NEW YORK — A potential windfall of new advertising revenues emerged as the key motive behind the deal by News Corp. and Liberty Media to buy 40% of Cablevision Systems Corp.’s sports networks for $850 million.
On Monday, the parties officially announced the deal, which was previously reported (Daily Variety, June 23). The News/Liberty sports partnership not only gets a stake in Cablevision’s sports channels in New York, New England, Florida, Chicago and San Francisco, but creates a 50-50 joint venture with Cablevision to sell national advertising time on the regional channels and on a beefed-up national-programming service from Fox Sports. Cablevision, however, will hang on to management control of its regional sports networks.
“We’re now a sports behemoth, which will be attractive to advertisers across the board,” said David Hill, CEO of the Fox/Liberty Networks and president of Fox Sports, in a conference call with reporters.
Howard Nass, senior VP of the ad agency True North, said, “Fox could create a really efficient buy by ending all of the paperwork and all of the separate negotiations.” The paperwork comes when an agency has to go cable system by cable system to buy spots on the games of local teams, which tend to get the highest sports rating in their markets because these games are what the home-team fans want to see.
Instead of the system-by-system obstacle, “there’d be one vendor,” Nass said, “and that’d save us a lot of time and hassle.”
Wall Street analysts agreed with Nass. “Regional sports networks tend to get primetime ratings which are substantially higher than (national services like) ESPN … but the problem was that you could never package them together to make them worthwhile for a national advertiser. Now you can,” said Schroder Wertheim analyst Niraj Gupta.
On the conference call, Tony Ball, president and chief operating officer of the Fox/Liberty Networks, said the venture now controls regional sports networks covering 17 National Basketball Assn. teams. “We could offer one-stop shopping to a national advertiser,” Ball said. “If the advertiser wanted to buy time on the home games of all 17 teams, we could offer it in a package” for the first time.
Many advertisers in categories like automobiles, beer, soft drinks, sneakers, telecommunications and financials would jump at such a package, Nass said, particularly brands that are shut out of national NBA games because NBC and Turner often give exclusivity to one company within each grouping, shutting out that company’s competitors.
Tom Rogers, president of cable and business development for NBC (which owns 25% of Rainbow Programming Holdings, the Cablevision parent in charge of the Sportschannel regionals), said he gave his approval because “this is the closest we’re going to get to putting all regional sports networks under one ownership. And Fox is the only network with the incentive to create a major national sports service to provide a quality backdrop to the regional channels.”
It’s that backdrop that Fox’s Hill kept stressing in the conference call, saying that “while the jewel in the crown for the regionals is the rights to the local professional teams, we’ve got to upgrade the quality of the shows that don’t play in primetime.”
Hill said he wants programming produced nationally such as “desk shows” featuring discussion and interviews, plus “compilation shows and anthology shows.” “We have lots of talented people on staff” who can produce such series, he added.
But Fox also wants to spend more money to cover such events as “local high-school games and local college games,” he said, to cement subscriber loyalty to the channel in the individual community. Hill said there are no plans to create a separate national cable channel to compete directly with ESPN, although Madison Avenue sources said ESPN could start losing advertising revenue to Fox’s new sales blueprints.
ESPN put in a serious bid for the 40% of Cablevision’s sports networks, but “that offer was mainly to block Fox,” not to try to become a power in regional sports, Rogers said. A spokesman for ESPN said the network would have no comment.
In the Fox/Liberty deal, Rainbow will hang on to management control of its eight regional sports networks and Madison Square Garden. Fox will re-brand all of the Rainbow sports networks except MSG under the Fox Sports banner, which flies over the nine sports channels owned by the Fox/Liberty joint venture.
On Monday, News Corp. stock rose 37¢ to $19.12, Liberty stock was unchanged at $24.75 while Cablevision shares rose 31¢ to $53.43.
For News Corp. investors, the deal is good news because News Corp.’s financial contribution will be minimal. Fox/Liberty said it expects to finance the $850 million payment through a bank loan, likely to be non-recourse to either partner, although analysts said the two companies were likely to put in $100 million each to supplement the bank debt.
Cablevision comes out of the deal particularly strong, analysts said. The $850 million investment in its new Rainbow sports venture is seen as a good price and allows the cabler to reduce its $5 billion debt load.
“It certainly relieves the strain on the Cablevision balance sheet,” Gupta said.
It also creates new ways for Cablevision to raise money. Cablevision CEO Jim Dolan told a Wall Street analysts’ conference call that the new sports venture could go public in a stock offering or could be spun off, although a public stock offering for Rainbow itself is still thought to be Cablevision’s top priority.
Speculation about a Fox/Liberty deal with Cablevision’s sports channels was sparked two weeks ago when Liberty’s affiliate company, Tele-Communications Inc., sold its New York-area cable systems to Cablevision at the bargain price of $1.2 billion. At the time, analysts speculated that the price was low because another deal on the sports channel was coming, where the price gap would be made up.
Instead, Fox and Liberty “so badly wanted to be in on this Rainbow deal that they did a cable deal at a very attractive price for Cablevision,” one analyst said.