Faced with the prospect of pushing a revamped Fox Family on hostile cable operators nationwide, Disney may see basketball as a key selling point.
The Mouse, which agreed last month to buy Fox Family for $5.3 billion in cash and assumed debt, is hinting to cablers that it’s got every intention of wresting NBA rights from Turner and NBC, and would air at least one game a week on the rebranded ABC Family network, according to cable industry sources.
Disney needs all the leverage it can get. Cable operators, perpetually livid at the escalating license fees the Mouse demands for its ESPN and Disney Channel, are balking at enhanced subscriber fees (as much as 60% more) the Mouse apparently wants for a revamped Fox Family. The net’s ratings are low, and cable operators may well feel they can drop the channel without much of a subscriber outcry.
“If they drop Fox Family, no one will step up to sue,” one media fund manager said.
The Mouse has leverage with operators who can’t afford to lose the local TV stations owned by ABC, or affiliated with it. These negotiations between Disney and cable operators are known in the industry as retransmission consent. Cablevision Systems’ retrans deal, for example, is set to expire soon, giving Disney a powerful advantage in chalking up big increases for Family, whose carriage deal also has expired.
By contrast, Time Warner inked a long-term retrans contract last spring. So Time Warner could very well drop Family, whose contract is coming up for renewal, from many of its systems. TW Cable, overall, reaches about 12 million subscribers.
Disney, whose businesses and stock price have been hit by the slow economy and weak advertising market, badly needs to make a go with Fox Family, which many on Wall Street felt was far too expensive.
Credit rating agency Fitch said Thursday it expects to downgrade Disney’s debt rating following the purchase — a move that echoes similar warnings in recent weeks from Moody’s Investor Services and Standard & Poor’s.
The firms worry about the extra debt Disney will shoulder in the acquisition even as many analysts and investors question Fox Family’s strategic value to Disney, given the elevated pricetag. The Mouse, which stood largely on the sidelines during a period of frenzied media consolidation, may have felt pushed to move forward with a deal, they say.
Disney agreed to pay partners News Corp. and Haim Saban $3 billion in cash for the channel and related assets and assume $2.3 billion worth of Fox Family debt. The Mouse may have to fork out additional millions to the net’s founder, Pat Robertson, to rid the channel of “The 700 Club.”
The criticism lends some firepower to rumors that Disney itself is angling to back out of the Fox Family pact, although it’s not clear if that’s true, or even possible, at this stage. Disney chairman-CEO Michael Eisner is said to be seriously examining an agreement with cable company AT&T Broadband and may want to conserve the Mouse’s cash. Disney recently filed with the SEC to raise up to $7.5 billion through the sale of various securities.
Disney insists it’s committed to Fox Family. “Disney is very happy with the deal. We’re also very bullish on improving the programming and ratings of the channel in a way that we hope will reinforce the strong support that the channel has historically received from cable operators,” said spokeswoman Chris Castro.
It’s true that auctions of fully distributed cable nets, a rare species, are few and far between. If the channel does air NBA games, especially the sexier matchups, that could certainly go a long way toward swaying cablers. Others note that Disney Channel has scored big ratings with the so-called “tween” demo (kids between 9 and 14) and plans to target the same group with ABC Family — which, unlike the Disney Channel — is advertiser-supported.
Disney shares hit a new 52-week low Thursday in a glum market, easing more than 3% to close at $24.63.