Heading into last fall, ESPN President George W. Bodenheimer knew his 22-year-old sports network needed a jolt. The ad climate was abysmal, ratings were soft, and cable operators were sniping about the hefty fees ESPN charges for airing the network's fare. So when the chance came up around Thanksgiving to bid on the rights to broadcast National Basketball Assn. games, Bodenheimer jumped. On Jan. 22, he announced that, along with ABC, a sister unit of Walt Disney Co. (DIS
), ESPN had outbid NBC for six years of NBA games. The price tag: $2.4 billion, or just over a year's worth of ESPN revenues.
The deal could be ESPN's riskiest bet yet. While the network reaches 86 million U.S. homes, it finds itself among cable TV's once-hot, now-maturing brands such as MTV and CNN. In prime time among the coveted audience of males 18 to 49, viewership is down 14% in the past year. Its rival, Fox Sports Net, is up 12% in the same group. "It's not all about ratings," insists the 43-year-old Bodenheimer, who started at ESPN in 1981 driving on-air personalities to and from ESPN's Bristol (Conn.) headquarters and nearby Bradley International Airport. "They're not the sole value of a company our size."
Still, the ratings slide isn't the only trouble spot. ESPN charges one of the highest fees to cable and satellite operators for its programming. That has brought long-simmering resentments between ESPN and its distributors to a boil. "The fees are outrageous," says one senior cable exec. "It's really soured the entire industry against them."
ESPN is hoping the NBA deal will ease the operators' pain--though that's not a given. Basketball is a sport that has seen its TV ratings plummet 40% since 1996. And ESPN's NBA foray is the first time a cable player has grabbed a major sports contract from the broadcast networks. NBC, which had held the contract for the past 12 years, refused to shell out more than $1.3 billion, after losing money in two of the four years on its last contract. Bodenheimer says he's confident of a ratings resurgence and figures the price will turn out to have been well worth it. That's because ESPN and ABC together will be able to broadcast many more games than NBC's 32--75 regular-season contests, mostly on ESPN and ESPN2--and ultimately sell more ads.
Complementing the NBA deal is another new arena for ESPN: original programming, including made-for-TV movies. On Mar. 10, the ESPN-produced A Season on the Brink: A Year With Bobby Knight and the Indiana Hoosiers will make its debut on the network, with Brian Dennehy starring as the hot-tempered coach. A late-night sports variety show hosted by actor Jay Mohr, lured away from Fox Sports Net, will kick off in April. "It's a smart move economically to begin to integrate shows it owns with programming it pays for," says consultant Neal Pilson, a former president of CBS Sports.
ESPN is also looking for new revenue by expanding beyond its stalwart network. Already, it has six other U.S. channels, a radio network, a popular Web site, ESPN The Magazine, and eight Zone restaurants. The latest venture is an interactive channel on DirecTV Inc. that allows viewers to grab news and scores with a flick of the remote control. And its wireless unit is charging users for scores and news it delivers to cell phones, personal digital assistants, and even to scrolling screens atop New York's fleet of yellow cabs.
Still, Bodenheimer's growth plans won't count for much if he can't relax the tensions with cable and satellite operators. They accuse ESPN and parent Disney of squeezing them on price, since many of their subscribers consider ESPN a staple of their service. On average, ESPN charges operators $1.50 a subscriber per month--more than twice what CNN charges. And ESPN contracts call for 20%-a-year increases. Says Jerry Kent, former chief executive of cable operator Charter Communications Inc.: "ESPN is a virtual monopoly. Backed up by Disney, it has a gun to the heads of cable operators."
Some companies aren't taking it. Charles W. Ergen, CEO of satellite service EchoStar Communications Corp., was so perturbed about having to pay a 15%-a-year fee increase for ESPN Classic, which shows old game highlights, that he stripped it off his service and threatened to do the same to Disney's Family Channel. A group of executives, including Kent, are calling for Congress to require ESPN to offer its service a la carte, just as Home Box Office or Showtime Networks Inc. is offered for a premium. Another complaint: that Disney CEO Michael D. Eisner uses ESPN aggressively in negotiations to make cable systems carry Disney's other, less-watched channels. But by doing so, one cable exec says, he's hurting ESPN. "He's killing the golden goose," he says. Counters Bodenheimer: "Consumers are voting with their wallets."
Meanwhile, the competition isn't exactly sitting still. Five-year-old Fox Sports Net is trying to break the ESPN model by putting more emphasis on regional and local sports, hoping to attract the less-hard-core fans, says Fox Sports Net President Tracy Dolgin. And AOL Time Warner Inc.'s Turner Broadcasting System Inc. struck a $2.2 billion, six-year pact to broadcast 52 regular-season NBA games a season, as well as a partnership with the NBA to launch a new all-sports cable channel.
So when does Bodenheimer start to worry? Maybe not until his ratings gurus tell him bowling tournaments are edging out the NBA.
By Tom Lowry in Bristol, Conn.
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