Here Comes Fox Sports 1, Part 2 of 5: Does Fox’s Entrance Change the Landscape?

Fox Sports 1

Fox Sports 1 will bring the heat to the cable sports business.

This Saturday, August 17, 2013, Fox Sports 1 will launch and become the newest entrant in the sports network business. In the five days leading up to Fox Sports 1’s launch, Uzo will take a daily look at the sports network business, its players, the landscape and what this all means for the future of television, the media and the economy as a whole. The series is dubbed, “Here Comes Fox Sports 1.” In Part 1, Uzo discussed the history of ESPN and the lack of competition in cable sports programming. In today’s piece, Uzo goes into Fox’s entrance into this space and how it will change the landscape. 

Fox has long been a major player in sports. In fact, the only reason we know and “love” the brand of Fox today is because of sports. When Rupert Murdoch first brought his vision of world television domination to the United States, it was with the FOX broadcasting channel. Many thought that would not succeed, as Murdoch had simply bought a bunch of run-down, second-tier local broadcasting stations in hopes of turning those into a major threat against ABC, NBC and CBS.

However, in 1993, when Murdoch was able to swing a deal for the rights to the NFL Sunday afternoon package, FOX had gotten the major tentpole event it would need to grow the everlasting success of the broadcasting channel, as well as the many other media divisions of Fox that would come to bear. Since then, Fox has been the quintessential major sports broadcaster. They hold the TV rights to the World Series, NFL Playoffs, and UFC, to name a few.

However, it was the recent loss of the rights to the BCS National Championship in 2011, which immediately followed losing the Pac 12 rights in 2010, that very well may have created, or at least expedited, Fox’s desire to start a sports cable channel of its own. And with a stable of sports programming rights that includes the sports I mentioned before, along with two cable channels dedicated solely to soccer and motor-sports, Fox is prime to make a much bigger splash in the cable sports arena than its predecessors, NBC and CBS, did.

But why invest some $9 billion in sports content (since 2010) to take this challenge on? And why now?

Well, as far as the “but why,” goes, it’s simple: Fox has the money to do it. Again, in the world of content creation and aggregation, which is what a cable channel does, there are no barriers to entry of long-lasting significance. Anybody with enough money can build a studio, hire on-air talent and cover sports. And if you have the negotiating leverage and money to buy sports programming that will attract an audience that advertisers and cable companies have to cater to, there are profits to be had. Fox has all of that, but then again, so did NBC and CBS.

Which brings me to the “why now?” Well, with NBC and CBS in the game, it is pretty much now or never. Between those two companies and ESPN, the rush for long-term sports rights contracts is on. And the prices for those bad boy sporting events are expensive and will continue to go over time. And by the time the end of the next slate of contracts comes along, who knows if the cable companies that carry these networks will even exist in the same manner they do right now?

So Fox is getting in the game because they can and because they have to do it now, or it just will not make sense to do it much later. But just because there are no barriers to doing something does not mean it can be done easily. As I mentioned in yesterday’s piece on ESPN, the “World Wide Leader in Sports” has learned a lot of lessons along the way, and they have fought a lot of tough battles. More importantly, ESPN has done its best to ensure that Fox Sports 1 is going to have a difficult time getting the programming they need to justify their existence by locking up long-term deals with the major sports leagues; the NFL, NBA and college sports conferences.

So how does Fox navigate all of that and become a successful competitor to ESPN?

For starters, they come in with long-term contracts of their own. Fox already has existing deals with college sports conferences, MMA, the NASCAR Sprint Cup Series, and soccer. Most of those are not the most popular of sports, but they are far bigger draws than what NBCSports and CBS Sports came to the table with (outside of NBC’s run-over Olympics coverage). And on top of those sports, Fox Sports 1 will have Major League Baseball, FIFA and the US-Open beginning in either 2014 or 2015. So Fox is not just entering this business looking to be the apprentice to ESPN’s mastery; it’s coming in to open up shop immediately.

The problem, for both Fox and ESPN, is that all of these deals that they are making will eventually expire. And as they expire, there are now four major sports cable channels that are going to be bidding on these sporting events, as compared to the one company that was bidding on these events at the beginning of ESPN’s heyday. Fox already had to pay an enormous $500 million for its latest deal with the MLB that gave it the most and the biggest games in baseball. ESPN, in it’s bid to outdo Fox Sports, bid a record-breaking $125 million per year to steal the BCS games from Fox in 2011. ESPN’s bid for the BCS was $25 million more per year than what Fox was willing to pay. To put that in perspective, ABC paid just $25 million per year for those same games from 1999 to 2006. The current contract with ESPN ends in 2014, when the price for the BCS games is sure to go up yet again.

Before prices for sports on cable were so high, ESPN was able to churn out profit like they were growing money on trees. But in the face of competition, it looks as if the sports leagues are eventually going to be in a position to usurp all of the value out of these TV rights deals. The only way for these sports networks to realistically generate more revenue is to increase the prices they charge cable operators, and ultimately  subscribers,  for accessing their content. ESPN allegedly charges upwards of $5/subscriber. Can they really garner much more than that? And Fox Sports 1 is reportedly asking for $0.80 per subscriber with escalators that take it up to $1.50 per subscriber over the next couple of years. In a world where people are increasingly ditching cable for digital pay-TV options, are consumers going to continue eating these costs?

Who knows? But as the newest entrant, Fox Sports 1 would appear to be the biggest bettor on the current cable operator ecosystem’s ability to sustain itself for the foreseeable future, and that’s something that many people in the television industry are already betting against.

How big of a bet is Fox Sports 1 making?

We can’t be too sure yet. While they obviously have invested a lot of money into Saturday’s upcoming launch, the real bet lies several years away, when Fox Sports 1 will have the opportunity to bid on the NBA (and maybe the NFL). Bringing one of those sports to its channel is the only way to challenge ESPN’s makeshift barrier to entry. We know Fox and Murdoch can write the check, after all, he did it with Fox’s broadcasting network in ’93. But if the major sports leagues start asking for more than cable subscribers are willing to pay, Fox could be writing a check that their channel can’t cash. And a bounced check may not only mean detriment for their channel, but it could change the landscape of cable as we know it.

This was Part 2 in Uzo’s 5-part series “Here Come’s Fox Sports 1.” Keep coming back to MediaMan everyday this week for a new installment. In Part 3 of the series, Uzo takes a closer look at why NBCSports and CBS Sports have fizzled and what it could mean for Fox Sports 1’s future. 

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