Disney Chairman Courts Operators of Cable Systems

NEW ORLEANS — Michael Eisner, disliked by many in the cable industry for his price hikes for the popular ESPN channel, made a rare appearance Tuesday at the National Cable & Telecommunications Assn. trade show in an apparent peace-making gesture.

Eisner, Walt Disney Co.’s chairman, walked the convention floor and later hosted a dinner for executives of the nation’s largest cable system operators. Eisner said he came to the cable convention with no agenda.

“There is no message,” he said. “At the dinner tonight, we probably won’t even discuss business.”

Disney cable executives, who have been on the front lines of the battle with the cable operators, were clearly relieved for Eisner’s support.

Although Sumner Redstone, chairman of Viacom Inc., which owns MTV, regularly hosts a dinner during the convention for cable operators in a gesture of gratitude and goodwill, Eisner has not attended for years.

Privately, many cable operators said they get no respect from Disney for helping build ESPN into the world’s most profitable television network and the most powerful brand in television sports. They say they are angered that ESPN’s rates are among the highest in the cable industry. Most cable operators pay Disney $1.50 to $2 a month per subscriber to carry the sports channel. Cable operators say Eisner has hiked ESPN’s rates about 20% a year for three years and they keep paying it because losing the channel would provoke a backlash from their customers.

Disney President Robert Iger defended the rate hikes Tuesday, saying ESPN’s profit margins have suffered as the network has invested in more sports programming to continue strengthening the channel.

Cable operators say they are unable to pass these price hikes onto customers because they are under regulatory pressures to keep consumer rates in check.

“How can we continue to raise our rates to consumers by only 5% a year if ESPN continues to raise its rates to us by 20% a year,” said one cable systems chief. “The issue with Disney right now is, are we going to war?”

Disney recently notified cable operators that it intends to raise ESPN’s rates an additional 20% this year to help pay for its new contract with the National Basketball Assn.

Cable operators said they signed long-term contracts with ESPN agreeing to these yearly rate hikes to help cover the steep costs of sports rights.

Yet for the first time in years, cable operators see a way to retaliate against Disney. Disney has been asking cable operators for stiff fee increases for carrying its new ABC Family channel, which the company bought from News Corp. last fall for $5.2 billion. To pay for the purchase, Disney planned in some cases to double ABC Family’s rates to cable distributors.

“Eisner is here because he’s in trouble with the Family Channel,” said an executive at a major cable operator. “He needs us more than we need him.”

Contracts for carrying the ABC Family channels have expired for all but two of the seven major cable operators. And those cable operators so far have refused to pay Disney what it wants.