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ESPN-NFL Network in Merger Talks

The NFL found out last year that its grand experiment, The NFL Network, wasn't quite as appealing to cable operators as it had hoped it would be, so now the league is looking to the industry's 800-pound gorilla for help. The NFL and ESPN apparently are in talks over merging the fledgling NFL Network with the 4-letter Network. It looks like ESPN's plan to own everything in Sport media is right on schedule.

The two sides are negotiating to put the NFL Network programming on ESPN Classic, a low-rated, but widely distributed member of the sports network family. ESPN Classic already reaches 63 million homes, while the NFL Network is available to less than 40 million homes.

The NFL Network (like the Big 10 Network) had assumed that they had enough programming clout to be able to dictate financial terms with cable carriers, even the two biggest, Comcast and Time-Warner. They were wrong.

The NFL Network thought keeping 8 late-season games for their network would allow for extra revenue to flow in.

When it first went on the air, the NFL Network was carried on the extended basic cable package, and was paid 15-17 cents per subscriber. When they added live games to their schedule they demanded 70 cents per subscriber. Comcast & Time Warner told the NFL that a fee that costly would mean moving the NFL Network to the higher-priced sports tier on their cable systems. The NFL demanded that the NFL Network stay on the cheaper, broader-based basic cable package. Comcast and Time-Warner told the NFL to take a hike.

The NFL tried to use the New England Patriots run towards a perfect season to put pressure on the cable systems. The final regular season game between New England and the New York Giants was part of the NFL Network package. The NFL played a game of chicken with the cable distributors, hoping they would blink and make a deal. Instead the NFL started to hear rumblings from congressional members about looking into the NFL's antitrust exemption if the games on the NFL Network weren't made available to more viewers.

The Patroits-Giants final regular season meeting last year was the first three-network simulcast of an NFL game. CBS, NBC and the NFL Network all carried the game live.

The NFL caved in, and allowed both CBS and NBC to carry the game live, with the NFL Network announcers. The last simulcast with two networks came when NBC and CBS carried Super Bowl I between Green Bay and Kansas City in 1967.

As for the current negotiations, ESPN and the NFL could form a joint venture and share revenue, or ESPN could take an equity stake in the channel. Obviously the combination of ESPN's footprint in the market, along with the 8 live games that would come with the NFL Network, would lead to higher subscription rate. Just how high the cable carriers are willing to pay -- and keep ESPN classic below the more expensive, higher tiers, remains to be seen.