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Volume 21 No. 2

Media

Over the past decade, Fox Sports executives took pride in the fact that their parent company, 21st Century Fox, always seemed to be able to weather economic ills without resorting to mass layoffs.

When the advertising market cratered in 2008 and the company needed to cut costs, Fox Sports managers scrutinized travel budgets more closely. When the network’s NFL contract jumped to an average of $1.1 billion per year in 2014, it decided to keep open positions unfilled. As rival media companies like ESPN and Turner went through rounds of layoffs, Fox employees wore it as a badge of honor that they remained unaffected.

Those days are gone.

Photo by: AP IMAGES
Today is the day some Fox employees have to decide whether to take a company-offered buyout or gamble that they will not be part of an ensuing round of layoffs that insiders say is inevitable. A month ago, 21st Century Fox offered voluntary buyouts to long-term and older employees as a way to cut costs. Staffers who have been at Fox for at least 15 years or are 55 years and older were offered one month’s pay for every year of employment.
Fox Sports’ national channels, like Fox Sports 1, have not performed as well as promised, and the broadcast network’s prime-time lineup has struggled outside of the hit “Empire.”
Photo by: GETTY IMAGES

A Fox spokesman would not comment on the terms of the buyout.

Several published reports said the company is looking for up to $250 million in cuts, much of which would come from the buyouts. Employees who accept a buyout will remain employed through May 23. Employees who don’t accept the package will cross their fingers and hope that enough other people decide to leave voluntarily so that further cuts aren’t warranted.

Some long-term employees who met the buyout guidelines were deemed too critical to lose and not offered the buyout package.

Ultimately, insiders expect hundreds of positions to be eliminated across 21st Century Fox, either through buyouts or, eventually, layoffs. A Fox spokesman would not disclose how many employees work for either 21st Century Fox or Fox Sports.

Conversations with more than a dozen current and former Fox executives paint a picture of an office atmosphere that is unlike anything ever experienced at the company. In the month since the buyouts first were offered, idle conversations have been dominated with speculation of who will take the buyout and whether further layoffs are coming.

Executives were reluctant to speak on the record about such a delicate topic as their colleagues’ job security. But these conversations described a corporate workforce on edge as it prepares for bad news followed by leaner departments.

Employees say it’s strange to be working next to people who may not be around in a few months. That’s especially true at Fox Sports, which already has started planning for signature events like this fall’s World Series, next year’s Super Bowl and the 2018 World Cup.

It’s not known how many of the buyouts or cuts will come from Fox Sports, in particular, but the cuts are certain to affect well-known, longtime and well-liked employees across most departments. For example, Sports Illustrated reported last week that Fox Sports’ Rick Jaffe, senior vice president of news, is leaving. Sources said he took the buyout.

“Fox just got too fat and too bloated,” one former executive said. “It’s time for them to re-evaluate and adapt to the media business of 2016.”

Unlike ESPN, which laid off around 300 employees in October to save costs, Fox’s issues go well beyond its sports business. Fox’s movie studio has underperformed. Case in point is the disappointing “Fantastic Four,” which the Hollywood trades are speculating could lead to a $60 million write-off.

TV advertising has slowed as the broadcast network’s prime-time lineup has struggled, as well, outside of its breakout hit “Empire.” While a source said Fox has been doing well in the scatter market — the term for ads sold outside of the upfront selling season — it’s undeniable that the broadcast network’s prime-time schedule has been soft for years; it’s one of the reasons entertainment Chairman Kevin Reilly left the network in 2014. Prime-time problems negatively affect both advertising and syndication revenue.

Several sources point out that ESPN accounts for much more of Disney’s overall revenue than Fox Sports does with 21st Century Fox. Still, Fox is feeling the same pinch that is affecting other sports media companies, dealing with the combination of higher rights fees and cable industry contraction.

Fox’s rights fees have skyrocketed over the past three years as the group’s leadership team of Randy Freer and Eric Shanks amassed a portfolio of live rights for its two national sports channels and broadcast network. In 2014, it started a nine-year NFL deal that costs $9.9 billion and an eight-year, $4.2 billion deal with Major League Baseball. The following year, it began a 10-year, $3.8 billion deal for NASCAR and a 12-year, $1.1 billion deal with the U.S. Golf Association.

Perhaps then it was no surprise that earlier this year, Fox Sports put in only a token offer for the NFL’s “Thursday Night Football” package (an offer of between $200 million and $300 million for an eight-game package, sources said).

At the same time, Fox Sports’ national channels have not performed as well as promised. While 21st Century Fox executives remain committed to the 2 1/2-year-old Fox Sports 1 and Fox Sports 2, their launches have not gone as smoothly as planned. FS1 has lost more than 5 million homes since its August 2013 launch, although it lost most of those homes in the initial year after its launch. According to Nielsen, the channel was in 89.18 million homes at launch; it’s now in 84.166 million homes. FS2 added more than 13 million homes during that same time period, but executives expected to see even bigger growth. It currently is in 50.801 million homes.

According to SNL Kagan, distributors pay Fox a license fee of 98 cents per subscriber per month for FS1 and 28 cents per subscriber per month for FS2. By comparison, ESPN brings in $6.64 per subscriber per month and ESPN2 83 cents.

“Fox is not immune to cord shaving,” one former Fox executive said. “They are in the same situation as ESPN.”

Outside of its big live events, FS1’s TV ratings have been smaller than expected, and that’s eaten into the channel’s advertising revenue. The channel’s studio shows, in particular, have struggled. It canceled several of its signature shows, like “Crowd Goes Wild” and “America’s Pregame,” and hired Jamie Horowitz as president of Fox Sports National Networks, to breathe new life into the afternoon slate.

Horowitz lured high-priced on-air talent like Colin Cowherd and Jason Whitlock to the West Coast, showing that 21st Century Fox’s cost cutting is not necessarily across the board. But the cost cutting has affected some on-air programming. Fox Sports occasionally has announcers call some smaller college basketball games remotely, and it pared back its “Fox Sports Live” studio set earlier this month.

The cost cutting will continue, with the biggest focus on who takes the buyouts starting this week.

While many may have overdosed on this year’s 24/7 election cycle, the sports networks just can’t get enough of it.
That’s because the candidates are spending big on ad spots to get out the vote.

Home Team Sports has sold five times more political ads for this week’s Super Tuesday primaries than it did four years ago — selling Bernie Sanders spots on Altitude and FS North and Marco Rubio spots on FS Oklahoma and FS Southwest.

This continues a bull market that started last year. The Fox Sports-owned ad sales group sold a whopping 10 times more political ads from July to December 2015 than it did four years ago. Former GOP candidate Scott Walker bought a schedule during the University of Iowa’s football games on Big Ten Network, and Hillary Clinton ran ads during Boston Bruins games on NESN.

This election cycle has generated enormous ratings for the networks that produced the various candidate debates. It’s also seen an unprecedented stream of ad revenue for live, local sports.

Home Team Sports, which handles ad sales for most of the country’s regional sports networks, expects to ring up close to $10 million in political candidate spending this cycle. Prior to 2008, that figure was closer to $200,000.

“A lot of [candidates] were on a lot earlier than ever before to try to get ahead of February in Iowa,” said Stephen Ullman, director of political ad sales for Home Team Sports. “I’ve never seen this amount of activity around the primaries. In the past, the majority of our business has been September to Nov. 1 — the last 60 days of the election.”

The story is different for national networks, which don’t start to see political ads until a few months before November’s general election. NBC Sports Group, for example, expects to sell some political ads during its Olympic coverage and its top-rated “Sunday Night Football” games.

“National TV platforms really won’t do anything until we get into the post-convention season,” said Seth Winter, NBC Sports Group’s executive vice president of sales and marketing.

But the crowded fields and competitive races have led to an earlier ad sales cycle that has increased revenue for local sports channels.

Ullman started selling spots in the summer of 2015 in important early primary states like Iowa and New Hampshire.

“You’re advertising in August and September for a primary that’s not taking place until February 2016. That was one of the biggest unusual things in this cycle,” he said. “Normally, I wouldn’t see any money on Big Ten Network until August or maybe September of 2016 for a presidential race. We actually started seeing money in July 2015.”

It also helped Home Team Sports that the early Iowa and New Hampshire primaries were covered by big networks in big markets. Candidates who bought time during Iowa football games paid a premium to be on BTN, a national network. “You’re buying the entire network,” Ullman said.

The New Hampshire primary campaign was covered by the Boston market, one of the country’s biggest and commanding prices that approach six figures.

“Those aren’t cheap markets,” he said. “It’s not like we got a whole bunch of business in St. Louis or Kansas City where spots sell for $1,000.”

The sheer number of candidates vying for the presidency also helped sales. At one point 17 Republicans actively were running. BTN’s final Iowa football game featured 14 ads from candidates.

“Usually, you have two or three on either side,” Ullman said. “As deep as the GOP was, it was pretty crazy.”

Ullman also credits his company’s efforts to push local sports more aggressively to the candidates’ campaigns, using the consistent talking points all ad sales departments use: Live sports is DVR proof and reaches more women than some would expect. Home Team Sports commissioned research that showed RSN viewers are more likely to watch games live and trust advertisements than typical TV viewers.

Ullman told a story about the Clinton campaign questioning the strategy of using a female-focused advertisement for Iowa football games on BTN and Bruins hockey games on NESN. He said that he responded by saying, “There are no pro sports in Iowa — it’s Iowa Hawkeye football. The entire state tunes in on Saturday afternoons, and the women 35-plus composition is 38 percent. The Bruins have the exact number in Boston.”

The future of sports media can be seen through apps like the WME-IMG-backed Overtime and the live-streaming YouNow, as well as digital media companies like Whistle Sports.

That was the consensus of a Sports Industry Networking and Career Conference panel that I participated on last week in Washington, D.C. Executives from new and traditional media companies cited those digital services during a discussion of where sports media is headed.

That doesn’t mean that people will use Periscope to watch the Super Bowl — or even a midseason Sixers-Suns NBA game — any time soon. But most of the panelists believe the second, third and fourth generations of these services will continue to change the way people watch sports.

Shah, Shapiro and Schulte discuss the digital disruption occurring in the industry today.
Photo by: JESSE GURNEY / GEORGE WASHINGTON UNIVERSITY
“I’m finding multiple companies who are trying to replicate what [Overtime and Whistle] are doing,” said Shripal Shah, interim CEO of Moko Social Media, a company that develops apps for the high school and college markets. “You’re seeing a whole cottage industry form around trying to be the next Whistle, trying to do what Overtime is doing or trying to mimic Facebook’s Sports Stadium.”

Whistle Sports, Overtime and Sports Stadium are social media services focused on sports. Whistle Sports is one of the most popular sports platforms on YouTube; the Overtime app launched last fall with user-generated content focused on sports; and Facebook launched its Sports Stadium during the NFL playoffs as a place for users to share content around specific games.

Nobody’s talking about these apps overtaking traditional media companies. Every media executive I’ve talked with still buys into the “best available screen” cliché, which suggests that consumers mainly will watch sports via their big-screen TVs for the foreseeable future. But that doesn’t mean that media companies are ignoring these new services. Rather than viewing them as competitors, however, they are trying to come up with ways to use them as a marketing vehicle to drive TV ratings.

From the sports media world:

• ‘Now, Everybody in my newsroom is on television’

Like every other TV network, Comcast SportsNet Mid-Atlantic is dabbling with all kinds of digital and social media platforms — such as the YouNow streaming platform — even though they produce little revenue.

“Even if there’s a loss of money there, it’s what we would have put into traditional advertising,” said Rebecca Schulte, president of CSN Mid-Atlantic. “Most of the marketing money I have now we just put into original content because that now is your advertising.”

ESPN producer Greg Shapiro shares Schulte’s view. When Shapiro started at ESPN in May 2010, his group’s only objective was to produce television shows. Now, good TV is one of several objectives as ESPN producers look for ways to slice the shows’ content into short social media bits.

“It used to be that we would sit in a room at a production meeting in the morning and come up with the content for our shows,” he said. “We still do a lot of that. But now it’s become a lot of, ‘Hey, did you see what someone tweeted that generated this reaction from this person that then resulted in this tweet from this other person?’…

“When we put stuff out to social, that’s really what ultimately drives people back to the shows. That’s what we’re still hoping to get.”

A lot of the new apps and digital companies may be flying under the radar now, but the executives are noticing the amount of money that’s been flowing into them. Moko’s Shah spoke of how shocked he was at the six-figure price tag Whistle wanted to charge Moko to use some of its YouTube stars for its own app.

“There are properties and brands that don’t get half-million-dollar sponsorships,” he said. “If you want YouTube stars to make a video, a lot of them have six-figure starting points. The reach, the volume, the shareability — that’s something that brands are willing to pay for. The amount of content they’re serving and the amount of ads they’re running — they have an audience and they have advertisers who are waiting in line to get in.”

Shah views the Overtime app in similar terms. The app collects video streams, pictures and memes from various pro, college and high school games. Last week, the app streamed videos of NBA highlights that some users recorded from their TV screens. The video quality was not great, obviously. But it wasn’t awful, either. And the app was simple to navigate.

“It’s geared toward the idea of following sports from the lens of the audience,” he said. “When I heard the volume of videos that they’re serving per month with a really small user base, it’s scary. If that scales, they could be a disrupter in a really short period of time.”

The main difficulty today’s media executives have with digital media comes from figuring out which apps and services will be popular. Last year, for example, Meerkat was the toast of the SXSW show. This year, Meerkat feels like an afterthought.

“There are a lot of shooting stars coming out,” Shah said. “Meerkat hacked into Twitter, caused a little short-term spike, caused a lot of good content and stories around SXSW last year, but they haven’t been able to sustain it. You look at Yik Yak, and people thought they were going to be the next thing. They haven’t been able to sustain the user base beyond three to six months. They’re not able to really grow.

“On the platform side, that’s the biggest challenge right now. There are a lot of shooting stars. Which ones are going to really stick?”

John Ourand can be reached at jourand@sportsbusinessjournal.com. Follow him on Twitter @Ourand_SBJ.

Traditional media companies are not the only ones threatened by a changing media landscape. The popularity of new apps and digital media companies threaten to disrupt who makes it on air and who does not.

J.P. Finlay (right), CSN Mid-Atlantic manager of content integration, makes an appearance on “SportsTalk Live.”
Photo: COURTESY OF COMCAST SPORTS NETWORK
TV executives increasingly will look at announcers’ social media profiles to help determine if they will be good on television, said Rebecca Schulte, Comcast SportsNet Mid-Atlantic president. The theory is that people who are able to connect with audiences over Facebook and Twitter will be more likely to connect with audiences over television.

“Some of the traditional sportscasters and anchors and reporters are not very good at social media,” Schulte said at the Sports Industry Networking and Career Conference in Washington, D.C., earlier this month. “They’re really seeing now that it’s not an option. They have to do it, they have to do it well, and they have to understand it. In the next year or two, that is going to be a really deciding factor between a lot of talent who continue in this industry.”

Schulte spoke of her network’s strategy to put digital producers on CSN Mid-Atlantic shows — a decision that mortified the RSN’s news director three years ago but is happening much more frequently today.

“Up until three years ago, you went to school, you were a journalist, you got on TV, you paid your dues,” Schulte said. “Now, everybody in my newsroom is on television. Everybody’s contributing. There are certain people who have this ability to really connect with the viewer. They may not be the person who put in their time. They just have a really authentic connection with the people who are watching.”

— John Ourand