Ray Hopkins: How YES Network has avoided blacking out cable affiliates for nearly a decade

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Ray Hopkins, Chief Operating Officer, YES Network

Ray Hopkins, YES

Hopkins

YES Network debuted to some controversy when the New York Yankees launched the regional sports network in 2002, as Cablevision (NYSE: CVC), which had previously carried Yankees games on MSG, refused to distribute YES. But two years later, YES managed to land a carriage deal with Cablevision, and since then it has grown into the largest regional sports network in the nation, counting more than 14 million subscribers. While the rising costs of sports programming have seen several regional sports networks pull their channels from cable operators and satellite TV providers until they agree to pay higher license fees, including a recent dispute involving Time Warner Cable (NYSE: TWC) and MSG, YES has gone nearly a decade without pulling its network from affiliates. YES has also been one of the most progressive networks in testing new technology, including the first live 3D baseball game in July 2010, and the launch of streaming video products. YES COO Ray Hopkins discussed new technology and YES's distribution strategy in a recent interview with FierceCable.

FierceCable: Your renewal talks with DirecTV (Nasdaq: DTV) went down to the wire last year, but you've avoided major blackouts along the lines of the MSG-Time Warner Cable dispute. How have you been able to do that?

Ray Hopkins: Once launched, YES has never had a second interrupted with any affiliate, and I think ultimately the driving force behind that is the value of the Yankees product. There's no more powerful team in the New York marketplace than the Yankees, and they [distributors] realize that the Yankees product delivers on YES, and they ultimately see the value in that.

We have very strong relationships with all of our affiliates. We know when deals are coming up, well in advance There is no surprise. And we make sure we get out well ahead of time, and let people know what to expect at renewal. We open up the conversation and dialogue early on, and it leads to a healthy discussion. I've done affiliate deals for a long time, and it's a lot easier to stand behind a product that is delivering for your customers than one that is not, and in the case of YES Network, for 10 years now, it has delivered like no other regional sports network in the country. I think the affiliates see that value.

FC: Some cable operators have said they want to sell sports tiers. How much of a threat is that to YES if more distributors demand that they get the option to put YES and other sports networks on a tier?

RH: There are sports tiers that are out in the marketplace right now. I'm not aware of any sports tiers that have an in-market regional sports network. If somebody wants to launch YES National, we are certainly open to talking to them about launching on a sports tier. But when we do renewals, frankly the sports tier doesn't even get brought up, maybe because they realize it's a non-starter. I've done all of our negotiations, and it's not something that comes up as a real topic.

FC: Most cable networks such as HBO don't charge subscribers an additional fee to access content on mobile phones and the Web. YES Network charges subscribers an additional $70 each season to watch games on the Web. Why do Yankees fans have to pay additional fees?

RH: In July 2009, we went with the Yankees on YES' broadband product. What we were trying to do was break the logjam that existed, and in many ways still does since we are the only [regional sports network] that offers a baseball product on a live streaming basis, and we do that for subscribers. In terms of getting the product, you need to be authenticated. That's important not only for us, but it's important for our distributors as well. Our distributors pay us a fee on a monthly basis, and for that fee they use YES as one of the ways to sell their expanded basic cable package. Whether they're talking about YES or any other kind of marquee product, the cable operator does not want to pay a fair market price to a programmer, only to have that programmer handing away the product in the marketplace. It devalues what they have purchased from you. We did this first and foremost with BAM (Major League Baseball Advanced Media), and then we went to our distributors. TV Everywhere did not exist when we launched in July 2009. It's a product that was a first of its kind for in-market [streaming]. We're coming up on our third full season in April.

FC: You're the biggest regional sports network, with 14 million subscribers. Where will your revenue growth come from--ad sales and affiliate fees in the New York area, or through distribution in other markets?

RH: I think it comes from both of those. We've been very successful in launching YES National outside the territory. That has done very well with the likes of DirecTV, U-verse, FiOS, Time Warner Cable and Bright House, where we'll be launching in Birmingham, Ala., and Bakersfield, Calif. We have real momentum with YES National. The Yankees brand resonates globally. With YES National, you're able to get all of our product, sans the Yankees and Nets live games. You're able to see the pregame show. We have a separate feed, so there are no blackouts. It's a 24/7, uninterrupted feed that provides everything that you would get within the New York marketplace with the major exception obviously of the games themselves. Outside the territory, you can still get the games on the [MLB] Extra Innings package. We continue to move the ball forward there.

For ad sales for 2012, we're pacing nicely ahead of where we were this time last year on the Yankees. We're on track to have our best spring training ever, which I think certainly bodes well for the rest of the year. 2011 was our best season ever from an ad-sales perspective. The automobile manufacturing sector is really back, and it's back strong, which bodes well for us.

On the RSN [regional sports network] side of the business, the revenue pie is more dominated by the affiliate fees than it is on the ad sale side. We've done a nice job of closing all of the gaps, and we have full distribution within the marketplace, and our affiliate fees increase each year, so that has growth in it.

When we come up for renewals, we take a look at how we're performing. There is no one that performs better during primetime for over 150 nights a year than the YES Network does. And that's not only [compared to cable], but it's broadcast as well. We're top performers in the marketplace, and when our deals cone up, we look to set the rate accordingly.

FC: Do you see the day when YES will produce every game in 3D?

RH: It winds up being a few hundred thousand dollars to produce a 3D baseball game. If there is a demand for 3D, and from a business standpoint we can monetize it, then yes, we would look to further our 3D efforts. Frankly, today, as it relates to 2012, we don't see the business model to support 3D. If one does evolve, we would pursue that vigorously.

FC: How many Yankees games do you think you've been to since joining YES?

RH: I've been with the Yankees for seven full seasons. I would say, during that time, 250 Yankee games.