As the paperwork on ctv’s NetStar purchase winds towards the Competition Bureau, industry speculation around the particulars of the deal continues.

At Playback press time a week after the announcement, ctv ceo Ivan Fecan and espn senior vp Willy Burkhardt refuse comment on the details of the proposal until the agreement goes on the public record with the crtc filing. But lack of substantive information isn’t quelling talk that espn is looking to gain more from the deal than a amicable partner in The Sports Network, particularly as more details of the CanWest negotiations surface.

Insiders familiar with the talks say espn requested in negotiations with CanWest a guaranteed 32% stake in every future specialty application the company might make. Although CanWest discussed attaching espn to every sports-related specialty, ‘they wanted 32% of everything,’ says a source involved in the negotiation process.

Playback has learned that, in tandem with the branding decision which might see tsn morph into ESPN Canada, was discussion of renewing espn’s long-term program supply agreement with tsn. The deal, which expires this year, is reportedly worth $6 million per annum, and although espn was asking for an increase of ‘a couple of million bucks,’ it was the length of the new agreement and not money that was the issue.

‘What CanWest didn’t want to happen was to go through the work and expense of changing the brand and then be over the barrel on the program supply contract five years down the road,’ says the same source.

In terms of branding, the issue was a ‘make or break’ aspect of the deal for espn, which is owned 80% by Walt Disney Co.’s Capital Cities/abc and 20% by Hearst Corporation.

‘Nobody actually saw Michael Eisner, but his name was invoked more than once,’ says a source. ‘Branding is everything. They’re into staking claim.’

Another source close to the defunct CanWest deal adds that when NetStar divulged contemplating buying Headline Sports, espn wanted a guarantee that the service would be similarly renamed.

‘It’s Disney’s belief that branding equals money somewhere down the line.’

Unanswered questions feed spec

For the record, ctv purchased 68% of NetStar for $394 million this month, scooping CanWest Global.

espn’s Burkhardt is on the public record saying price was the deciding factor in its choosing ctv over Global, with ctv coming in $24 million over the Aspers. But with CanWest’s $15 million kill fee factored in, the margin between the two offers slims to $9 million, which, considering the Canadian dollar, could be considered only marginally inspiring to a company the size of Disney.

And, at the same time, Burkhardt, in his presentation to ctv shareholders after the announcement, added that four reasons led espn to ctv, only three of which – that ctv had an ‘attitude of partnership and inclusions,’ a greater understanding of the cable channel business and more in-depth knowledge of the sports business – rang clear considering Global’s single specialty, minimal sports programming and reputation as stubborn and uncompromising.

The fourth, a ‘demonstrated appreciation of the value of NetStar and its potential for growth,’ opened the door to widespread interpretation. Global too shared that vision, leaving analysts and broadcasting executives alike speculating on how espn and/or Disney might participate in that growth with ctv in ways different than it could have with CanWest.

Without details to work from, analysts are speculating on a tersely worded paragraph in the purchase announcement that ctv and espn have agreed to negotiate within 12 months ‘the terms on which ctv would transfer to NetStar its interests in ctv’s sports related cable television undertakings.’

Although CTV SportsNet is an obvious part of the deal, it’s unclear whether or how other specialties like CTV Pay-Per-View Sports and the sports-heavy Outdoor Life Network will be included.

What could be part of the act of bringing those properties under the NetStar umbrella is also unclear, although some analysts say that programming deals and extending the branding initiative to include the other channels are a possibility.

‘The channels that have other stakeholders will probably be a more complicated transaction,’ says one analyst. ‘But could it come down to ESPN1, ESPN2 [SportsNet] and espn’s Outdoor Life? Branding is obviously paramount, so it makes sense.’

In the case of oln, ctv and Ellis Enterprises formed a jointly held company and own 50.1% of the service, with Rogers and Outdoor Life l.l.c., a u.s. specialty service, in for minority ownership. In the original channel application, long-term projections for Outdoor Life pegged revenue at more than $12 million by year seven of its operation. According to financials released by the crtc this year, oln took a loss of $572,660 on revenue of $2.6 million in its start-up year.

CTV Pay-Per-View Sports, owned by ctv at 60%, Molson at 20% and LMC International at 20%, is an event-driven digital channel. Revenues were projected $16.7 million by year seven.

For the record, CTV SportsNet, is owned 40% by ctv, subscriber revenues were projected at $50.2 million by year seven, although the original projections didn’t include being placed on basic cable.

Disney

Although Burkhardt said point blank that Disney is not participating in the deal, ctv’s NetStar buy is bringing to the forefront long-held speculation that Disney is positioning to own a piece of ctv. The number in play is 18%.

With the NetStar deal approved, Disney could more easily become part owner of Canada’s largest network. According to a well-placed source inside the merged company and an analyst, both of whom requested anonymity, it’s possible that Disney’s 32% stake in tsn could be effectively exchanged for a stake in ctv.

‘They could give 100% of NetStar to ctv, take an interest [via the a new public offering] in ctv equivalent in financial terms to their piece of NetStar and wind up with about 18% of the company,’ says the analyst

espn’s 32% of tsn is worth some $290 million. ctv’s upcoming stock issue is expected to be worth between $200 million and $300 million, or 10.8 million shares. Analysts are skeptical that Disney would acquire the entire issue.

The move would be a bailout for the debt-laden ctv. When the deal is finalized at the end of March, analysts say the consolidated debt load will approach $900 million, or more than twice industry average.

For its part Disney, with a substantial ownership stake in ctv, would be privy to an ownership stake in all its specialty channel holdings including oln, CTV PPV Sports, CTV News 1, The Comedy Network, and the yet-to-be-incarnated Talk tv. The potential for Disney product flowing into those pipelines is a win for both companies, says one analyst.

‘ctv buys from a whole lot of people so more of an exclusive window for one supplier is good for the supplier. In return, ctv is helped with the debt. But no one says this is happening,’ she concludes.

‘There are more pieces to come.’

Netstar’s assets include an 80% ownership in Discovery Channel Canada, which has 5.6 million subscribers. tsn has 7.4 million subscribers. Other broadcast assets include Le Reseau des Sports and ownership interest in Viewer’s Choice Canada, Dome Productions, NTN Canada and the St. Clair Group. The company overall has 700 employees and annual revenue of $275 million.

Disney’s monolithic film and television assets include abc (radio, tv stations, video and network news operations), Disney Channel, Disney Television, Touchstone Television, Buena Vista Television, Walt Disney Pictures, Touchstone Pictures, Miramax Film Corporation, and Buena Vista Pictures (distribution arm) and Buena Vista home video and ownership stakes in A&E, Lifetime Network, ESPN and ESPN 2.

In music, Hollywood Records, Wonderland Music, and Walt Disney Records. In multimedia, Disney Interactive, Disney.com, Americast with some of the Baby Bell companies and ABC Online. In magazines, Chilton Publications (trade), Fairchild Publications, L.A. Magazine, Institutional Investor and Disney Publishing Inc.; in newspapers, almost a dozen including the Fort Worth Star-Telegram, Kansas City Star and St. Louis Daily Record.

Micellany includes more than 400 Disney retail stores, the Mighty Ducks nhl hockey team, theme parks including Disneyland, Walt Disney World Resort, Disney Vacation Club, and partial ownership in Disneyland Paris and Toyko Disneyland.