The first several calls I received immediately after news broke that the Lakers were leaving
FS West for a massive deal with
Time Warner Cable all asked the same question: Is this the beginning of the end for
Fox’s regional sports business?
It’s not the first time this question has been asked over the last decade. And it’s easy to see why it comes up again.
Distributors, like Comcast and Time Warner Cable, are becoming more aggressive with local sports rights. The cable operators view local programming — like sports — as a key differentiator in their competition with satellite carriers and telephone companies. They want to launch their own RSNs in markets where they own cable systems.
Last spring, for example, Comcast swooped in and outbid Fox for the rights to the Astros and Rockets in Houston. Now, in easily the most talked about deal so far this year, Time Warner Cable did the same thing with the Lakers’ rights in Los Angeles.
Both moves involved rights that previously had belonged to Fox. And both moves show that distributors want to cut the middleman, like Fox, out of the regional sports business.
It’s not the first time the “sky is falling” claim has been attached to Fox’s RSN businesses. Nearly a decade ago, some predicted the same trend when several MLB teams started their own networks or began partnering with other distributors.
But what we’ve learned in that decade is that these deals aren’t cutting out the middleman. Rather, they are adding more expensive RSNs to cable and satellite systems across the country.
While Fox’s RSNs have taken a PR hit and lost some big-time programming assets, its RSNs aren’t going anywhere. They are still fully distributed in most markets, bringing one of the highest license fees among all cable channels. New RSNs, like the ones in Houston and Los Angeles, will have to wage distribution battles to get the carriage Fox already has.
Fox’s business model will clearly have to change; they will have to pay more to keep the rights they have.
Fox may be losing top programming assets, but it’s still going to collect its checks.
Comcast still will be paying $2.50 a subscriber a month for FS Houston, according to numbers from SNL Kagan, for at least five more years. FS Houston will collect that license fee regardless of whether it carries the Astros and Rockets. And Time Warner Cable still will be paying $2.37 a subscriber a month for FS West and $2.37 a subscriber a month for Prime Ticket (again, according to Kagan), regardless of whether FSN has rights to the Lakers or not.
FS Houston will fill its schedule with programming the Houston-area cable systems are unlikely to drop: college programming from Fox’s Big 12 and Conference USA deals, and live games from the World Series runner-up Texas Rangers and the Dallas Stars. It also has the right to carry Spurs and Mavericks games to Houston’s outer markets.
Clearly, the RSN’s programming won’t be as strong. But it still will collect the same license fees from Houston-area distributors.
Fox will use the same strategy in Los Angeles. Fox took a significant hit in losing the Lakers, one of the strongest brands in sports, starting in the 2012-13 season. But it still has the rights to the Dodgers, Angels, Clippers and Kings across FS West and Prime Ticket.
In other markets, Fox has wrapped up as many as eight long-term rights deals in the past 18 months.
Just last week, a week after the Time Warner Cable announcement, Fox signed the Twins to a long-term deal with FS North and the Suns to a long-term deal with FS Arizona.
The New York market offers a good example of what can happen when an RSN loses rights. MSG Network lost the rights to the Yankees in 2002 and the Mets in 2006. Though the lack of summer pro sports has hurt MSG’s programming lineup, it hasn’t hurt the bottom line. It’s still on every New York-area cable system.
For the past five years, the New York market has had four RSNs (YES Network, SportsNet NY, MSG and MSG Plus), which cost New York-area distributors a combined $10 a subscriber a month.
That same situation looks to be happening in Los Angeles.
It’s no secret that RSNs are a good business. Fox and Comcast executives regularly describe their regional sport network groups as the most profitable arms at their companies. That’s why so much attention is being lavished on this space.
Expect that attention — and fierce competition — to continue.
John Ourand can be reached at jourand@sportsbusinessjournal.com. Follow him on Twitter @Ourand_SBJ.
