After a contentious battle over rising carriage rates, Cox Communications Inc. and ESPN Thursday agreed on terms for a new multiyear distribution deal -- the network’s second major carriage-renewal deal for the day, following a similar long-term deal with Charter Communications Inc.
While terms of the deal were not announced, Cox will offer ESPN on expanded basic with "moderating rate adjustments off a solid rate base in exchange for long-term commitments and the distribution of new services from ESPN," ESPN Inc. president George Bodenheimer said.
Cox has also agreed to offer ESPN2 on an expanded-basic tier, and it will carry ESPNews, ESPN Classic, ESPN HD and ESPN Deportes.
A Cox spokesman confirmed that the MSO will pay 13% in the first year of the nine-year deal, and the rates will scroll down to 5% over the last three years.
Overall, including all of the ESPN networks, the spokesman said, Cox will pay an average annual increase of 7%.
Citgroup Smith Barney cable analyst Niraj Gupta didn’t know what the terms were for the other ESPN networks.
"From Cox’s perspective, a 7% long-term growth rate for ESPN is certainly reasonable," Gupta said. "And from ESPN’s perspective, they get double-digit rate increases in 2004 and 2005. Clearly, I think the long-term growth rate in the contract is lower than what the Street was expecting."
That would make Cox’s deal terms significantly better than the 10-year deal ESPN offered to members of the National Cable Television Cooperative last year -- a sliding-scale agreement that started with a 16% rate hike in the first year, dropping to an 11% increase in the final four years of the deal.
Neither Cox nor ESPN could be reached for comment.
The deal ends an often-bitter battle between the two parties over ESPN’s rates, which Cox said topped the $2.50-per-subscriber mark. Cox threatened to drop ESPN once its deal ended next month if ESPN continued to ask for 20% yearly rate increases.
"We’re pleased to reach agreement with ESPN," Cox president and CEO Jim Robbins said in a prepared statement. "We are resolved to protect the value of cable-television service for our customers and, with this agreement, we believe we made material progress in accomplishing that objective."
Charter technically became the first major MSO to reach a long-term pact with ESPN Thursday, but that distinction didn’t last long, as Cox announced its own agreement with the sports network the same day.
According to the deal, Charter will continue to carry ESPN and ESPN2 on expanded basic and ESPN News and ESPN Classic on its sports tiers. In addition, the MSO will launch ESPN Broadband, ESPN HD and ethnic sports network ESPN Deportes on different tiers.
Terms of the Charter deal were not disclosed, but it is speculated that the St. Louis-based MSO’s agreement was different than the long-term deal that had been floated to operators by ESPN for the past few years.
"We didn’t have a cookie-cutter agreement," Charter senior vice president of programming Sue Hamilton said in an interview. "This really is a Charter deal, and it is a significant improvement over what we had."
Hamilton would not disclose Charter’s past ESPN deal.
She said that even though Charter’s ESPN contract did not expire until the end of 2004, she began negotiations with the sports giant in April.
Charter has been working hard to pare down its programming costs, as have other MSOs. The operator renegotiated all of its premium-channel deals in the fall, according to CEO Carl Vogel, and the ESPN negotiation was an extension of that.
"This is a significant relationship," Hamilton said. "ESPN offered us favorable enough terms to have us make it a priority."
Vogel said the new deal also includes changes to existing rate increases for ESPN and ESPN2, the two channels it carries on expanded basic. "This is an all-inclusive deal," he added in an interview.
The Charter agreement, those same sources said, is for a slightly shorter period of time.
Most operators had balked at the long-term deals because it forced them to carry networks they didn’t want. Many complained that with the addition of the other ESPN networks, the "discount" was virtually nonexistent.
But according to one person familiar with the Charter-ESPN deal, ESPN appeared to be motivated to do a deal.
"I think [ESPN was] looking to lock down some deals," said the source familiar with the negotiations. "They seem very exposed. They came in with a very different negotiating stance."
That source said the change in ESPN’s attitude had nothing to do with Comcast Corp.’s unsolicited bid last week for ESPN parent The Walt Disney Co.