BY Art Thiel 09:00AM 08/18/2013

Thiel: Fox Sports 1 takes ‘haircut’ from carriers

The newest challenger to ESPN took a hit just to get in the ring — instead of the 80 cents per subscriber it demanded from carriers, it took 23 cents. The reward — 90 million homes.

To get in the game, the new player on the block had to back off its financial demands. / Fox Sports

Before the Saturday debut of Fox Sports 1, ballyhooed 24/7 challenger to ESPN’s national cable sports hegemony, the enterprise took a hit Thursday with news the nation’s biggest distributors wanted no part of the new network’s asking price. So the Pac-12 Networks aren’t the the only ones to get blocked by purveyors of cable/satellite TV.

Only until FS1 agreed to back off from its asking price of 80 cents per subscriber per month to 23 cents, did most breathless TV sports enthusiasts get a load of the challenger.

Citing anonymous sources, Sports Business Daily reported satellite carriers DirecTV and Dish, along with cable providers Cablevision, Time Warner and Cox, pressured Fox into accepting the same 23-cent rate for the previous channel, Speed, the racing channel bumped to Fox Sports 2 (FS1 is channel 33 on Comcast in the greater Seattle market).

Rather than money, what was paramount for the new channel was exposure. In the parlance of carriage operators, it is “full distribution” — an audience of about 90 million homes whose pay programming, from cable or satellite, includes the most popular channels bundled with less popular channels.

The most expensive are sports channels, specifically ESPN, which, according to research firm SNL Kagan, gets a whopping $5.54 per subscriber, producing gross revenue of $6.6 billion. So starting at 23 cents gives an idea of how far FS1 has to go.

But as pay TV carriers pass on those costs on to consumers, they have felt monthly-bill  blowback, causing some to attempt to hold the line. That’s why DirecTV says it has been so stubborn in its position against paying what the Pac-12 Networks are demanding to carry their content, and why DirecTV refuses to carry the Blazers’ telecasts, on Comcast SportsNet, throughout Oregon.

While the PR rhetoric about “protecting the family’s finances” makes it sound almost wholesome, DirecTV is in the business of making money, and its bosses think they will make less of it by giving in to the Pac-12 and the Blazers. In their argument there is a point, driven by rapid changes in technology and viewer habits.

Some consumers are indeed fed up with increasing costs. With so many cheaper options available for content such as Hulu and Netflix online video services, a new lexicon has developed: “Cord cutters,” cord shavers” and “cord nevers.”

The move to online viewing and away from traditional pay TV is  more pronounced for younger consumers, according to industry surveys: 70 percent of all broadband users under 35 get some of their TV online, and 13 percent of that demographic stream all of their TV. Half of those 13 percent told market researchers that they have never purchased a pay-TV subscription. That is scary for the cable and satellite empires.

Play-by-play sports coverage is almost the only remaining category for appointment TV offered by cable or satellite. The fan’s desire to be in the moment with a game outcome — it’s no longer realistic to record a game for later viewing while avoiding hearing the result — is the one kind of program that providers can promise to deliver old-time amounts of eyeballs for advertisers.

So Fox Sports wants to snap up as many rights to play-by-play as possible, and supplement it with “shoulder programming” of sports newscasts and talking heads. It will take years. Fox’s hope is to get from 23 cents to $1 in four years, David Bank, an anlayst for RBC Capital Markets, told the New York Times.

“I don’t think anybody expected Fox Sports 1 to get 80 cents immediately,” Bank said.  “There will be a predictable ramp-up to profitability. This is a phenomenal business.”

So Fox Sports 1 took a big financial hit in the near term to get in the same ring as ESPN. Whether it stays on its feet is dependent on whether it can out-bid ESPN, NBC Sports Network and and CBS Sports for the next rounds of bidding for rights to major players.

Next up is rights to the Big Ten Conference sports and the NBA. Regarding the latter, pro hoops fans in Seattle recall that the disappointment around Chris Hansen’s failed attempt to relocate the Sacramento Kings was leavened a bit by talk of expansion following negotiations for new rights fees following the expiration of contracts after the 2014-15 season.

The NBA was waiting for Fox Sports to feel pressure to outbid ESPN for rights to pro hoops. The time draws near. The sooner the NBA gets rich enough to make all of its teams break even, the more amenable it will be to expansion.

The key to that, of course, is making sure there is a viable owner in Seattle who knows what he’s doing. That is the subject for another column.

 


YourThoughts

  • PokeyPuffy

    i hate ESPN, they are so much about creating simple and false narratives about sports. They also clearly pander to the powers that be (NBA=David Stern).

    That said Mike Sando’s NFC West blog is pretty awesome.

    • art thiel

      Lots of good reporters there, but the relationships with their partners — the pro leagues and college conferences — are served first.

  • Matt712

    The high asking price was a pretty obvious negotiating tactic, although they probably were hoping to arrive at better than 23 cents. The interesting thing is that we’re finally starting to see the buyers push back. Will Fox ever get to that aspirational $1 mark? And if they can’t do it, what does that mean for regional networks? And what, in turn, does that mean for individual teams. We may have seen the ceiling of this bonanza with a deal like the LA Angels made.

    I tell ya, the one Chuck Armstrong and Howard Lincoln pulled off earlier this year could end up putting rather large feathers in their their respective caps (if only they were baseball caps).

    • art thiel

      Owning ROOT is a bonanza for the Mariners. What they will do with it is anyone’s guess

  • jafabian

    I’ve been surprised at how Fox Sports has seemed to take a step back in their sport programming the past few years. I thought The Best Damn Sport Show Period was a great idea and so did ESPN since they soon came out with Mohr Sports with Jay Mohr.

    There’s a market out there for an ESPN competitor. IMO with all the new college divisions out there an opportunity for TV contracts with them should come from those changes at least.

    • art thiel

      The conferences are creating their own nets, and getting paid by ESPN/Fox in rights fees. The market is huge and growing because of American appetite for sports is close to insatiable.

  • Leon Russell

    I gave up cable tv a couple of years ago, and don’t miss it. Have saved quite a bit of money by doing so.