ABC sells ESPN2 to 3 more MSOs in lieu of retrans fees for O&Os

ABC, continuing to drive circulation of ESPN2, its proposed spinoff sports network kicking off this fall, has signed deals with three sizable cable operators: Jones Intercable, Sammons Communications and Multivision Cable TV.

The key ingredient of the negotiations, a carbon of ABC’s deal last month with Continental Cablevision, allows these cable operators to carry the signals of TV stations owned by ABC and Hearst Broadcasting without having to pay a “retransmission consent” fee. ABC owns 80% of ESPN and ESPN2, and Hearst owns 20 %.

The fees ABC collects will be for ESPN2, which could end up harvesting more than $ 30 million from the four MSOs over the six-year life of the contract.

The exact figure is hard to pin down, sources say, because the monthly subscriber fee depends on the cable operator meeting strict subscriber goals set by ABC. According to sources, in the first year of the contract at least 25% of the cable operators’ subscribers must have access to ESPN2, a goal that might be difficult to reach for MSOs that have very few extra channels.

Each year, that 25% figure must rise, until it hits at least 75% of the operator’s subscriber base by year six. ABC is insisting on these goals because it wants to discourage cable systems from putting ESPN2 on a separate, higher-priced tier that might attract only a limited percentage of the system’s subscribers.

If the operator meets these goals, it’ll pay a monthly fee of between 10 cents and 15 cents a subscriber in the early years. That figure goes up throughout the life of the contract until it ends up in year six at a monthly figure of between 18 cents and 23 cents a sub.

Penalties could drive those figures up substantially if the operators don’t deliver the required number of subscribers.

Don Amick, a VP of operations for Sammons Communications, the 14th-largest MSO in the country, says, “Even though we’re paying a license fee for ESPN2, we can recover that cash through the advertising avails we get to sell locally.” All of the local cable systems get two minutes in each hour to sell, and Amick says his systems will be able to get premium prices from advertisers.

The deal was particularly appropriate for Jones Intercable, the seventh-largest cable operator, because “48% of our subscriber base is covered by TV stations owned by ABC and Hearst,” says Elizabeth Steele, VP and general counsel for Jones.

But the cable operators in the deal will roll out ESPN2 to all their systems, not just ones with an ABC or Hearst O&O. That proviso shuts out ABC’s affiliates from making themselves part of the deal — they’ll have to negotiate retrans fees separately with the cable operators.

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