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By Ben Klayman
CHICAGO, Dec 30 The economy may be throwing a curveball at U.S. advertisers, but Major League Baseball is betting its new cable television channel will score big with viewers after an expected record-breaking debut on Thursday.
MLB Network will begin airing in more than 50 million homes at 6 p.m. EST, the largest cable TV introduction by about 20 million homes. While the landscape is littered with such rivals as Walt Disney Co's (DIS.N) ESPN and the National Football League's NFL Network, MLB Network Chief Executive Tony Petitti expects his channel to get its share of the pie.
"You're always trying to figure out what your share of the marketplace is going to be and if you're new in, you're trying to figure out where your share is going to come from," he said in a telephone interview. "We feel comfortable that the product we're going to offer will allow us to get the share of the business that we need."
Given the soft ad market and start-up costs, the baseball network will likely finish about break-even in its first year, said an official familiar with the launch who asked not to be identified. After that, however, it should generate tens of millions of dollars in free cash flow annually.
"It's a rough economy and getting people to step up right now is hard. The timing of the launch is not great," said Michael Law, a vice president and group director at Carat, a media buying and planning division of advertising company Aegis Group Plc. AEGS.L
"At the end of the day, sports is going to take its lumps like everyone else," added Law, who nonetheless said the network is generating great interest among advertisers. Baseball has not stinted on its investments in the 24-hour network, spending more than $50 million to launch an asset that could eventually be worth $1 billion, according to a report in Street & Smith's SportsBusiness Journal citing industry sources.
"The primary goal is to grow the game, grow our reach, and satisfy our fans' thirst for the game on a full-time basis," MLB President Bob DuPuy said in an email.
"The network will generate substantial cash flow from the start and it is hoped that it will be profitable from its inception despite the challenging economic and sponsorship market that is accompanying the current time frame," he added.
All U.S. sports leagues have been dealing with the recession's impact. Baseball froze its 2009 budgets, while other leagues have cut jobs, folded teams and in the case of the Arena Football League canceled its season.
The U.S. advertising industry is facing its worst slump since the dot-com bubble burst in 2001, which wiped out marketing spending by countless Web companies.
This time around, the shakeout in the automotive, financial services and retail categories -- three of the biggest in advertising -- is expected to cause U.S. ad spending to drop about 5 percent in 2009, according to analysts. Just six months ago, forecasts were calling for growth of around 3 percent.
70 MILLION HOMES?
Petitti said baseball is finalizing deals "every day" for MLB Network and plans to take part in the spring upfront ad selling season in May.
To ensure the new channel's broad distribution, baseball officials gave one third of the network to satellite operator DirecTV Group Inc DTV.O and cable companies Comcast Corp (CMCSA.O), Time Warner Cable Inc TWC.N and Cox Communications Inc. It has cut separate carriage deals with other operators.
Baseball will earn 20 to 30 cents per subscriber every month from the cable and satellite carriers next year, industry officials said. That compares with 75 cents to $1.10 per subscriber for the NFL Network, or the $3 to $4 ESPN receives for its family of properties.
Petitti called estimates MLB Network could reach up to 70 million homes within a few years "fair" as it positions itself as a supplement to local coverage of the sport's 30 teams.
"The ultimate vision is to be a destination for baseball fans," he said of the studio shows, historical broadcasts, documentaries and 26 regular-season games in 2009.
Analysts expect the number of regular-season games aired by the network, which employs about 150 people, to rise after the current TV contracts expire in 2013. Petitti said such non-MLB content as youth baseball, college, minor league and Caribbean World Series games and game shows may be added down the road.
Rivals publicly show no concern about another sport hustling for the public's attention and dwindling ad dollars.
"Competition makes us better," ESPN Senior Vice President Chris LaPlaca said. "Fans have recognized ESPN's excellence in baseball for 20 seasons and we don't anticipate that changing."
However, baseball boasts an advantage few sports can match, analysts said.
"When you look at the cumulative (TV) ratings for baseball over 30 teams, 162 games, it probably gets the highest total audience of any sport in the United States," said Neal Pilson, head of a sports consulting firm in New York and former president of CBS Sports.
"Of all the sports, baseball has the legitimate claim to being a 12-month attraction for the public," he added.
(Additional reporting by Paul Thomasch and Yinka Adegoke in New York, editing by Matthew Lewis)
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