While Fox Sports trumpeted its plans for Fox Sports 1 in New York City last week, anxious distributors were waiting to hear what a new high-priced sports channel would mean for their business.
The early line is that not much will change, at least for most cable and satellite operators. Instead, several sources said Fox will abide by the carriage deals that it already has in place for Speed.
That means some distributors will be able to carry FS1 under the same contracts and at the same rates they pay for Speed for the next several years.
But as those deals expire, Fox will negotiate new, more expensive terms for the channel that will see monthly rates jump from around a quarter to more than $1.
The importance of Fox’s distributor relationships can’t be overstated. Fox needs to forge new agreements with these distributors if it wants FS1 to be profitable in the next two to three years, a time frame Fox’s executives used last week.
On the other hand, distributors will need to account for a new channel that is around four times more expensive than the one it is replacing. Distributors currently pay around 23 cents a subscriber per month for Speed, according to SNL Kagan. Sources say FS1 will end up costing more than $1 per month.
Fox is counting on the strength of FS1’s schedule, which includes 5,000 hours of live event programming a year, and FS1’s TV Everywhere components to convince distributors to cut deals.
Comcast was the first big distributor to see its Speed deal expire, when its overall deal for two dozen Fox channels ended at the end of 2012. Comcast signed a long-term deal with Fox last month that includes FS1. Fox held up officially announcing FS1’s launch till it finished the Comcast deal.
It’s not clear how much Comcast is paying for the channel, but sources said it’s unlikely that Comcast will pay the full $1-plus rate out of the box. It is the country’s biggest distributor, with 22 million subscribers. That means it had the leverage to work out a “most favored nation” clause, or MFN, that allows it to match the most favorable terms negotiated by other operators, sources said.
AT&T (4.3 million subscribers) and the National Cable Television Cooperative (which represents 25 million subscribers) are close to deals to carry FS1, sources say. These deals should be signed before FS1’s August launch.
Fox’s next negotiation will be with Charter (4.1 million subscribers), which has its Speed deal expiring later this year. Fox also has several of its RSN deals with Cox (4.6 million subscribers) expiring this year, which could allow it to start FS1 talks.
Fox’s deals with Time Warner Cable, DirecTV, Dish Network and Cablevision are staggered over the next couple of years. So until the deals expire, those distributors will pay the rate they were paying for Speed,
As part of their current Speed contracts, most distributors have the right to drop FS1 on Aug. 17, when the changeover is scheduled to occur. That’s because their Speed deals allow for a motorsports channel, not a multisport channel. Once Fox changes the programming format, distributors could consider their contracts nullified.
Sources with most of the big distributors said they have not made any decisions about what they would do in August. Several executives said they do not expect to dump the channel, especially if they can continue to carry it at Speed’s rate.
None of the executives would speak on the record about negotiations that aren’t finalized. Generally, operators contacted last week were curious about the channel, having heard little about what it would look like or how it would be offered. They don’t relish the idea of supporting another high-cost sports network. But they are interested to see how a credible alternative to ESPN will affect their business.
In its negotiations, Fox is demanding that distributors make FS1 available to all subscribers by moving the channel to its most highly penetrated tier, sources said.
Speed is in 86.2 million homes, according to Nielsen. At last week’s announcement, Fox said it plans to launch the network to more than 90 million homes. Several Comcast systems have Speed on a digital tier. If, as expected, all Comcast systems move FS1 to their highest penetrated tier, the channel could hit 90 million homes.
At more than $1 a subscriber per month, FS1 would become the third-most-expensive national cable channel behind ESPN ($5.47) and TNT ($1.27), according to SNL Kagan.
By comparison, NBC Sports Network charges 33 cents a subscriber per month and CBS Sports Network charges 24 cents a subscriber per month, according to SNL Kagan’s data.