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Sports' main event: ESPN-cable bout
ESPN and cable operator Cox's fight over fees paid network could change sports' economics.
October 23, 2003: 4:30 PM EDT
A weekly column by Chris Isidore Senior Writer

NEW YORK (CNN/Money) - The fiercest battle in sports right now isn't in any stadium or arena, but in the media and in Washington and on Wall Street.

That's where ESPN and Cox Communications (COX: Research, Estimates) are battling over how, and for how much, the nation's No. 4 cable operator will carry the popular all-sports network.

Cox CEO Jim Robbins has decried the per-subscriber fees being demanded by ESPN and competitor Fox Sports, and is proposing putting the high-priced sports networks on their own premium cost tier or dropping them altogether.

"If the price tag for sports is too high, our customers shouldn't be forced to pay for it," said Robbins at a recent analyst conference. He said ESPN accounts for only 4 percent of viewership on Cox systems spread across 30 states. But the $2.61 a month Cox pays ESPN for each of its 6.3 million subscribers equals 18 percent of the fees it pays networks.

The outcome of the battle has implications far beyond Cox, or ESPN, or even its parent, Walt Disney Co. (DIS: Research, Estimates) The economics of both the cable and the sports industry could undergo significant change if Atlanta-based Cox comes out on top in this contest.

ESPN can't accept being on a premium tier because it needs to be able to reach as large an audience as possible to get the ad dollars it needs. And if ESPN's revenue spigot starts to close, that could be the end of the increasing flow of money to sports broadcast rights fees.

"It's not an empty threat," said Neal Pilson, sports broadcasting consultant. "This will have a ripple impact across all manner of pro and college sports. I think in this situation the professional leagues and major college associations have to line up with ESPN in Washington or wherever necessary."

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ESPN and ABC Sports President George Bodenheimer came to the National Press Club Thursday to plead the case, saying that it's not the fees paid to ESPN and other cable networks but cable operators' profit and capital spending demands that drive up consumers' cable bills. Bodenheimer made his pitch a day ahead of an expected report from the General Accounting Office that will look at cable rates.

"What you're seeing is a combination of negotiating tactic and legislative posturing," said Craig Moffett, cable analyst for independent Wall Street research firm Bernstein. "The GAO report is almost certainly going to shine unflattering light on both programming costs and the cable operators. There's probably enough blame to go around."

Moffett says he believes that in the end both sides will agree to a deal that keeps ESPN on basic cable. But ESPN will probably say good-bye to the 20 percent increases in subscriber fees it won from cable operators in the past couple of years.

ESPN and Fox Sports aren't the only ones squeezed by cable operators. CourtTV is seeing its far more modest fees cut by Comcast (CMCSK: Research, Estimates), the nation's largest cable operator. But the battle with sports networks has far more dollars at stake, and far more parties which can be affected, than other niche cable operations.

There is a risk for Cox if it goes through with its threat. In this age of satellite television, many devoted sports fans could jump to DirecTV or the Dish network if Cox pulls the plug on ESPN.

"On every survey that's ever been done, ESPN is on that group of 10-to-15 channels that defines the cable industry," said Leo Hindery Jr., chairman and CEO of YES Network, the regional sports network showing New York Yankees and New Jersey Nets games that weathered a year-long fight to get on the region's largest cable system. "My guess is, if you told me I had to get my sports some place else, I'd buy a dish in a heartbeat."

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Pilson and Moffett question Hindrey's estimates on Cablevision customers who switched during the YES-Cablevision dispute. Still, they and other analysts believe that in the end, a new deal will be hammered out by next spring's deadline.

"Both of them are playing a game of brinksmanship," said Moffett. "The risk both run is regulatory intervention, which neither wants. But this is a complicated issue that defies the simplistic analysis."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.