NEW YORK — Cox Communications execs are mad as hell about the skyrocketing costs of sports networks, and they say they’re not going to take it anymore.
Good luck, guys.
The midsize cabler with some 6 million subscribers may be in a no-win situation as it tries to play hardball over monthly license fees with Walt Disney’s ESPN nationally and with the regional Fox Sports networks in Cox’s coverage areas.
Cox vs. ESPN and News Corp.’s Fox Sports “could turn out to be the toughest, nastiest cable fight of the year,” said Mike Trager, a TV sports consultant and former president of TV for Clear Channel Entertainment.
Giants root for Cox
Giant cable operators like Comcast and Time Warner Cable — which are just as adamant about what they regard as out-of-control sports costs — are cheerleading for Cox in its negotiations with ESPN and Fox Sports. Cox is in the spotlight because its contracts are up sooner than those of its competitors. According to Prudential Securities, Cox’s deal with Fox Sports expires in December and with ESPN in 2004.
At a Goldman Sachs investor conference last week (Daily Variety, Sept. 30), Cox chief Jim Robbins said he would hold the line against the double-digit-percentage increases threatened by ESPN and Fox Sports. ESPN and Fox are said to be seeking rate hikes of 20% and 35%, respectively.
These price hikes are unconscionable, Robbins said, because ESPN and Fox already gobble up 32% of Cox’s programming costs while delivering only 8% of its total lineup.
Robbins will demand that ESPN and Fox agree to go up on a separately priced tier so that Cox won’t have to raise the monthly fees of all its subscribers, including the two-thirds or more who are not sports fans and probably would not buy the sports tiers.
Cable networks have refused to even consider getting bumped up to another tier because their advertising base would be damaged. Grossing more than $700 million a year, ESPN harvests more advertising dollars than any other cable network.
According to a report published Monday by Prudential Securities analyst Katherine Styponias, Cox could lose lots of subscribers to satellite competitors DirecTV and EchoStar if it drops ESPN because it can’t come to an agreement with the network. DirecTV and EchoStar would blanket Cox’s markets with an advertising blitz urging ESPN fans to cancel their Cox subscriptions and buy a satellite dish.
Cox customers pay their bills every month to Cox, not ESPN. Subscribers would place the blame on Cox for the disappearance of the sports net from their TV screens, which would make them susceptible to the siren call of satellite TV. DirecTV and EchoStar would, of course, keep ESPN on an expanded basic at no extra cost to subscribers.
Prudential also noted that Disney has some potent weapons in its negotiating arsenal, such as the retransmission of the TV signals of ABC’s owned stations in two Cox markets. Cox couldn’t drop the ABC stations, which carry such hit shows as “NFL Monday Night Football,” “The Bachelor” and “According to Jim.”
Cox doesn’t pay cash for the ABC stations. If ABC forced cash payments on Cox for the ABC O&Os, that fee could make the extra ESPN charge pale in comparison.
Though a la carte and tiers have been talked up as consumer- and regulatory-friendly, Prudential reckons there would be a huge outcry from subscribers who not only would be asked to pay more for channels they don’t want every year, but could lose some they do want.
“Going down the a la carte path is a slippery slope,” Styponias noted. “While Cox wants to go down this route because of what ESPN costs them, we think politicians will care less about Cox’s costs and more about giving consumers more choice.”
(John Dempsey in New York contributed to this report.)