Golf channel stuck in a trap

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The Golf Channel is in the rough and looking to TV sports giants ESPN and NBC Sports for help.

An executive familiar with the negotiations said the networks are discussing equity stakes in the fledgling cable channel, or even an acquisition.

Golf Channel CEO Joe Gibbs confirmed he's in talks with ESPN and NBC but denied the channel is for sale. However, he wouldn't rule out the possibility of minority stakes being sold to one of the sports programmers as part of an overall strategic partnership.

"We're having discussions about whether there is any way that we can do business together in a way that would be mutually beneficial," Mr. Gibbs said. "That's not necessarily about money. There are a number of things we could do. There could be just promotions done. Joint telecasts together. We're exploring that."

Mr. Gibbs denied the Golf Channel is in talks because of a need to raise money to keep the channel afloat, though he said it would likely need a major new capital infusion in the next year.

"We will be raising additional money next year, there's no doubt about it," he said. "We always forecasted that this would take $100 million-plus to break even."

To date, a group of investors including major cable TV operators, and individuals including Mr. Gibbs and golf legend Arnold Palmer, have put in about $70 million, with most of the money coming from the cable operators.

Mr. Gibbs said it's likely the Golf Channel would seek to raise another $40 million to $50 million in the next year, as part of its original plan.

But the Golf Channel, which launched in January 1995, has fallen short of its original growth plans due in part to an unsuccessful initial marketing strategy to launch it as a pay TV channel costing subscribers $6.95 per month.

The channel recently converted to a basic service and Mr. Gibbs said its subscriber base is rising rapidly.

He claimed the Golf Channel currently has about 400,000 subscribers and will have nearly 700,000 by yearend. Cable industry executives said the Golf Channel's current base is more like 200,000.

Originally, the channel projected 1 million subscribers in its first year.

But the Golf Channel's original marketing plan may indirectly be leading to a deal with either ESPN or NBC Sports.

As part of its initial bid to be a premium TV channel, the Golf Channel purchased expensive golf tournament rights that it may have a difficult time amortizing on a basic cable model. Bringing in another sports programmer to absorb some of that coverage would help the Golf Channel manage those costs.

"We started as a premium service, and we've already contractually obligated ourselves to buy some of these tournaments and to produce some of these tournaments," Mr. Gibbs said. "It's just impractical to cut the service back and destroy what we are doing."

Another reason for the Golf Channel's pursuit of new partners may be some shifts in the ownership of its original cable operator base, which included some systems that have since been sold to new owners.

The move to a basic cable tier also makes the Golf Channel more reliant on ad revenues, which may be difficult to attract given its relatively small ratings base.

However, Mr. Gibbs said the concentration of quality golf enthusiasts and the Golf Channel's focus on the sport are leading to a number of major new ad deals, including multiyear agreements with sporting goods marketers W.L. Gore & Co.'s Goretex and Pro Group.

"Our advertising sales have been the best news of anything that's happened to us this year," Mr. Gibbs said.

Copyright October 1995 Crain Communications Inc.

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