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Policy

Comprehensive Peace

9/07/2010 3:56 AM Eastern

Highlighted by the
launch of broadband service
ESPN3.com and other advanced
media applications, Disney/ABC
Television Group, ESPN and
Time Warner Cable reached a
comprehensive, long-term carriage
deal last Thursday.

The pact, covering retransmission-
consent for ABC-owned stations,
as well as renewals for a host
of cable networks, was announced in
late afternoon on Sept. 2, about 171⁄2
hours after the expiration of the parties’
existing contract at midnight.

It also came after the nation’s No.
2 cable operator and the content giant
declared the prior weekend that
“significant progress” had been
made in their long push toward a
deal and their focus was on a “successful
conclusion” to their contract
negotiations. At that point, the
parties pulled all their marketing
messages, which had stated their
respective positions in the public
negotiating arena. There was never
any service disruption throughout
the process.

The Time Warner Cable-Disney
negotiations were closely watched
by members of the content, distribution
and regulatory communities,
because of the size of the
players and the many products and
services that were in play.

Financial terms (including the
length of the deal, reported by
some as five years) were not disclosed.
The two sides said their
new agreement encompasses the
ABC Television Stations, as well as
cable networks ABC Family, Disney
Channel, Disney XD, ESPN,
ESPN2, ESPNEWS, ESPNU, ESPN
Classic, ESPN Deportes, and Soap-
Net. It also includes the launch of a
new college-football highlight service,
ESPN Goal Line, and distribution
of ESPN 3D.

The agreement also covers customers
of Bright House Networks,
whose programming negotiations
are conducted by Time Warner
Cable.

Miller Tabak analyst David Joyce
estimated that parent The Walt Disney
Co. derives $10.5 billion worth
of subscription carriage revenue
from its cable networks. With
Time Warner Cable accounting for
about 12% of U.S. pay TV households,
Joyce concluded that the operator
could be paying $1.28 billion
to Disney.

Putting TWC’s estimated 2011
programming expenses at some
$4.55 billion, the Disney properties
would represent 28% of the MSO’s
total programming outlays, “the
most of any programmer.”

As with Disney’s last long-term
contracts, the new deal gives
TWC some measure of certainty
over these costly services.

One of the more complex and
contentious points of the negotiations,
which were headed by Time
Warner Cable chief programming
officer Melinda Witmer, Ben Pyne,
president, global distribution, Disney
Media Networks, and Sean Bratches,
executive vice president, sales and
marketing at ESPN and ABC Sports
and their teams, concerned broadband
service ESPN3.com.

Many of the deals for ESPN3.com
— which offers more than 3,500 live
college and professional sporting
events, and recently recorded record
results with its coverage of the
2010 FIFA World Cup — have been
constructed on a per-subscriber basis
with Internet service providers,
whether users access the service or
not. Monthly subscriber fees have
been reported to fall within the
range of 7 to 10 cents.

VIDEO SUBS COUNTED
Under the Time Warner Cable
agreement, the business model
makes ESPN3.com available to all
TWC and Bright House Networks
video subscribers that receive
ESPN, with attendant license fees
evidently incorporated into the
monthly programming cost for
the sports network. Miller Tabak’s
Joyce wrote that the costs for
ESPN3.com could be rolled into
the annual estimated 7% increases
in ESPN carriage fees (which,
at an estimated $4.50, means the
incremental $0.40 or so could encompass
ESPN3, ESPN 3D, local
ESPN, and other new services).

This model opens ESPN3.com
up to almost all of TWC’s 12.7 million
and Bright House’s 2.4 million
video customers, rather than
the 9 million subscribers counted
by the operator’s Road Runner
Internet-service provider.

After ESPN3.com rolls out to the
cable companies’ customers, its
ranks will swell above 60 million
broadband homes.

Some ESPN3.com fare will be accessible
by TWC and Bright House
on their respective sports tiers.

As for retransmission consent, the
parties would not specify the terms
for the five ABC owned-and-operated
stations that transmit within
TWC markets: New York (WABCTV),
Los Angeles (KABC-TV), Raleigh-
Durham, N.C. (WTVD-TV),
as well as in Houston (KTRK-TV)
and Toledo, Ohio (WTVG-TV).
Time Warner Cable counts a relatively
small number of subscribers
in the latter two DMAs.

Sources and reports put the initial
outlay at 40 cents to 60 cents per
subscriber per month in retransmission
fees, before escalating over
the life of the deal.

Joyce pegged the monthly subscriber
average at 50 cents, what he
called “the recent industry norm for
larger markets.”

He estimates that with Disney
owning 10 ABC stations, the company
“could be generating $144
million of retransmission consent
revenue on a run-rate basis, but
TWC might only be paying $22 million
of that.”

MIXED REVIEWS
National Association of Broadcasters
spokesman Dennis Wharton
pointed to the agreement as a sign
that the retransmission-consent
process is working fine.

“Thousands of retransmissionconsent
agreements have been
reached over the years,” he said,
“and this is just one more successful
negotiation that serves to rebuke the
pay TV campaigners who seek a solution
to a non-existent problem.”

The American Cable Association
didn’t share that sentiment.
“Claiming the system works because
a deal got done or because no one complained is akin to a con artist
saying extortion works because
no one called the police,” ACA president
Matt Polka said. “Small and
medium-sized cable operators are
paying excessive fees for retransmission
consent because broadcasters
are able to exploit federal
regulations to their advantage.”

The ACA was among a group of
MSOs, satellite and telco companies
and others that petitioned the
FCC to reform the retransmission
regime, including requiring outside
arbitration for impasses and requiring
signals to remain on the air past
contract deadlines.

A “TV Everywhere” element for
ESPN, ESPN2 and college network
ESPNU will also be launched under
the new deal. After registering under
an authentication process, the
operators’ video customers that also
subscribe to broadband services
will be able to watch the three networks
on their computers, as well as
Apple’s iPads and other mobile devices.
While the parties have been
working on the verification parameters,
no immediate launch time
frame, other than “ASAP,” was disclosed.
Sources indicate the flagship
ESPN will come online first, trailed
by ESPN2 and the college network.

TWC and Bright House both committed
to carrying preschool service
Disney Junior, when it launches in
place of SoapNet in 2012.

HEADED FOR ‘GOAL LINE’
More immediately, the two cable
companies became the first affiliates for ESPN Goal Line, a new
college football highlights service,
which kicked off on Sept. 4.

Akin to DirecTV’s Red Zone and
NFL Network’s NFL RedZone for
pro football on Sunday afternoons
(see related story in Coda),
the ad hoc service, airing from noon
(ET) until about 11:30 p.m. during
each Saturday of the college-football
season, will feature unlimited
live cut-ins and highlights from
numerous games to which ABC and
ESPN properties hold the rights, as
well as other top contests. It will
also include up-to-the-minute
commentary from ESPN analysts
and experts. ESPNews anchor Anish
Shroff will serve as the primary
host, while Rod Gilmore is the main
analyst.

ESPN officials indicated that
Goal Line has been cleared in a
number of Time Warner Cable
and Bright House markets, while
a spokeswoman for the No. 2 cable
operator anticipated it would
bow in the majority of its systems
for last Saturday’s opener. The service
will be available for sports tier
customers at no additional charge.
The sports programmer, which will
tip off a similar service for college
basketball, called Buzzer Beater, is
moving toward inking deals with
other distributors.

The operators will also launch
ESPN 3D to Time Warner Cable and
Bright House Networks’ systems. It
was unclear at press time, if the service
would be available for coverage
of the service’s first college football
game, Boise State-Virginia Tech on
Labor Day at 8 p.m.

Moreover, ESPN Deportes HD
will be added to Time Warner Cable’s
larger footprint. The sports
network and the cable operator
will launch a Spanish-language
Web site in Los Angeles. ESPN Radio
feeds in New York, Los Angeles
and Dallas will be made available
to TWC video platform.

Video on demand also figures
prominently in the new deal, with
expanded services in many markets,
notably, ABC On Demand,
ABC’s fast forward-disabled service
that currently features a selection
of such primetime series
as Castle, Grey’s Anatomy, Private
Practice
and Desperate Housewives,
plus new shows No Ordinary Family
and My Generation. Additionally, episodes
of ABC News’s Good Morning
America
are available each week.

FAMILY SERVICE SLATED
There are also Disney-branded
On Demand offerings for children.
Refreshed each month, the
Disney Channel VOD offering will
include episodes from such series
as Handy Manny, Mickey Mouse
Clubhouse
and Special Agent Oso
for preschoolers, as well as variety
of episodes from Wizards of Waverly
Place, Hannah Montana, The
Suite Life on Deck
and Good Luck
Charlie
for older kids. Further, select
installments will be available
in multiple languages.

Disney XD On Demand sports
a variety of episodes from such series
as the Emmy Award-winning
animated hit Phineas and Ferb and
Kick Buttowski — Suburban Daredevil,
as well as the upcoming sitcom
Pair of Kings.

Subscription VOD service Disney
Family Movies, showcasing a selection
of classic and contemporary
films and animated shorts from
The Walt Disney Studios, and a new
transactional VOD service for select
content from the Disney/ABC Television
Group are also in the mix.
For its part, ESPN will make locally
relevant sports content to TWC
and Bright House markets in such
markets as Los Angeles, New York,
North and South Carolina, Tampa,
Orlando, Texas and Ohio.

Disney Media Networks’ fare will
also be integrated into Time Warner
Cable’s and Bright House Networks
Start Over and Look Back
features.

September