Cox Rebuts ESPN Study — With Study

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Cox Communications Inc. released a study last week purporting to show that recent programming cost increases have played a much large role in pushing up cable bills than stated in a report issued last month by ESPN.

The Cox-funded report, containing a mix of data supplied by the No. 3 MSO and the Federal Communications Commission, calculated that programming cost increases accounted for 42% of the rise in expanded basic rates from 1999 to 2002.

ESPN's report, prepared by Cap/Analysis in Washington, D.C., attributed just 20% of the rise to higher license fees.

Latest Salvo

The Cox report, the latest salvo in the MSO's battle with sports networks, concluded that ESPN's claim that programming costs "did not play a major role in explaining increases in cable subscription prices" was not supported by the evidence. Cox's report was prepared by William P. Rogerson, an economics professor at Northwestern University.

In a statement, ESPN questioned Rogerson's methodology and conclusions.

"The Rogerson study continues the faulty rhetoric of Cox blaming retail price increases on programming," ESPN spokeswoman Katina Arnold said. "Even by its own calculations, almost 60% of cable price increases can be attributed to non-programming costs."

Cap/Analysis executive vice chairman Jeffrey A. Eisenach said Rogerson's analysis was flawed, because he compared cost to price increases instead of costs to costs as the Cap/Analysis report did.

That Cox's report attempted to undercut a key claim by ESPN was hardly a surprise. Since April, Cox and ESPN have engaged in an acrimonious dispute over the sources of rising cable rates. Cox pins the blame on programmers — ESPN and Fox Sports Net in particular — while ESPN points to cable operator capital spending in the billions of dollars each year to outfit their networks for digital programming and high-speed data services.

Cox's contract with ESPN expires next March. The MSO, with 6.2 million subscribers, is pressuring the sports powerhouse, owned by the Walt Disney Co., to moderate its license fee demands or face being dropped.

Cox CEO James Robbins and ESPN president George Bodenheimer were scheduled to testify last Thursday before the Senate Commerce Committee, but Sen. John McCain (R-Ariz.), the panel's chairman, cancelled the hearing because partisan skirmishing threatened to limit the hearing to just two hours.

Meanwhile, sports-tiering issues were addressed on a panel that included Yankees Entertainment & Sports Network head Leo Hindery and Time Warner Cable senior vice president of programming Fred Dressler in New York on Nov. 13 (see story, page 22).

In July, the FCC reported that nominal cable rates rose by 8.2% for the 12-month period ending June 30, 2002, triggering another assault from consumer groups of cable price gouging in an economic climate marked by very low inflation.

However, the report also showed that per-channel cable rates, adjusted for inflation, declined slightly.

GAO Findings

Last month, the U.S. General Accounting Office issued a report requested by McCain that examined the sources of rising nominal cable rates. GAO found that from 1999 to 2002, cable operators paid 48% more for programming, with sport programming rising 59%. GAO said large cable operators offset 31% of the increase with local advertising revenue.

The GAO also noted that cable operators had spent $75 billion on capital projects since 1996.

McCain was particularly interested in the GAO's analysis of the potential for expanding consumers' à la carte purchase of cable programming. GAO responded that à la carte, as a rule, would be disruptive and costly to consumers, cable operators and cable programmers.

However, GAO indicated that sports tiers might be "viable because this genre of programming has a loyal base of customers."

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