Anyone wondering why News Corp NWSA +2.52% .’s Fox has been negotiating so many sports deals in recent weeks, including a stake in the YES Network and a likely deal to renew TV rights to the Los Angeles Dodgers, has only to look at one number for a possible explanation: $42 billion.
News Corp. has been in talks to renew its Los Angeles Dodgers TV rights. Here, new pitcher Zack Greinke with Magic Johnson, a Dodgers owner.
That’s the value put on Walt DisneyCo.’s DIS +1.25% sports juggernaut ESPN by Wall Street research firm Sanford C. Bernstein. It is more than the market capitalization of several big entertainment companies, includingViacom Inc. VIAB +0.72% and CBSCorp., CBS +2.58% and nearly as much as that of Time Warner Inc.TWX +2.50%
It reflects in part ESPN’s outsized share of subscription fees split with cable- and satellite-TV operators. ESPN’s flagship channel alone generates four times as much revenue from such fees as the next biggest cable channel, according to market researcher SNL Kagan.
Enter Fox, which early next year is expected to announce plans for a national sports cable channel through the rebranding of its motor-sports network Speed, according to people familiar with the plans. The new venture, to be called Fox Sports 1, is expected to launch later in 2013, say these people.
With the network, Fox will be in a position to capture a bigger share of TV viewers and advertisers’ seemingly insatiable appetite for sports, not to mention the subscription fees shared by pay-TV operators. Even next to ESPN, insiders say, there’s still room for Fox to carve out its own chunk of the market.
Fox’s Recent TV-Sports Deals:
In talks to renew rights to Los Angeles Dodgers; potential $6 billion, 25-year deal
Nov. 2012 Buys 49% stake in YES network, home to the Yankees, for about $1.5 billion
Oct. 2012 Signs new eight-year deal with MLB, valued at $4 billion
Oct. 2012 Renews Nascar rights for eight years, in deal valued at $2.4 billion
Dec. 2011 Signs nine-year deal renewal with NFL valued at $9.9 billion
“There’s no natural reason why there should be just one” major sports network, said Bernstein analyst Todd Juenger.
Fox believes it can carve out a profitable business if the rebranded Speed can boost the fees Fox now receives for that channel, which average 22 cents per subscriber per month, SNL Kagan estimates. ESPN receives more than $5 per subscriber, Kagan says, although Fox would need less than $1 to make the network viable, say two people familiar with its thinking.
News Corp. has never formally acknowledged plans publicly for the national sports network. But News Corp. Chief Operating Officer Chase Carey has hinted at it, while playing down speculation that Fox would try to create an ESPN rival.
“People have said we’re going after ESPN. ESPN is a different game,” Mr. Carey told investors in September. During News Corp.’s November earnings call with analysts, however, Mr. Carey said Fox has “got enough breadth and the right franchises” to build its sports properties “into something that can be special for us.”
News Corp. also owns The Wall Street Journal.
If it goes ahead with the channel, Fox would be jumping into an already-crowded arena where TV-sports-rights costs are skyrocketing. Aside from ESPN, Comcast Corp. CMCSA +2.72% has recently rebranded its Versus network as NBC Sports Network in an effort to grab a larger share of the TV-sports market. CBS has also made a bigger foray into the market.
At the same time, efforts by sports-network owners to raise their prices for satellite and cable operators is prompting a backlash, with many in television concerned about the long term implications of higher cable prices that will result.
Dish Network Corp. DISH -0.15% Chairman Charlie Ergen, for instance, has publicly warned that the rising cost of sports content, like ESPN, will ultimately lead some distributors to drop sports. DirecTV, DTV +1.48% meanwhile, recently imposed a surcharge for some new customers to reflect the cost of regional sports networks.
“I’m not sure that initially [the channel is] going to be embraced openly across the board by distributors,” said Chris Bevilacqua, a media-industry adviser who has structured sports-rights deals.
Meanwhile, Mr. Juenger, the analyst, questions whether Fox has the rights to enough top-tier sports programming to support a national sports channel. ESPN, for instance, televises the National Basketball Association, National Football League, Major League Baseball, Major League Soccer and the best of college football and basketball, as well as the grand slams of tennis and golf’s major championships.
Through its broader sports division, Fox has deals with nearly every major sports entity in the country, including Major League Baseball, the NFL and numerous local basketball, hockey and baseball teams. And over the past two years, Fox has committed more than $20 billion through 2024 to retain some of these rights, and to acquire more, including those for the NFL’s championship games. It recently agreed to buy a stake in YES Network, home to the New York Yankees. In recent weeks Fox has been in talks to renew TV rights to the Los Angeles Dodgers for 25 years, at a price expected to be around $6 billion—a sharp increase over what it pays now.
Meanwhile, Mr. Carey told select investors at a recent meeting that Fox could bid for rights to the NBA when they come up for renewal again in 2016, according to people who were present.
But these deals won’t necessarily help the rebranded network directly. More than half of those investments, such as the $9.9 billion, nine-year rights to NFL championship games, are for Fox’s broadcast network. Fox couldn’t take its rights to broadcast NFL games and start showing them on a cable network, or begin showing Dallas Mavericks NBA games slated for Fox Sports Southwest, a regional sports network, on the national network.
Fox would have opportunities to elevate some content from its regional sports networks to run on the national network, Mr. Carey told investors at the recent meeting. The rights granted in Fox’s recent MLB agreement, which begins in 2014, allow it to recycle baseball-game content for national audiences, for instance.
Speed is already available in more than 80 million homes, about 80% of the pay-TV universe, so rebranding the network would eliminate many of the challenges involved in creating a new channel from scratch and securing distribution deals with pay-TV operators.
Fox has already sought to minimize potential conflicts with affiliates and negotiate higher rates for a rebranded network, according to people familiar with its plans. Over the past several years, Fox revised the language in Speed’s affiliate contracts as they came up for renewal to reflect the possible inclusion of additional content and to trigger higher rates if or when the rebranding occurs.
—Matthew Futterman contributed to this article.