Fanning the Flames10/05/2003 8:00 PM Eastern
Cox Communications Inc. CEO Jim Robbins threw gasoline on the fire over sports-programming costs last week, suggesting Cox might drop Fox Sports Net regional channels or ESPN if they don't lower their rates.
At the Goldman Sachs Communacopia conference here last Tuesday, Robbins complained that in addition to a 20% rate hike expected from ESPN, Cox has also been asked to absorb a 35% rate hike from the Fox Sports channels, a request he said is almost impossible to honor.
"We're not going to be able to swallow these types of increases anymore," Robbins said, claiming Fox Sports Net and ESPN attract 8% of Cox viewers, but amount to 32% of overall programming costs.
Robbins again called for the tiering of sports networks, saying any channel that charges more than $1 per month per subscriber — mainly Fox Sports and The Walt Disney Co.'s ESPN — should be put on a separate tier.
Later, Robbins told reporters he was gearing up for a "good tussle" with sports programmers, and hinted that established networks could get dropped.
It's well known that Cox's contract with ESPN runs out next year, making it the first big operator to square off against ESPN's current regime of annual 20% license-fee increases.
"I'm not sure Disney or Fox/News Corp. yet realize how serious Jim is," Fulcrum Global Partners cable analyst Richard Greenfield added. "Cox, as a whole, is very focused on not absorbing the type of price increases they've been asked to absorb in the past.
"I talked to Cox and I think that Cox management is sincerely prepared to drop Fox Sports at the end of the year. They are ready to drop it if they don't get the deal that they want. I think it's going to get ugly."
Robbins said he's trying to keep legislators current on the topic. "If we go dark, we want to inform them why we're going dark," he said.
News Corp. and Fox Entertainment Group president and chief operating officer Peter Chernin followed Robbins to the Goldman podium.
"That 35% rate increase he's talking about is just not true," Chernin said. "We're in the early stages of negotiations for renewals. The 35% relates to just the market of Phoenix."
The Phoenix rate increase was high because Fox just acquired the rights to the National Basketball Association's Phoenix Suns from Qwest Communications International Inc., and Fox Sports is charging Cox less than Qwest did, Chernin said.
Disney president and COO Robert Iger, also at the Goldman conference, slammed tiering talk. "I don't know why Cox went out on its own on this," Iger said. "It [tiering] is not possible, it's not feasible, and I don't think it's going to happen."
Before day's end came Cox's rebuttal to Chernin and Iger.
Cox said the Phoenix increase was more like 50%. It said the 35% hike is an average across 11 different Cox markets that offer the Fox regional sports networks for 2004 — and some systems are being asked to weather increases as high as 181%.
Cox, with 6.3 million subscribers, is the fourth-biggest U.S. MSO.
"I'm in full support of Jim Robbins," Mediacom Communications Corp. chairman and CEO Rocco Commisso said. "It's about time that a senior leader in our business makes a statement about the issues that we have."
Not everyone was pleased about the public spat.
"There are many inconsistencies in Cox's public comments," ESPN executive vice president of affiliate sales Sean Bratches said in a statement. "The facts related to the growth of their business, their margins and their own packaging decisions all belie the notion that programming costs are a major issue.
"We believe that the ESPN brand and our portfolio of products and services presents a strong value proposition, but if Cox decides to drop us, that will be a huge disservice to their customers and a significant benefit to their satellite competitors."
Adding to the intrigue: Cox owns its own regional sports network — Cox Sports Television — which some MSOs said is charging rates as high as the larger sports services. One source pegged Cox's monthly license fee for the network at $1.30 to $1.50 per subscriber in expanded basic, and as high as $2.30 to $2.70 if the network is placed on a digital sports tier.
In New Orleans, Cox Sports has rights to New Orleans Hornets NBA games and college-sports contests from schools including Louisiana State University, Tulane University and the University of New Orleans.
Launched last October, Cox Sports has about 725,000 subscribers, mostly Cox cable customers.
Rod Mickler, vice president of regional sports for Cox Communications and head of Cox Sports, would not spell out specific pricing for the regional, but said the rate for expanded basic carriage was "well south" of $1.30 to $1.50 per subscriber.
Mickler said the cable-only network was priced to cover costs and retain subscribers that might be thinking of defecting to satellite.
"We're not trying to make a profit," he said, adding Cox offers MSOs the chance to look at its business plan.
"We're playing extremely fair," Cox Communications spokesman Bobby Amirshahi said. "All we are asking of these networks is one of two things – lower your prices or give us the flexibility to package and price them on a tier. That is what we are doing."