THEM'S FIGHTIN' WORDS

It’s a showdown, all right. Cox Communications and ESPN last week upped the ante in what is turning out to be one of the fiercest — and most public — battles over programming costs yet. ESPN president George Bodenheimer took his argument to Washington Thursday. ESPN’s fees, he said at a press conference, are justified by the value the network brings to a cable operator’s business. The same day Cox launched a website, makethemplayfair.com, that urged consumers to petition ESPN and Fox Sports Net and their local legislators to protest the high cost of sports programming. Both moves came just a day before the U.S. General Accounting Office released a report whose findings may bolster both sides’ claims. The GAO found that average license fees for sports-related networks jumped 59% between 1999 and 2002, compared to a 26% increase for nonsports networks. But the GAO also found investments made by cable operators in their networks in recent years — for upgrades that primarily benefited only customers who took advanced services such as cable modems — as well as higher expenses for customer service and labor were major contributors to the 40% increase in cable rates over the past five years. Following recent public comments by Cox Communications CEO Jim Robbins that he would like to move ESPN to a separate tier or might drop ESPN altogether if no reasonable compromise could be reached, Bodenheimer threatened to aggressively market ESPN on cable’s archrival satellite services. Bodenheimer said he called the D.C. press conference because “the rhetoric…from Cox has raised [the dispute] to a different level.” The NCTA, echoing previous comments made by Glenn Britt, its current chairman and the chairman and CEO of Time Warner Cable, slapped both sides’ wrists in a statement that underscored the complexities of having one trade organization represent two diametrically opposed sides of an industry. “Contractual issues regarding the carriage of sports programming should be resolved in private negotiations between network owners and cable operators, not in the media,” the statement read. A Cox spokesman said that while Cox is willing to pay a higher fee to renew, it wants that increase to be reasonable. ESPN has lowered its demands for a 20% increase, instead seeking one in the low teens, but it wants a longer-term contract and the inclusion of other ESPN products. Cox made a counteroffer to ESPN’s initial contract renewal proposal over a month ago, and is now waiting to hear back from ESPN. “We have not yet responded to the last offer,” said ESPN spokeswoman Katina Arnold. “Our current contract lasts for many months.” Bodenheimer said Thursday he is optimistic a deal can be reached. ESPN cites its deals with each major sports league as part of its value proposition, but those deals have come at a cost — especially its latest rights deal with the NBA. Despite affiliate fee increases and subscriber growth, ESPN is having a tougher time making money these days. All cable and broadcasting networks are still climbing out of a two-year advertising depression, but ESPN’s results have been hurt by increases in sports rights fees. In particular, according to ESPN parent Disney, higher costs related to ESPN’s NBA package have dampened results in recent quarters. In the third quarter of 2003, for example, revenue for the cable networks group (which includes Disney Channel, Toon Disney, SOAPnet and ABC Family) soared 38%, to $1.3 billion, but operating income declined 5%, to $201 million. Operating margins for the group fell to 16%, down from 31% in the second quarter and 23% last year.