Disclosures related to Fox/Liberty Networks LLC's $600M
junk-bond sale to help fund its recent acquisitions "show
that the three sports units" that make up the venture -- Fox
Sports RSNs, Cablevision's SportsChannel and MSG, "are far
from the cash generator ESPN has become" for Walt Disney,
according to John Higgins of BROADCASTING & CABLE. Higgins:
"Further, the operations generally fall short of the
performance of other cable networks." In the piece, Higgins
breaks down revenue, operating income and cash flow for each
sports unit. While the prospectus "gives the most extensive
financial picture to date" of Fox/Liberty's performance, "it
offers very little detail about perhaps the most critical
element of the business: the volatile cost of TV rights to
local teams." Higgins writes that the networks "are
bringing in plenty of money -- Fox/Liberty alone could hit"
$500M in revenue this year, but revenues are being "eaten up
by the huge cost of local sports rights." Fox/Liberty had
"big losses" in '96, "although there is less red ink this
year." Cablevision is "in better shape, but SportsChannel's
cash flow margin is just 12%, compared with 41% for ESPN."
MSG reaches "about" 20%. Fox/Liberty and Cablevision would
not comment on the report, but the "spotty performance of
the regionals concerns some financial and media executives"
(BROADCASTING & CABLE, 8/18 issue).
PATH TO PROFITABILITY: Higgins adds that Fox/Liberty is
"being dragged down by several relatively new networks,
including the Rocky Mountain and Arizona networks."
Fox/Liberty execs "tell investors that the more established
services, such as those" in L.A., Seattle and Pittsburgh,
"are expected to generate" $100M in cash flow this year.
Higgins: "If the start-ups can be turned around, Fox/Liberty
might become profitable" (BROADCASTING & CABLE, 8/18 issue).
