In its opening salvo, NBC Cable is asking cable operators
to fork over what amounts to a surcharge of more than $1 per year, per subscriber, over an
eight-year contract, to air coverage of the next five Olympic Games on CNBC and MSNBC,
cable-industry sources said last week.
NBC Cable's opening -- and very complex -- proposal on the
Olympics has a number of MSO programming officials reeling, particularly since
skyrocketing sports costs are such a hot button.
At least one operator said negotiations would be ongoing
with NBC over Olympics pricing, because "the economics of this can't work."
Cable-operator sources said NBC has proposed an Olympics
surcharge ranging from 4.5 to 7 cents per subscriber, per month, on both of its cable
networks, CNBC and MSNBC, for the full term of new affiliation deals for the services.
Those contracts would extend to the year 2008, sources said.
Over the eight-year period, the surcharge comes out to
anywhere from $1.08 to $1.68 per year, per subscriber for the two networks. That averages
out to $1.73 or more for each of the five Olympics, starting with the Winter Olympics in
Sydney, Australia, in 2000, and ending with the games in 2008.
There would also be a double-digit license-fee increase for
CNBC and MSNBC -- a combined increase that works out to 25 percent or so for some MSOs,
starting in the year 2000 -- on top of the Olympics surcharge, operators added.
CNBC's current rate card is in the 17-cent to 19-cent
range, with MSNBC going for 10 cents to 15 cents per month, per subscriber.
Looking to renegotiate current carriage deals for CNBC and
MSNBC, NBC Cable is floating a very complicated package to MSOs. It includes the
license-fee increases for both networks; the Olympics surcharges; renewals of
retransmission consent for NBC TV stations with some cable operators; digital-broadcast
agreements for NBC; and carriage of several proposed NBC digital-cable networks.
NBC paid a whopping $3.6 billion in a 10-year deal for
exclusive TV rights to the Olympics, and it needs to recoup and spread out its costs by
putting the games on both cable and broadcast. That's why NBC is tacking an Olympics
surcharge on both of its cable networks.
NBC Cable is seeking contracts that extend from 2000 to
2008, although some cable operators are talking about deals through 2006.
The scenario for an MSO paying the 4.5-cent surcharge on
both MSNBC and CNBC is as follows: That operator would pay 9 cents total per month in
Olympics surcharges per subscriber, or $1.08 per year. Over the term of eight years,
that's $8.64 in Olympics surcharges, which averages out to $1.72 for each of the five
Olympics.
NBC Cable also wants operators to sign the new deals by
July 31 or face an even higher Olympics surcharge, sources said.
David Zaslav, president of NBC Cable Distribution, declined
to comment on the proposed Olympics surcharges or on CNBC-MSNBC license-fee increases.
In fact, he said, NBC is not charging an Olympics
surcharge, per se, but it is merely incorporating Olympics costs into the new rate
structure for CNBC and MSNBC. The language of the new contracts calls the added charge an
"Olympic programming premium."
"We don't see it as a surcharge," Zaslav added.
For the Winter Olympics in Sydney in 2000, two-thirds of
NBC's coverage will air on cable, on CNBC and MSNBC, according to Zaslav.
"This is a very significant amount of compelling
Olympic programming," Zaslav said. "We are in serious negotiations with a very
large number of distributors."
Operators don't have to carry the optional Olympics
coverage. The coverage will be offered via a special feed, and MSOs that don't take it
will get alternate programming during that time period on both CNBC and MSNBC.
In addition to having the Olympics programming, operators
will get three local ad avails per hour during the coverage -- about 1,500 spots -- and
the Olympics coverage on CNBC and MSNBC will be cross-promoted on the NBC broadcast
network. Zaslav touted those as big benefits of the package.
"Everybody is very interested in taking it," he
said. "A number of MSOs are ready to do deals now."
AT&T Broadband & Internet Services (formerly
Tele-Communications Inc.) is among the MSOs currently in talks with NBC Cable.
"We're working to bring the value of the Olympic
programming to our customers at a reasonable cost," an AT&T Broadband spokeswoman
said.
But some operators were riled about the cost of NBC Cable's
proposal.
"I'm shocked," one official who has heard the
pitch said. "[NBC Cable is] fishing -- they're seeing what people will bite on."
Word of NBC Cable's proposed price increases for sports
comes at a time when MSOs are bracing to get word of license-fee increases from ESPN.
Under ESPN's contracts, the network has the right to
institute rate increases effective Aug. 1. But ESPN must give operators 90 days' notice of
any such rate hikes, so those notices have to be out by May 1.
Jerry McKenna, vice president of strategic marketing for
Cable One, has a meeting scheduled in May to hear NBC Cable's proposal. But he said he's
not willing to pay any Olympics surcharge on CNBC and MSNBC.
"We've kind of notified them that we would not be
agreeable," McKenna said. "We feel that we pay a lot for both of these services,
and the concept of adding a surcharge on top of that just goes against the grain of our
approach to programming."
One operator wants NBC Cable to put some kind of provision
in the contract that would permit the MSO to bow out if the Olympics don't perform up to
expectations, a source said.
Several sources in the cable-operator community said they
would be willing to pay a premium surcharge for the Olympics if cable got them
exclusively. But Zaslav said the package would be offered to both cable and
direct-broadcast satellite.
"Our preference with the Olympics is that everybody
take it, and that it be available to distributors across the board," Zaslav said.
"It's a shared cultural television experience."
NBC Cable has reportedly been approached by DBS companies
that want a list of markets where cable operators decide not to air the Olympics, operator
sources said.
The DBS providers would then target those markets with
aggressive acquisition campaigns, touting the fact that they are offering the Olympic
Games on CNBC and MSNBC, while cable is not.
