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Thursday, June 26, 2008

NFL in Talks With ESPN, In Bid to End Cable Battle

Seeking to end an embarrassing dispute that kept live pro football games out of many homes, the National Football League's NFL Network is in talks to form a partnership with Walt Disney Co.'s ESPN cable sports network, according to people familiar with the situation.

An agreement would represent a big shift in strategy for the NFL: abandoning its effort to force cable operators into carrying its own network and thus paying it lucrative monthly fees. It would also send a message to other professional sports, which have enjoyed rising television fees for years, that even the biggest and most powerful league in the U.S. cannot launch a new channel without the consent of giant cable operators such as Comcast Corp. and Time Warner Cable Inc.

For fans, a deal could close a bitter standoff between the league and four of the nation's largest cable operators that has left live games on Thursday and Saturday nights unavailable to many cable subscribers.

NFL executives including Steven Bornstein, chief executive of the NFL Network and previously chairman of ESPN and president of Disney's ABC unit, have been holding high-level discussions with Disney executives in recent months, according to several people familiar with the situation. Some team owners have been briefed on the discussions, and Disney CEO Robert Iger and NFL Commissioner Roger Goodell have been involved, these people said.

One scenario that has been discussed would involve combining the NFL Network with the ESPN Classic network, which has relatively low ratings but wider distribution. ESPN would broadcast eight more games per season on ESPN Classic, and then attempt to wring higher subscription fees than the 16 or 17 cents it currently receives for the channel, according to Derek Baine, a senior analyst for SNL Kagan.

Under such a scenario, ESPN and the NFL could form a joint venture and share revenue, or ESPN could take an equity stake in the channel.

To be sure, there is no guarantee the two sides will reach a deal. Talks have been under way for some time, and an agreement doesn't appear to be imminent, according to people familiar with the situation.

"We have a long-term and extensive relationship with the NFL and to that end we are always in discussion with them about mutual projects,'' said Mike Soltys, vice president of communications for ESPN.

Dennis Johnson, an NFL Network spokesman, said: "We are in talks with ESPN and our other broadcast partners all the time about a wide range of issues."

The NFL ran up against the cable operators in early 2006, when the league decided to withhold eight games from its lucrative TV licensing packages to put on its own channel. In effect, the NFL was giving up the hundreds of millions of dollars it would have received had it licensed rights to those games to a sports network. Instead, it put those games on its own channel, hoping to create a valuable cable asset with no middleman. But the NFL may have misplayed its hand in demanding about 70 cents per subscriber, which cable operators argued was high for a channel with so few games per season. Cable operators balked, and football fans didn't protest as much as the league thought they might.

Time Warner Cable, the country's second-largest cable operator, has refused to carry the NFL Network on the league's terms. Comcast, the country's largest cable operator, pulled the NFL Network from millions of homes after a bruising, bitter battle over the rights to the eight games, for which it had offered over $400 million.

The NFL Network's major distribution is on satellite service DirecTV and smaller providers. It is available in approximately 40.3 million homes, according to Nielsen Media Research, roughly one-third of all households with TV. It averaged 196,000 viewers during prime-time in 2007, according to Nielsen. ESPN Classic is in 62.7 million homes, according to Nielsen.

For football fans who don't already receive the NFL Network, a partnership would likely bring those eight games into their living rooms for the first time. But if ESPN gets a price increase, it could also boost cable fees across the board.

A combination would give an edge to ESPN over its broadcast competitors, and provide a boost in subscriber and advertising revenue for ESPN Classic, which averaged only 107,000 prime-time viewers in 2007, Nielsen says. It may also be a bitter pill for Mr. Bornstein, who at times had a strained relationship with Mr. Iger when he was at Disney, according to people familiar with the situation.

The writing may have been on the wall for the NFL network since late December. The network was scheduled to be the exclusive national broadcaster of one of the most highly anticipated events of the season: the game in which the New England Patriots defeated the New York Giants to become the NFL's first regular-season undefeated team since the 1972 Miami Dolphins. (The Giants later beat the Patriots in the Super Bowl.)

Politicians, including Sen. John Kerry (D., Mass.), urged the league to make the game more widely available -- and the NFL eventually capitulated, allowing both CBS and NBC to broadcast the game. The move undercut its negotiating position, by signaling that the league could be strong-armed into opening up a sufficiently important match-up to a wider audience.

By: Sam Schechner, Matthew Futterman, & Merissa Marr
Wall Street Journal; June 21, 2008

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