Look no further than Sacramento for a taste of the game. At 7:30 a.m. on the day the Sacramento Kings' pact with its longtime TV carrier, Fox Sports Net Bay Area, was to expire, executives at Kings parent Maloof Sports & Entertainment were already in a meeting. They were talking to cable giant Comcast Corp. (CMCSA
) -- Fox's rival -- to iron out a new TV deal. By the time the season kicked off on Nov. 2, the Kings were signed up for a 10-year run on the newly created Comcast SportsNet West. In turn, when it looked as if the Memphis Grizzlies might launch their own sports network, Fox Sports South jumped in just ahead of the season's tip-off and offered the team a six-year deal to drop its cable plans. Fox promised to show 60 games this year, vs. 25 last season.
The hottest rivalry in regional sports is between two big foes, Fox parent News Corp. (NWS
) and Comcast. It's the latest iteration of the media giants' contest to win over America's TV viewers. And it's essentially Fox's battle to lose. As ESPN was building itself into a national franchise, Fox Sports Networks decided to go local. Fox Sports Chief Executive David Hill proclaimed that all sports are "tribal" and launched a bunch of regional sports networks (RSNs), many in partnership with cable operator Cablevision Systems Corp. (CVC
), to tap the passion of regional fans for their local teams. Fox has ruled regional sports ever since -- until now.
It's no surprise that others want in: RSNs generate tons of cash by commanding the second-highest fees, as much as $2 per subscriber a month, next to ESPN, at $2.25 per subscriber. (In contrast, CNN gets about 40 cents.) "These sports networks are all about instant cash flow. Advertising is the icing on the cake," says TV consultant Mike Trager. Comcast, with cable systems in 22 of the 25 largest U.S. cities, is looking to RSNs to build its brand and exert greater control over the escalating fees it pays for sports. Sports teams are entering the fray, too: With player payrolls and stadium debt hitting all-time highs, they're looking to cut out costly middlemen by creating their own TV channels.BRANDING OPPORTUNITY
Comcast is making the most inroads by joining with teams in New York and Chicago to launch new sports networks -- in each case luring teams away from tightfisted Cablevision, whose sports networks operate as affiliates of Fox Sports. Controlling local sports channels is a great way to promote itself to rabid fans and gives the company a platform to sell such services as high-speed data and video-on-demand. "Having your name attached to a local sports network is a huge branding opportunity," says Comcast COO Steve Burke. Its RSNs also give Comcast leverage in negotiating fees it pays to News Corp. to carry FX, Fox News, and other channels.
The biggest blow to the Fox Sports-Cablevision duo came in sports-mad Chicago in October, when Comcast debuted its new RSN, a partnership with the NBA's Bulls, the NHL's Blackhawks, and baseball's Cubs and White Sox, all of which had existing agreements with the Cablevision-majority-owned Fox Sports Network. Also in October, Comcast agreed to take a 10% interest in a new New York Mets channel with the team and Time Warner Cable (TXW
), leaving Cablevision's MSG Network out in the cold.FINANCIAL HOME RUNS
In all, the FOX Sports Newtork has lost the rights to 11 teams since 2000, according to Fox. Today it controls rights to 62 of the nation's 82 pro teams, excluding pro football. "They're losing eyeballs, and that means lower revenues from national advertisers," says Sanford C. Bernstein & Co. analyst Craig Moffett. "It will eventually lower fees from cable operators."
Teams doing TV on their own are also a worry for Fox. Emboldened by the financial home runs by sports networks launched by the New York Yankees and the Boston Red Sox, as many as 25 pro teams own or are planning their own networks, says consultant Lee H. Berke, who advised the Yankees in creating the YES network in 2002. "You see more teams adopting our model," says Sean P. McGrail, president of the Red Sox' 20-year-old New England Sports Network (NESN).
Still, not every team can pull off its own sports channel. Baseball's Kansas City Royals and Minnesota Twins and the NBA's Portland Trail Blazers all folded their channels after losses and being dropped by cable and satellite companies. The counter-offers to teams are getting richer, too. On Nov. 8, Fox said it had averted another planned team-owned channel by offering an estimated 15-year, $600 million deal to the Houston Rockets and Astros. The teams and Fox had been fighting in court since 2003.
Fox Sports execs figure they can beat back Comcast and outlast the solo-team channels. "We're not going away," says Randy Freer, Fox Sports Nets' chief operating officer. It promises to be a nasty rumble: Rumors persist that Comcast wants to buy Cablevison's sports channels in San Francisco, Florida, and New England. That surely will elevate the local-sports grab to championship status. By Ronald Grover in Los Angeles and Tom Lowry in New York, with William C. Symonds in Boston