ESPN HD IS BLURRY IN NYC

BY MAVIS SCANLON

ESPN's high-definition service left the starting block in March, and in short order the sports network cut affiliation deals with Insight Communications, Cox Communications, the NCTC, RCN, Charter Communications, EchoStar and DirecTV. After 170 days, ESPN HD is on track to beat initial estimates of 100 original telecasts ? by next March, about 120 HD telecasts will have aired ? and has new HD content including its flagship program SportsCenter, slated to premiere next April.

But ESPN has yet to sign up some prominent operators for its HD service, namely Cablevision Systems and Time Warner Cable, despite the promise of additional content. Virtually all MSOs that offer ESPN HD have placed it on a la carte or premium tiers at monthly rates of $5 to $11. Neither Cablevision nor Time Warner Cable currently charges monthly service fees for HD content.

The ESPN HD affiliation agreement is fairly complex and one that bundles varied ESPN services, according to someone familiar with Time Warner Cable's negotiations. If the goal of offering HD is to drive wider adoption of the service, and if the same programming is available on cable in standard definition, the thinking at TWC is that it doesn't make sense to charge customers for it, according to this person, and so the company does not want to pay a lot for it. (TWC is, however, considering a pay HD tier.) ESPN HD's per-subscriber license fees fall in the 70 to 80 cent range, according to an operator and a programming insider familiar with ESPN.

A TWC spokesperson would not comment.

Cablevision's stated HD strategy is to continue to broaden its offerings ? it recently rolled out an HD movie VOD service at $6.95 per movie; CBS and PBS were the latest additions to its HD slate. Cablevision said it does not comment on programming negotiations.

Operators have been aggressively rolling out HD this year, in part to compete with satellite. In fact, as Oppenheimer analyst Thomas Eagan pointed out in a research note last week following an HD conference the bank sponsored, due to the low incremental cost of gearing up to deploy HD and high rates of return on that investment, he expects operators to increasingly orient their networks ? and strategies ? to HD rather than VoIP or even interactive services.

Eagan expects cable network groups to use the appeal of HD as leverage in negotiating rate increases for standard-definition networks. As HD content increases, the need to offer it to customers may grow. Over the next few years, the cost of producing HD content may actually fall below that of standard definition due to postproduction and editing efficiencies, according to Scientific-Atlanta CTO Robert McIntyre, who spoke at the Oppenheimer conference.

The Consumer Electronics Association estimates that average prices for HDTV sets will drop to under $1,300 next year from $1,400 today. That's ?within striking distance of the $1,000 threshold price important for mass adoption,? Eagan noted. From a retail perspective, partnering with programmers like ESPN and Discovery becomes crucial to showcase HD content and drive sales.

As Bryan Burns, ESPN VP strategy and head of ESPN HD, said at the conference, ?Nothing sells HD like ESPN HD.? ESPN is heavily promoting the HD service through national sponsorships with Philips and Best Buy and by marketing to consumers in ESPN's daily print ads in USA Today, piggybacking on existing ESPN and Best Buy promotions and having announcers such as John Miller and Joe Morgan highlight ? on the in-studio Philips HDTV set ? the differences between standard and hi-def.

It would no doubt help demand if cable customers in the biggest market in the country could get the service. For now, though, those living in New York City ? and other TWC cable markets ? have to turn to cable's competitors if they want ESPN HD badly enough.