NEW YORK (CNN/Money) -
ESPN, Walt Disney Co.'s most attractive asset, is now a bit less attractive to Comcast Corp., the cable operator bidding for the entertainment conglomerate.
That's because ESPN is in the process of giving cable companies a break.
The network has had strong growth in the per-subscriber fee it gets from cable providers -- about a 16 percent compound annual growth rate since 1997.
But after seeking a 20 percent annual increase from cable operators in the current negotiations, it agreed to only an average of 7 percent increases for the next nine years for No. 3 cable operator Charter Communications Inc. (CHTR: Research, Estimates) and No. 4 Cox Communications (COX: Research, Estimates).
The deals, announced last week, are expected to set the target for agreements with other cable operators.
Some analysts say that the agreements reduce the incentive for Comcast, the nation's largest cable operator, to acquire the house of mouse -- a big piece of the logic behind the Disney bid was securing access to ESPN.
"Mitigating the price increases of ESPN is not something Comcast has to do by acquiring Disney now. It's now something that's just happening," said Richard Greenfield, media analyst for Fulcrum Capital.
A Comcast spokesman wouldn't comment on how it views the ESPN deals with Cox or Charter, other than to say that it doesn't affect its bid for Disney. The company made an all-stock offer for Disney Feb. 11. The Disney board has since rejected the offer, which is now below market value, although it said it would consider a higher bid.
The crown jewel
Comcast paid $3.9 billion to various broadcast and cable networks in 2003. Just under $1 billion of that, or almost 25 percent, went to Disney-owned networks, with ESPN and its various properties like ESPN2 and ESPN Classic, making up the overwhelming majority of those expenditures.
ESPN is by far the most expensive cable network for cable operators, charging an average of $1.76 per subscriber last year, compared to $1.16 per subscriber for No. 2 Fox Sports and only 78 cents per subscriber for TNT, according to stats from Kagan World Media.
ESPN executives say the deal with Charter and Cox is a good one for the network and Disney, and that the bidding by Comcast for Disney had nothing to do with the agreement.
"We have been in active negotiation with virtually all affiliates for the past 12 to 18 months," said Sean Bratches, ESPN executive vice president of distribution. "We were already in accord with a majority of material terms with Charter and Cox -- in fact I was in a conference room in Atlanta (with Cox) -- when that bid was announced."
Bratches said that regardless of the Comcast bid for Disney, ESPN is continuing negotiations with Comcast on a new subscriber agreement.
Bratches said that ESPN never expected to gain another round of 20 percent increases, and that the stability it won with this 9-year deal allows it to reach deals with advertisers and make bids for sports rights deals. He denies the new deals will bring significantly less than expected for the ESPN networks.
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"It's right in the crosshairs of what we anticipated when we started the journey," he said. "We fully expect to announce other agreements in the weeks and months ahead."
While the existing Charter agreement had run through the end of this year, Cox had been vocal about threatening to drop all ESPN networks at the end of March unless it could reach an agreement it felt was reasonable. It had about a week left before it would have had to notify customers formally of plans to drop ESPN.
Bob Wilson, vice president of programming for Cox, says that the cable operator, with just over 6 million customers, was fully prepared to drop ESPN, but is glad to have reached a long-term deal to keep it in place.
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"Overall we recognized we're dealing with the sports business and at the end of the day it's a scarce resource," he said. "It's better to lock in for the long term."