Cable Operators

Ruling: YES Belongs on Basic

3/24/2004 7:00 AM Eastern

An arbitration panel’s decision was a case of yes and no for Yankees Entertainment & Sports Network and Cablevision Systems Corp.

The arbitration decision puts YES on the MSO’s expanded-basic tier for the next six years, and Cablevision must guarantee payments on 90% of its customer footprint, according to sources.

That’s a yes for the regional sports network -- which carries New York Yankees Major League Baseball contests and New Jersey Nets National Basketball Association games -- and the decision could put it before some 2.5 million Cablevision customers, up from an estimated 1.5 million.

YES said in a prepared statement, though, that it couldn’t disclose terms of the arbitration ruling due to a confidentiality agreement.

"YES, however, is very grateful to the arbitration tribunal for its careful and timely award, which will greatly benefit the public and sports fans throughout our region. Everyone will now get to see YES and its great teams," the statement said in part.

However, Cablevision was not as content.

"This is a disappointing ruling for customers who wanted to choose whether or not to pay for the Yankees on cable," Cablevision CEO James L. Dolan said in a prepared statement.

"For the past year, all Cablevision customers have had the ability to choose whether or not to receive the YES Network, MSG [Madison Square Garden] Network and Fox Sports New York, and customers have liked having that choice," he added. "This ruling is a significant step backward that ignores the consumer’s desire for fairness and choice -- core principles that were the basis of Cablevision’s dispute with YES."

Dolan added that Cablevision will eliminate its regional sports tier and subscribers’ option to receive the market’s three regional sports networks on a stand-alone basis.

Instead, the MSO will offer YES, MSGN and FSNY as part of all of its packages with the exception of broadcast basic, and the monthly rate for its expanded-basic tier will rise 95 cents to cover a portion of the costs of carrying YES.

Senate Commerce Committee chairman John McCain (R-Ariz.) was also disappointed with the panel’s ruling, saying in a prepared statement, "It appears that the decision strikes another blow to consumer choice."

The other major operators in the New York DMA -- Time Warner Cable and Comcast Corp. -- have both offered YES on expanded basic.

The no for YES, though, stemmed from the arbitration panel’s ruling reducing the network’s monthly license fee.

Sources said the panel retroactively slashed the license fee to $1.85 per subscriber, per month, from $2.12. Arbitrators also pegged the service at $1.93 this year versus the $2.28 YES sought.

Other sources indicated that YES asked for an 8% bump from a $2.18 base this year that would have taken the monthly fee to $2.35 per subscriber.

Ultimately, over the course of the deal, the arbitrators decided that YES will receive 4% annual incremental increases, sources said, rather than the 8% it was seeking.

It appears that the arbitration ruling could prompt YES to rebate the license-fee difference to Cablevision.

Similarly, YES could be on the hook for funds to Time Warner Cable, Comcast and DirecTV Inc. should those distributors opt to exercise most-favored-nation clauses enabling them to receive the reduced rate.

After not carrying YES in 2002, balking at a $2 monthly subscriber fee, Cablevision agreed to a one-year deal to offer the regional sports network to subscribers who already bought premium-video packages.

Cablevision also offered YES for $1.95 per month to other customers, or for $4.95 per month in conjunction with Cablevision-owned regionals MSGN and FSNY.

YES and Cablevision had agreed to binding arbitration after an 11th-hour interim accord was brokered by New York Mayor Michael Bloomberg and New York State Attorney General Eliot Spitzer.

The arbitrators were former federal judge Stanley Sporkin and former Time Warner Cable executive Richard Aurelio, under the chairmanship of another former federal judge, Louis Bechtle.

Opening Day for the Yankees is March 30, against the Tampa Bay Devil Rays, in Tokyo.

September