It won't come cheap for Cablevision (CVC) to say YES.
On Friday morning, analysts following Cablevision cut their cash-flow forecasts for the New York City-area cable TV operator. Those cuts came in response to Cablevision's Thursday night disclosure of some of the terms of its agreement to carry YES Network, a local sports channel controlled by the owner of the New York Yankees and New Jersey Nets.
The financial impact of the one-year agreement on Cablevision highlights the love-hate relationship that cable TV system operators have with sports programming providers. While sports channels are a key element of what makes cable TV subscriptions appealing to consumers, the fees that operators have to pay for rights to carry these channels are a major, fast-growing expense for them.
Furthermore, cable operators don't have an unlimited ability to pass these programming cost increases on to their subscribers, nor -- as Cablevision's experience indicates -- are they completely free to walk away from the bargaining table should sports costs rise too high for their tastes.
On Friday, Cablevision's shares rose 23 cents, to $17.96.
At issue for Cablevision is the agreement announced this week -- under the aegis of New York City Mayor Michael Bloomberg -- through which Cablevision will carry YES. As part of a battle between Cablevision and YES over programming fees, Cablevision refused to carry YES last year, thus blacking out telecasts of Yankees games in Cablevision households. Cablevision has 3 million subscribers.
With the one-year agreement announced this week, Cablevision plans to start carrying YES by the end of March, enabling telecasts in Cablevision households of the tail end of the basketball season and throughout the baseball season. Cablevision and YES also announced a framework for negotiating an agreement extending beyond the current year.
But, as Cablevision acknowledges in its Thursday announcement, "Cablevision is charging customers less than what it is paying the YES Network."
Customers will be able to receive YES one of three ways: on a stand-alone basis for $1.95 a month, as part of a three-channel sports package for $4.95 a month, or as part of pre-existing premium programming packages. Cablevision won't be raising the prices for those particular packages, the company says.
Citing these increased costs, analysts are cutting their estimates for Cablevision's earnings before interest, taxes, depreciation and amortization -- a common bottom-line yardstick for cable and other media companies. Credit Suisse First Boston analyst Lara Warner cut her 2003 EBITDA estimate by $20 million, to $1.30 billion, and trimmed her 2004 number by $27 million, to $1.49 billion.
J.P. Morgan analyst Jason Bazinet cut his 2003 EBITDA estimate by $18 million, to $1.31 billion.