the NFL $4.8 billion in an eight-year deal. That one deal eventually helped ESPN jack up its rates to cable companies 20% annually for several years.
The strategy was hugely profitable for ESPN -- and a major headache for cable and satellite operators. Today, cable companies pay ESPN more than $3 a month for every household that gets the signal, compared to 30 to 50 cents for popular cable networks like CNN and MTV.
The NFL, meanwhile, struck oil with its programming packages. First there was Monday Night Football and Sunday Night Football, which expanded the offerings beyond the typical two Sunday daytime games already available. In the 1990s the NFL hit pay dirt again by selling "Sunday Ticket," a package that allows viewers who pay a fee to watch up to 14 games every Sunday, to satellite TV operator DirecTV Group Inc.
Mr. Bornstein's success at ESPN propelled him higher at Disney. He became president of the company's ABC unit in 1999. His Southern California home, once owned by Fred Astaire, boasts a wine cellar and a pool house with a cigar bar and mini-theater, where he entertains friends. Among other things, he participates in a charity wine event that has included sports figures like former Olympic figure skater Peggy Fleming and Duke University basketball coach Mike Krzyzewski.
Mr. Bornstein doesn't seek the spotlight, although one former associate says that he was keenly aware of where his name fell when trade publications ranked the most powerful people in entertainment.
Mr. Bornstein left Disney in 2002 for undisclosed reasons. At the time ABC was slumping, but most of the problems were not of his making. Shortly afterward, he was drafted by the NFL, which had been mulling the idea of creating its own network. After watching ESPN ride the popularity of their games to huge profits, NFL owners thought they could sell programming to cable and satellite operators directly.
Although the network initially didn't have any regular-season games, it still got off to a good start. With Mr. Bornstein acting as a consultant, the NFL convinced DirecTV to broadcast the NFL Network to all 11 million of its subscribers in exchange for continued exclusive rights to Sunday Ticket.
Cable operators have long coveted Sunday Ticket as well, but the NFL has preferred to limit it to DirecTV, fearing wider distribution would upset broadcast-television customers who pay so much to air their Sunday games.
Mr. Bornstein was named president and CEO of the NFL Network in early 2003. But he ran into problems with cable companies, which have long been annoyed with the NFL over Sunday Ticket and for driving up the cost of ESPN. Executives at some cable companies griped that the NFL Network's price of 15 to 20 cents a subscriber was too much for a network then focused on second-tier programming like preseason games, highlights and historic footage.
From day one, Time Warner and Cablevision played it tough, scoffing at Mr. Bornstein's warnings that they would lose subscribers to satellite TV if they didn't carry the NFL Network.
Then there was Comcast, the country's largest cable operator with more than 24 million subscribers. In 2004, Mr. Bornstein let Mr. Burke know that the NFL was considering creating a new package of nationally televised games. If Comcast carried the network, it might be able to purchase the games for its struggling Outdoor Life Network. As Mr. Bornstein explained it, Comcast first needed to be a member of the "NFL club," according to people familiar with the talks.
Comcast executives were intrigued -- getting the games would be a huge coup. But they were wary. What if Comcast agreed to run the NFL Network, building viewer interest, but didn't get the additional new games for its own use? "You're asking us to build the runways for you to land the planes to invade us," Mr. Burke told Mr. Bornstein, people familiar with the talks said.
The two sides came up with a solution. In September 2004, Comcast announced it would carry NFL Network on one of its most-popular digital packages that had close to eight million subscribers. But there was also a secret agreement. Comcast had the right to greatly reduce the number of households the NFL Network would reach if it didn't get the new package of football games.
Comcast offered the NFL $415 million a year for the right to carry eight Thursday and Saturday night games a season on Outdoor Life, later renamed Versus. Comcast also offered the NFL an equity stake in the channel, which already reached 55 million households.
But a rival bidder emerged: the NFL Network itself. In early 2006, the then-NFL commissioner, Paul Tagliabue, called Comcast Chief Executive Brian Roberts and told him the NFL Network had won the games. The NFL declines to say how much its in-house network paid. A few months later, the NFL Network informed Comcast that because it is airing regular games it planned to increase the cost of carrying the network to about 70 cents per subscriber -- far more than CNN or MTV -- from about 15 cents. That would have increased the cost of carrying the network to Comcast by over $50 million a year.
Comcast had already been steaming over the dual role Mr. Bornstein played both as a rival bidder and an adviser to the NFL. Mr. Bornstein denies any conflict because he wasn't involved in the actual decision making.
[chart]
In any case, Comcast agreed to pay more for the NFL Network, but began taking steps to kick the network off of its popular package. Instead it planned to stick the NFL Network on a "sports tier," a separate programming package only available to those who pay an additional fee of about $5 a month. That would ultimately reduce the NFL Network's subscribers to 750,000 from eight million -- and vastly lower Comcast's expense. Comcast felt the secret deal gave it the right to do this, but the NFL Network filed suit in New York state court.
Comcast executives felt betrayed by the lawsuit, which was filed under seal. Mr. Roberts phoned Roger Goodell, the new NFL commissioner, to complain, according to people who were briefed on the call. "What are you doing? You know we have a right to do this," Mr. Roberts said. "Is this any way to treat a partner?" Mr. Goodell replied that he felt the NFL was exercising its rights, people said.
The NFL argued in court that Comcast gave up its right to move the network to a sports tier when it agreed to pay more for the NFL Network with the eight-game package. But in May, New York State Supreme Court Justice Bernard Fried sided with Comcast. "I do not find any ambiguity in the various agreements," he stated in his ruling. The NFL is appealing.
Since the ruling, Comcast says it has moved the NFL Network to a sports tier in all of its systems. "While there's a tremendous passion for NFL programming, most of that's being satisfied," says Marc Ganis, a sports consultant. "The cable companies have found this weakness and are using it to push back against the NFL."
That said, some cable companies are playing both sides of the issue. Many of the operators, Comcast included, have invested in their own sports networks that apply the same strategy used by ESPN and the NFL.
The NFL Network regularly got top Nielsen ratings in its time slot among cable networks when it aired regular-season games last year. But viewership of those games still falls far short of Monday Night Football, the other nationally televised game on a cable network. Also, the NFL Network usually doesn't crack the top-40 cable-network shows of the week during the offseason.
NFL Network officials continue to insist that a sports tier is out of the question. Mr. Bornstein says the NFL Network has helped cable, satellite and telephone companies gain customers while some "holdout" cable companies have lost them. This shows, he says, that Time Warner and Comcast's rivals "made the right choice by partnering with us -- America's most popular sport."