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Disney Bets on ESPN to Boost Company

March 11, 2002

LOS ANGELES (AP) _ As The Walt Disney Co. struggles to rapidly resuscitate ABC, the entertainment giant is looking to use the muscle of its ESPN cable sports network to bolster its flagging media division.

Since Disney acquired it in 1996, the sports channel has expanded into an international brand, putting its name on a magazine, restaurant chain and its first original movie, ``A Season on the Brink,″ which aired Sunday. The made-for-TV movie chronicles the 1985-86 Indiana basketball season when the volatile Bobby Knight headed the Indiana University program.

The film has become one of the few bright spots on Disney’s disappointing balance sheet, generating profits at a time when Disney’s flagship network ABC is losing money.

ESPN was key in a multibillion dollar deal for the rights to air NBA games on the cable network and ABC. Disney also is using ESPN as high-priced leverage in negotiations with cable and satellite television operators as it tries to launch new cable channels.

Disney is even using ESPN’s appeal to young males to lure late-night TV host David Letterman to ABC by offering to market the show on ESPN.

Meanwhile, Viacom Inc., which owns CBS, is trying to keep Letterman with a plan to market the show on its youth-oriented MTV and VH-1 networks.

Overall, profits at Disney’s media networks division, which includes ABC, ESPN and other channels, dropped 58 percent in the last three months of 2001 as revenue declined by 3 percent.

A weak advertising market, poor ratings at ABC and the increased cost of news programing after Sept. 11 contributed to the decline.

But profits from Disney’s cable operations jumped 6 percent on an 18 percent increase in revenue, due largely to subscriber income and the fees Disney is able to collect from cable and satellite operators on the strength of ESPN, The Disney Channel and Lifetime.

``Up until 2001, ESPN has been probably the fastest-growing division with consistency among all the operating divisions at Disney,″ said Jeff Logsdon, an analyst at Gerard Klauer Mattison.

Disney wants to spread that strength to other parts of the company, including ABC, which has found mixed results while trying to boost ratings.

Ratings at ABC fell precipitously in 2001 after executives bet too heavily on the sustained success of the game show ``Who Wants to Be a Millionaire,″ which had helped ABC become the top-rated network in 2000.

Overall ratings have also dipped at ESPN since 1997 as the network expanded into four cable channels, partly cannibalizing its own audience.

But ESPN ratings have increased 24 percent in prime time since October. Executives are hoping a mix of original shows, exclusive rights to key games and a strategy to attract a variety of sports enthusiasts, including bass fishermen, will keep the brand strong.

Disney used ESPN’s clout to wage a joint bid with ABC for the rights to National Basketball Association games for six years. ESPN is now the only network that features all four major sports leagues.

``We estimate the deal is worth around $2.4 billion and think it reaffirms Disney’s ABC Sports and ESPN as leaders in sports programming through 2008,″ Jill Krutik, an analyst for Salomon Smith Barney, wrote in a recent report.

ESPN’s dominance has allowed Disney to wield the network like a hammer over the heads of cable and satellite companies.

Disney commands the highest possible price for ESPN and enforces a maximum 20 percent rate hike each year, while using the network as leverage to force cable operators to accept a host of new channels.

The strategy is alienating some cable operators and is at the heart of a dispute between Disney and EchoStar Communications Inc., which wants to drop the ABC Family Channel from its Dish Network service. EchoStar has already stopped airing ESPN Classic, a channel ESPN acquired in 1997. ``Disney wants to dominate every market they have and charge the maximum price,″ said Larry Gerbrandt, chief content officer at Kagan World Media, a media research and consulting firm.

ESPN defends its prices and points to a recent study conducted by Beta Research Corp. showing that cable operators consider ESPN the most valuable network carried by their systems.

``We deliver a valuable product to cable operators,″ ESPN President George Bodenheimer said. ``We’re very comfortable that we have struck a balance in the price-value relationship with the operators. They make money off of ESPN.″

ESPN The Magazine launched in 1998 and lags behind its chief rival, Sports Illustrated. But the ESPN magazine’s circulation grew 20 percent in the last six months of 2001, to 1.4 million, while SI’s circulation has remained fairly steady at about 3.2 million for the past several years.

AOL Time Warner, which publishes SI, recently brought in a new editor to revive the title.

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On the Net:

http://www.espn.com

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