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Wall St. Shrugs Over CBS 'March Madness'

Added: (Wed Nov 24 1999)

Pressbox (Press Release) - By Steve James

NEW YORK (Reuters) - It may be called 'March Madness,' but Wall Street didn't lose its head Friday over CBS Corp.'s $6 billion, 11-year deal to broadcast the NCAA national college basketball tournament.

CBS (NYSE:CBS - news) shares closed down 3/4 at 53-13/16 on the New York Stock Exchange as analysts said the deal was hardly a surprise.

The contract provides CBS with all TV rights, including over-the-air broadcasting, cable, satellite, digital and home video for the National Collegiate Athletic Association men's tournament, known as 'March Madness.'

The contract begins in 2003, after the conclusion of an existing eight-year agreement. CBS, which last year paid $4 billion to broadcast National Football League games, has been the exclusive broadcaster of the NCAA Division I men's basketball championship since 1982.

CBS, which is in the process of merging with entertainment giant Viacom Inc.(NYSE:VIA - news), will get the rights to all NCAA basketball content on the Internet, including electronic commerce and rights to establish NCAA-related Web sites.

At about $546 million per year, the deal is worth more than double the current eight-year deal that pays the NCAA $216 million annually.

Analyst Christopher Ensley of Lazard Freres said the key to the deal was the multi-media element. "We have been leery of the fees paid by the networks for sports rights, given declining audience levels," he wrote in a research paper, noting that ratings for the NCAA tournament fell last year.

"However, we see the deal as much more than a TV deal, given its all-encompassing multi-media approach. We believe CBS will make a profit as long as CBS's audience (viewers/listeners/on-line users) grows," said Ensley.

He noted the contract was "one of the first examples of the CBS/Viacom merger," where the company controls content and leverages it across different outlets.

"Maybe with Viacom he feels he can do more, but he wants to be a world-class broadcaster," analyst Jeff Pittsburg of Goldis-Pittsburg said of CBS President and Chief Executive Mel Karmazin.

"It didn't surprise me any," he said of the deal. "He's looking at positioning himself over the long run. He's taking the shots and going for it; it's a breathtaking price but obviously he's figured it in."

"Everyone thought the NFL wouldn't work either," said Pittsburg, noting that Karmazin last year paid out $4 billion to bring NFL football back to CBS in an eight-year deal to televise AFC games. Football, plus prime-time ratings increases under Karmazin, has revived the network's financial fortunes.

Last month, CBS Corp. reported a third-quarter profit, rebounding from a loss last year, on an 8 percent gain in revenue driven by its radio affiliate Infinity Broadcasting Corp.(NYSE:INF - news), and by its television operations.

"This is the first sports deal in history to extend beyond our traditional platforms into the world of new media," said Leslie Moonves, president and chief executive of CBS Television.

The agreement also gives CBS the rights to radio broadcasts, marketing and corporate sponsorship, merchandising, licensing, publishing and printing, and archival rights.

CBS Sports will provide year-round promotion of the NCAA and its championships, including developing NCAA.com as a year-round Web site, two one-hour specials each year highlighting all NCAA championships, and an annual NCAA special, CBS said. Fox, a unit of News Corp. Ltd. (NCP.AX), and ABC and ESPN, both owned by The Walt Disney Co.(NYSE:DIS - news), were also in the bidding for the NCAA contract.

But CBS was willing to pay a premium to hold on to NCAA basketball after losing the rights last week to the NASCAR auto racing circuit, which agreed to a six-year, $2.4 billion deal with Fox, NBC (NYSE:GE - news) and Turner Broadcasting System (Montreal:TWX.M - news).

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