Espn, Cox Swap Blows In Fees Fight

Tense contract negotiations between ESPN and Cox Communications spilled into public view Thursday as both sides traded barbed accusations over the license fees that the Walt Disney Co.-owned sports powerhouse charges cable operators.

"Cox continues to grossly overstate the impact of ESPN's wholesale cost on its retail pricing decisions," said George Bodenheimer, president of ESPN and ABC Sports, in an address Thursday at Washington's National Press Club.

The escalation in their conflict, which centers on a carriage agreement that will expire in March, began with the release of a report from ESPN defending the cable industry's highest license fees, estimated at well over $2 per subscriber.

Not to be outdone, Cox has announced the launch of a new Web site, www.makethemplayfair.com, intended to "educate consumers" on the rising costs of sports programming.

Cox Communications president Jim Robbins singled out ESPN and Fox Sports, whose carriage agreement is up at year's end, for gouging operators with steep price hikes. "We've been trying to stress for a long time that their expectations are unreasonable," he said.

The ESPN-Cox face-off is becoming something of a rite of passage in the cable industry, which has seen sports programming costs emerge as its most contentious issue. Cablevision and the YES network engaged in a similar standoff earlier this year as operators claim that they must either tier expensive programmers or pass on the costs to all subscribers. Sen. John McCain, R-Ariz., has indicated that he is considering government regulation.

ESPN's report, which was conducted by Washington consultancy CapAnalysis, deflected the blame for the rising retail price of Cox's cable subscriptions to the operator's own capital and overhead costs. The report found that Cox's programming costs remained flat as a percentage of the operator's total expenditures for the past four years.

Bodenheimer reaffirmed the value of the ESPN brand and clearly indicated that he would not be amenable to offering the network for an extra fee.

"It is patently absurd to suggest that what Cox offers would be better if ESPN were to be ripped out of expanded basic and placed on an extra-fee tier by Cox or dropped as Cox has threatened," he said.

Addressing Bodenheimer's charge that Cox is passing on its capital expenditures to subscribers, Robbins indicated that ESPN was employing fuzzy math. "They're confusing capital spending with operating costs," he said. "Our margins on Internet and phone service are increasing while the video service has declined, and that is solely because of the programming costs."

Cox has yet to walk away from the negotiating table from either ESPN or Fox Sports. Robbins stopped short of suggesting that he is likely to drop the sports network from basic cable. "I'm hopeful we will get something done, but there has to be reasonable behavior," he said.