Businessweek Archives

Is Espn In For A Stiff Uppercut?


Media

IS ESPN IN FOR A STIFF UPPERCUT?

Oh, to be a sports junkie in South Florida. Turn on the Sunshine Network and you can watch the Orlando Magic pro basketball team, plus a full slate of college sports. Switch to SportsChannel Florida and you can catch the state's other NBA team, the Miami Heat. Then there's ESPN and Turner Broadcasting System, with their steady diet of pro baseball and football. And starting in 1993, either Sunshine or SportsChannel will televise games featuring Miami's new Major League Baseball team. Already, both channels are girding for a costly bidding war for TV rights.

But while viewers cheer the competition, regional cable operators around the country are calling "time out." They're worried about sinking into a crippling rivalry with other local cable channels. The nation's 32 regional sports channels would like to challenge national cable networks such as ESPN for viewers and advertising dollars. But that's tough to do if they must spend much of their money to outbid rival channels for rights to televise local baseball.

Indeed, few regional sports services are turning a profit, even though new viewers are signing up in droves (chart). "I don't worry about the broadcasters," says Dave Almstead, general manager of the Sunshine Network. "SportsChannel is the competition." So far, though, the real competition has been ESPN, which has 59 million subscribers, or 63% of homes with television. Turner's TBS and TNT networks have almost as many.

STRIKING DISTANCE. By contrast, the largest regional sports network, Prime Network, reaches 24.8 million subscribers. Like the Big Three broadcast networks, Prime has a string of owned-and-operated channels and affiliates in major markets. Florida's Sunshine Network is one such affiliate. But while Sunshine has signed up 3 million homes in just three years, it hasn't attracted lots mf national advertising. That's because these advertisers prefer the reach and prestige of ESPN. "We don't see them competing on the national level," says Steven M. Bornstein, president of ESPN.

That may soon change. The two main regionals, Prime and SportsChannel America, have been negotiating to meld their channels into a single network. Together, they would have 40 million subscribers. That's still fewer than ESPN. But it puts them within striking distance: "They'd be a formidable competitor for ESPN," declares Denver cable consultant Paul Bortz. The talks have proceeded in fits and starts. Nevertheless, many cable executives predict that the merger will happen by the end of the year.

That should give ESPN and the other big players pause: A new national network with strong local affiliates would have some distinct advantages. For one thing, telecasts of local teams usually win higher ratings than the national games carried by ESPN. And the affiliates of SportsChannel and Prime Network have locked up rights to virtually all local teams in their markets. ESPN televises football and baseball games, too. But with few exceptions, they aren't tailored to specific markets.

A merger would also strengthen the regionals in national programming, where ESPN now holds the edge. Prime and SportsChannel supply their affiliates with national sports to augment their local offerings. Prime delivers 500 events a year, much of it low-budget fare such as waterskiing and volleyball. Fusing the two would basically double the supply of national programming.

But the key benefit of a merger is purely financial. Because they don't collect lots of ad revenue, regional networks must rely heavily on subscriber fees. In 1990, regional networks earned $130 million in ad revenue. But that still means subscribers must cover most of the channels' operating costs. With the escalating cost of TV rights, this translates into frequent rate hikes. A merger would make the regionals far more attractive to would-be advertisers. "It would open up a whole new pot of money," says Jonathan Mandel, a senior media buyer at Grey Advertising Inc. Also, merging local channels would dramatically reduce the costly battle for TV rights.

There are still significant hurdles. Both sides have been wrestling over the shape and management of the new organization. Prime and SportsChannel are both owned by some of the most maverick entrepreneurs in the cable business: Prime's backers include John C. Malone, CEO of Tele-Communications Inc., and cable pioneer Bill Daniels. SportsChannel is a venture of NBC Inc. and Cablevision Systems Corp., whose chairman, Charles F. Dolan, helped start Home Box Office. Between them, Malone and Dolan are responsible for much of cable's torrid growth over the past decade. If they can join forces on this playing field, cable sports may soon be more competitive than any late-summer pennant race.Mark Ivey in Houston


Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus