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August 6, 2007

Comcast gives its side

Comcast Midwest Division President Bill Connors took some time with us last Friday to talk about many of the issues that has led us to a current impasse with his cable company and television distributors at large with the Big Ten Network as providers negotiate with the startup network for its launch later this month.

As we did with Big Ten Network President Mark Silverman, we present our interview in full Q&A transcript form so you the fan can best determine what is behind all the issues. To look back at what the Big Ten Network had to say to us last month, just click here.

Again, here is our Q&A with Comcast's Bill Connors:

Q - Appears we have a bit of a P.R. war going on here as we head towards the Big Ten Network debut...

I think more important we are trying to stay out of one. It has been an interesting experience for us and probably the Big Ten would say it has been an interesting experience for them. It is unlike a lot of proposed new channel launches. Some of this is typical but the rhetoric and the manner in which they have gone about it is kind of interesting and very unique.

Q - Do you think they are trying to leverage some of the loyalty you see with college alums and fans?

I think there is no question that is their most effective marketing opportunity. That is to plug into the emotional fabric that makes up a passionate alum that has an interest in their school's sport. That doesn't surprise anybody and the same can be said about a general interest cable channel. Let's say a women's centric cable channel--they obviously try to plug into that demographic. If it is an ethnic cable channel launch they try to plug into the emotional fabric of a particular ethnic group that the programming is aligned with.

In the case of the Big Ten what they are trying to do is create an illusion that this is good for the alumni, good for the fan base and that it is somehow better than what the scenario was before. What we are trying to do and we didn't think we would be in such a public situation with them, but what we are trying to do is cut through the clutter and spew facts that at the end of the day this is probably not a good thing for alumni and fan base of these institutions based on the way games used to be distributed. They have lately tried to portray this to people that this is the end all, be all for Big Ten sports in coverage. We thought we were going to have to combat that but as you have probably fairly recently seen, ESPN came out with a rather public letter kind of chastising the Big Ten by making sure that no Big Ten fan has any belief that the real meat and potatoes coverage of the most watched Big Ten sports are still going to be available through existing distribution media and not on the Big Ten Network.

As you can guess Mike, this is a whole different level of conversation and a whole different level of stakes if the Big Ten had taken a different programming angle and not renewed all of their programming agreements with ABC, ESPN and all their other distribution deals. If they would not have renewed those for another 10, 12 or 15 years and would have made the decision to take all Big Ten content and exclusively have it on the Big Ten Network, then this is a whole different level of conversation. Because then that clearly is a size and scope channel, reach wise and interest wise, that is a whole different thing than they are trying to portray right now.

Q - In other words the games that have drawn in the most viewers are going to be where they have been?

If you look at, and it is really interesting, and I think it was in the state of Indiana, reading what the broadcast community reaction was to this. It is kind of a mixed reaction and it was articulated rather well by one of the Indiana broadcasters and I am trying to remember which one. The basic theme of the broadcast reaction to this was general disappointment that those games were being taken away from them because of this Big Ten Network strategy. They rolled up all those rights which had in many cases for 20-30 years been distributed, the second and third option games were distributed in local markets---in Indiana, in Ann Arbor, in Chicago, those second and third option games were distributed by local broadcasters. What is interesting is that reaction from broadcasters has been universally disappointed in that how is this a good thing for consumers? They provided distribution for that and it was at no incremental charge to customers because it came over the broadcast feed. But the second reaction was from the broadcasters was 'hey, we are going to be fine' because the viewership and the economics of those games, it wasn't like that was a show stopper for those broadcasters financially because of what the actual ratings points were for those games and what they could charge for advertising.

I think in that case the end product of the Big Ten decision is they have negatively impacted consumers of how they used to get the games, they are trying to benefit by turning games that might have been worth $15,000 to a broadcaster, they are now trying to monetize it or the Big Ten is now saying that is now worth $700,000 for that same game. We would stood on the sidelines and have been really interested in what the broadcast reaction to this and I guess I am not surprised by that.

Q - Regarding missed coverage -- seems like that might not be the case if the channel is ever a part of basic cable as the Big Ten Network is pushing for in the midwest?

The crux of the issue now is that we have made it very clear and the one thing I really want people to take away here is I want to add the Big Ten Network tomorrow. I'll add it today though I guess it really doesn't exist today. I would literally expedite or make the technology tweaks we need to do and add it tomorrow and make it accessible to 100% of our customers in Indiana and every other Big Ten state that we have. What the Big Ten is telling me through all of my negotiations is 'no, we are not going to allow you to turn that signal on because in order to turn that signal on you have to commit as a distributor that you are going to force that Big Ten product on 100% of the homes whether that customer has an interest in it, will watch it, be willing to pay for it or not.' That is absolutely an oversimplified fashion and absolutely where the heart of this issue is.

I respect the fact and they won't tell you this or don't appear to tell you this but I respect the fact that they are trying to take something and monetize it or make money off it. Nobody in the business world is every going to challenge anybody to say, 'you know what, you can't do that.' Because that is what business is about. I have full respect that they are trying to monetize an asset that was worth little to nothing before and now are trying to package together and turn it into something. What we object to and what our overwhelming percentage of consumers that we have talked to object to is that they are trying monetize it on the backs of 100% of the customers of someone like us and Time Warner, Dish Network and all the other real major distributors that have still said this is the wrong thing, this is a bad thing and this will not happen. We object that the Big Ten is trying to make money on the backs of people let's say in an Indiana suburb that are not IU fans, that are not sports fans, that might be a fixed income senior. We don't think they should have to pay $1.10 plus per month for the rest of their life with us because the Big Ten thought this was a good idea to make money and to distribute to the schools.

Q - When I brought up the $1.10 number with BTN President Mark Silverman, he brought up the fact that is much less that what Comcast charges for their own regional networks....

The regional network that he has most talked about and remember we are just minority owner, is Chicago. That is the one that is brought up most by the Big Ten people. What is amazing to everybody and not just to Comcast folks but all the other people on the sideline like the broadcast industry and all the other cable channels that have openly chuckled about that is what they are trying to do or saying they have product parity with that channel, what they are saying is that all the previous viewing history and I will take an example---a Wisconsin-Indiana game that will on average over the last few years when that game is on broadcast medium and remember that broadcast signals are available to cable homes, satellite homes and to non-cable, non-satellite homes. A 100% footprint. That game has had an average rating of 0.6, not 6.0 but 0.6. That is the product that they are saying is analogous to and I will just use yesterday, the rating for Comcast Sports Chicago in a major market like Chicago or in Indiana where it is distributed, has a rating of between six and seven points. Also think that is a product that has the Chicago Cubs, the Chicago White Sox, the Black Hawks and the Bulls. It would take the Big Ten multiple years of aggregate viewing to equal the amount of people that watch Comcast Sports Network over just a few months. So when they talk about the cost of that channel---and we are just a minority interest in all of these channels---there is no comparison between the Big Ten forecasted rating, even their own forecasted ratings are compared to that. Therefore there is no comparison on whether it should be on an expanded, broadly distributed tier or a sports tier.

Comcast Sports Net is also not available just exclusive to us. We make our cable channels like Comcast Sports Net, like CSS, like the Golf Channel, all those are distributed both on our network and we make them available on common rates to DirecTV and Dish Network. All of our competitors have the same access to that programming that we do. With our competing product distributors whether it is our owned products or minority owned products, they sometimes carry them on the exact level of service we have or some of them have it on tiers---but the fact is they leave it up to the distributor to where that product is going to be distributed and where it is not. In this case the Big Ten is telling everybody we are not going to even give you an option to run your business, we are not going to give you an option to be able to deflect that cost to your consumers, in order to carry even the first visual of this product, you are going to have to carry it on 100% of the customers. Nobody in the last few years launching a new cable channel has taken that programming approach. Everybody in the industry is shocked by the manner in which the Big Ten has gone about this.

Q - Are the negotiations for pricing outside of the Big Ten states at any kind of an impasse?

Outside of the Big Ten states they have committed that they would allow the distribution of the Big Ten product on digital tiers. The won't allow it in the Big Ten states and they say different things as to why they take such a hard stand on that. Sometimes they just say it really just should based on all comparisons. What they are really just saying is no. For them to get the most economic bang out of this, their economics apparently behind the scene are forcing it on 100% of the customers. Over a five year deal with us that is over $300 million from us that would be guaranteed to them, whether anybody ever watches it. Technically, based on what they are proposing, because the bulk of their revenue under that model would come from subscription revenue. What they are clearly looking to based on all those homes that service would be available to is that they are trying to derive the maximum amount from the advertising sales model. You know very well from the web based business, more impressions, more eyeballs equal greater rates. That is something that they are also trying to get the biggest bang out of. I don't fault them for the effort, I just think there has to be a point and time when they recognize this is not the time and era in cable television or satellite distribution where we should keep piling on services like the Big Ten and forcing it on ever home in America. It is just the wrong thing to do.

Q - A side issue, is Comcast and cable companies ready to handle the overflow channels for simultaneous games and all the high definition content being promised by the BTN?

We haven't gotten to that level of detail but in general from a technology delivery standpoint we are poised better than any other distributor and Indiana is a great example, we have the full capability to provide for overflow game support and additional high definition offerings. Those type of issues will not be show stoppers for us to get that done.

Q - Are you ready though to pay somewhat of a premium for the loyalty issue?--- in other words there is a passion in the fan base and such that many could switch from you and go satellite or whatever if things aren't worked out....

We are in the game of not losing any customers. There is a reason why we are growing customers in Indiana with our current products and offerings. Our triple play bundling of delivering the first voice and data product all unified, single bill at lower price points than were available in the market place five or six years ago, that is the biggest primer as to why we are growing and having such success in Indiana. Do people make departure decisions sometimes on single channels? Well there are channels or product offerings that DirecTV doesn't have and we get some of their customers every single day that leap in or come to us for products and services that we have that DirecTV either chooses not to carry or chooses not to invest in a particular technology like on-demand and those type of things. Will we lose some customers? The answer is yes Do we want to lose any customer? The answer is no. Remember from a consumer perspective, when we poll consumers and ask them what is their happiness if we put it on basic and everybody has to pay the freight on 100% of that, there is a lot more people that will be upset by us doing that than there will be people who say 'I have to leave because I am going to miss those games.' It is a tough position for us to be in, but there is a higher percentage of people that will be more upset with us if we do it the way the Big Ten Network does versus if we don't do it the way the Big Ten Network does.

I will tell you that over 98% of the customers polled said they don't want to do it the way the Big Ten Network does. Remember the big, premier Indiana games and key match-ups are going to be on either the regional distribution networks that exist right now, either ABC, ESPN. Largely the games would have mattered most to the Indiana fan are not going to be at play in the Big Ten Network in '07, '08 or '09.

Q - If you do put it on a tier basis is there any kind of an idea you can give fans of what added costs they would see on their cable bill?

That is a great question. The only real distribution deal they (BTN) have right now is the DirecTV deal. As you know the DirecTV deal was a deal done while Fox and DirecTV were owned by the same parent. That probably wasn't a real complicated negotiation. Then here is the Big Ten saying that it is a great deal. Well for an Indiana consumer to get to that product on DirecTV, their single option is paying a minimum of between $45 and $50 based on the DirecTV package. In our case if a consumer was a real passionate Indiana fan that does evaluate their expenses on a monthly basis and makes critical decisions on not spending more than what they want to spend---our scenario is that a customer could get the basic level of service with Comcast plus this sports tier that would include the NFL, Major League, NBA, The Big Ten, all the Fox regional and other regional college networks that ironically Fox is okay for---those Fox networks can be distributed on a digital tier yet this one where they are a 49% owner on they are saying 'no you can't do it.' They would get all that product along with the basic product for total around $23-$25 a month depending on which part of Indiana they live in. If they really care about consumers, isn't that a better scenario where somebody can make that decision versus it being $50 on DirecTV or $60 on AT&T U-Verse?

The Big Ten won't answer that question directly. If this really is a consumer play, which it is not from their perspective, it is a pure money play, we win hands down in terms of the low cost option under this scenario in terms of how a customer can get to that product.

Q - Indiana has had most every game televised for men's basketball, so just be clear without blaming anyone, there is a real coverage loss risk at stage for the Hoosier fan base here....

Being a basketball fan myself, when you mention college basketball in the first three or four kind of name recognition things you have to say Indiana basketball. It is just an institution with the history and the legacy. Wasn't that a great model (previously) of those Indiana games that are of a particular interest in Indiana that were largely distributed at no incremental charge to consumers in Indiana through the broadcast vehicle of which the broadcasters were paying the Big Ten some real money. They weren't able to distribute it for free. But it was being distributed to consumers for no extra charge and the broadcaster took the business risk of hoping that they could make it up in advertising sales. When you look back on it now, wasn't that a great model? The Big Ten apparently thought that wasn't a great model and let's roll up all that product, take it away from Indiana fans and consumers, let's put it on here and put that product at risk of being distributed across not only just Indiana, but across the country.

The thing I take some offense at is the only operator they talk about is Comcast. I understand our size, our stand in distribution across the midwest, but remember the only real deal they have of any size is DirecTV. Companies like Time Warner, Cox, Charter, Dish Network, they don't have any deals with all them and yet we are within 30 days of launch. Even the most passionate Indiana basketball fan or football fan would have to say, 'you know what, I think the old model is a pretty good model and why don't we go back to that model?' I don't blame them for feeling that way.

Q - We do have a lot of football fans here though that are excited about this new network because many pre-conference and other games Indiana has played have not been broadcast...

I think it is great and all the more reason why I'll add the Big Ten Network tomorrow and why we would pre-commit to regionalize that Indiana game, meaning where the Indiana game might be in conflict with a Michigan or an Ohio State or Illinois game at the same time, we definitely have the technical ability to regionalize that game into Indiana. I think it is great that the Big Ten is finally looking to provide some programming support for that and provide all those games.

I look at the SEC and although they don't have their own stand-alone channel, the SEC and ACC really made sure that all of their games for all of their teams had a distribution vehicle. In many of those cases the games for some of the SEC schools, those were distributed on secondary channels that cable operators would provide access to, the overflow so to speak. That is what we first thought was going to be the Big Ten model. The Big Ten would step in and help schools like Indiana that maybe didn't get the football coverage that Indiana wanted and provide support to do it and provide the distributors to do that. I don't know why they did not do that. If we would have been asked to be at the table, if we would have been allowed to bring consumers and fans to that negotiating table, I guarantee that would have been the end result. But fans were not in that room, customers were not in that room nor other distributors. It was the Big Ten and Fox Networks deciding what they wanted to do. This is where they wanted to take the product away from everybody else, hold it hostage and play Russian Roulette to whether or not they were going to get the games covered. I think that is a disservice to fans, a disservice to Indiana football fans that should have an opportunity to get those games distributed. I hope it happens and I hope it is on a sports tier on our Indiana systems, sooner rather than later, and I am working very hard to get that done.

Q - Insight is in Bloomington and other parts of Indiana and since it has been announced they will become part of Comcast, what is their negotiation situation with the Big Ten Network?

Our deal completion with Insight is going to happen at the end of the year. In the interim, Insight is still a stand alone company. What we are providing influence on now are really just talking to them how the networks would be connected and those type of stuff. They are still making independent decisions on programming choices and those type of things. We have regular conversations with them on all matters and I don't think it was any surprise that it appears that Insight, even on the properties that are not coming over to Comcast at the end of the year because we are not getting all the Insight properties, that they had the same kind of disappointed reaction as us, Time Warner, Dish Network and everybody else that is talking to the Big Ten.

Q: If the Big Ten Network were to back off on the basic cable requirement, would there be a whole new set of negotiations that would have to take place on tier pricing?

If they back off that, I literally think it is just cosmetic contractual stuff to get a deal done. That is why them finally realizing that the overwhelming majority of consumers really do want to distribute it on an elective option, I think then you see a very expedited manner of getting that done. That would not be protracted, those kind of negotiations.

Q - So from your standpoint to get this done, either the BTN backs off the $1.10 number or agrees to digital tier in the midwest?

From our standpoint it is just the forced expanded basic coverage. I can't speak for other companies, we can only decipher when other companies are spoken to about this but that appears to be the single issue with all the other companies.

Final statement

I think we have the same mindset as an Indiana fan which is we want the product on air and we want to make it available and that is exactly what the core of an Indiana passionate fan wants. Nobody wants to have that forced upon people, even a passionate Indiana fans doesn't want that. I just want to make it available and I think, and I am very optimistic, I think at the end of day that is exactly what is going to happen. Thank you for your time.



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