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CONSUMER BEAT

Comcast departs from the script on rate hikes

Every year the dominant cable television company in this region has upped its rates and cited the high cost of programming, particularly sports programming, for the increase.

Last year, Comcast Corp. said its 7.8 percent rate jump was caused by an 18 percent increase in its programming costs. The year before that Comcast's predecessor, AT&T Corp., said it was raising rates 8.5 percent due to a 15 percent increase in the cost of the channels it was carrying. The year before that there were two rate increases, both of them blamed on programming costs.

But this year, when Comcast said it was raising rates an average of 6.5 percent in New England, it didn't even mention programming costs. In a terse, three-paragraph statement, the nation's largest cable television company said the price change reflected the increased value of its service and unspecified higher costs.

The Comcast statement was a dramatic departure from the script that cable companies have followed for years in unveiling rate increases. Comcast's stance also contrasted starkly with the all-out war over programming costs that is being waged right now between Cox Communications, the nation's fourth-largest cable company, and ESPN, the cable sports network owned by the Walt Disney Corp.

While Comcast was lying low on the programming cost issue, perhaps because it has an ownership stake in a number of cable channels, the Cox-ESPN feud has become downright nasty, featuring dueling websites, attack ads, and tit-for-tat sound bites and studies.

But amid all the noise, cable customers across the nation, including those here in Comcast country, are finally getting an inside look at how the programming coming into their homes gets priced. The questions being raised go right to the heart of the spiraling price of cable television service. Is the soaring cost of sports programming what's causing cable rates to keep rising each year, or is it the cable systems' costly investments in phone and Internet service? Are sports channels getting so expensive that it makes more sense for them to be spun off to a separate tier where only those who want them can pay for them?

Jim Robbins, the chief executive at Atlanta-based Cox, which serves cities including Phoenix, San Diego, Las Vegas, New Orleans, and Providence, got the debate rolling in early October when he told a conference sponsored by Goldman Sachs Group that he was sick and tired of ESPN's rate increases of 20 percent a year and said Cox wasn't going to take it anymore.

Cox says ESPN currently charges it $2.61 a month per subscriber. The cable company says the ESPN charge is more than its combined cost for the seven top ad-supported cable networks, channels such as Nickelodeon, TNT, Lifetime, and Fox News.

A recent General Accounting Office study said sports networks raised their prices an average of 59 percent over the past three years, more than twice as much as nonsports networks. Cox's website on sports programming costs, Makethemplayfair.com, questioned the bang for the buck. It noted that ESPN and Fox Sports, which is asking for a 35 percent rate increase next year, account for 32 percent of Cox's programming costs but attract only 8 percent of its viewers.

Bobby Amirshahi, a Cox spokesman, said the cable company wants ESPN and Fox to moderate their rate hikes, bringing them down into the single digits so that the cost of standard cable service can remain affordable. If that's not possible, Amirshahi said, Cox wants to shift ESPN and certain other sports programs to a separate digital tier so that those who want them can pay for them.

Cable operators often talk about special sports tiers but rarely follow through. Cablevision did it in New York City with the YES network, which carries Yankees games. The cable operator stopped carrying Yankees games for a period of time, but ultimately the two sides agreed Yankees fans could catch the games by paying an extra $1.95 a month, or $4.95 if they wanted the YES network as part of a special regional sports tier.

Here in New England, Comcast's predecessor, AT&T, went in the other direction with the New England Sports Network in 2001. Comcast switched NESN, which carries Red Sox and Bruins games, from a premium channel with its own $10 monthly fee to part of the bundle of channels on standard service. The move increased the price of standard service by $1.40 a month.

ESPN officials say Cox's talk about sports tiering is merely an attempt to force most subscribers to pay more to keep what they currently have. The officials also say that blaming programming costs for rising cable rates is inaccurate, noting that Cox investments in phone and Internet service are the real culprits.

Rosa Gatti, a spokeswoman for ESPN, acknowledged that the sports network charges Cox $2.61 per subscriber, but says Cox also gets to run its own advertising on ESPN programs, reducing the net cost to Cox to about $1.50 per subscriber. Overall, she said, only about $6 to $7 out of Cox's $40 average cost for standard service can be attributed to programming costs.

Even a Cox-financed study indicated that 42 percent of standard service cable rate increases between 1999 and 2002 were due to programming costs. What about the other 58 percent? asked Gatti. And, she asked, how does a satellite operator like Dish Network sell its standard service, which includes three ESPN channels, for $25 a month, about $15 less than what Cox charges?

"This is not about protecting the consumer," she said. "This is about protecting Cox's margins."

So who's right?

"They're both right," said US Representative Edward Markey of Malden, the ranking Democrat on the House subcommittee on telecommunications and Internet. "They've each tossed out the two major components that lead to increases in cable rates."

As for the question of segregating sports channels on a special tier, Markey, who favored the NESN move to standard service in 2001, said he wanted to sleep on it. The next day he sent me an e-mail saying he wasn't convinced a sports tier would be a good idea.

"In the absence of any pricing rules, it may simply lead to consumers of sports channels paying more," he said. "The same could be said if all news channels or all arts and entertainment channels were put in separate `mini-tiers.' In addition, because the sports programming also draws advertising to the expanded basic tier, some have argued that those consumers who don't subscribe to the sports tier may wind up paying more, or may find that some of their programming choices disappear."

Negotiations between Cox and ESPN remain stalemated, but there are indications that Fox Sports has moderated its demands. Amirshahi said Cox is very optimistic that a Fox Sports deal with "reasonable terms" will be completed by the deadline of Dec. 31.

Bruce Mohl can be reached at mohl@globe.com.

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