Huge Upside for Launch of Fox Sports 1 and 2 Channels

On Aug. 17, lower-key Speed and Fuel networks transform into high-adrenaline national sports channels

Fox Sports 1, Fox Sports 2
Brian Finke

If it’s at all nerve-wracking for Fox to try to transform two niche sports cable networks into take-all-comers Fox Sports 1 and Fox Sports 2, it would be more nerve-wracking not to. There’s the fear of missing out on the next wave of sports entertainment revenue, this era’s version of a television gold rush. And the fact that Fox’s expensive rights deals all but demand the company find a grander stage for them.

And there’s the queasy feeling that Fox would have to live with if it played a wallflower while others seized the day.

That’s why on Aug. 17, viewers will wake up to find the lower-key Speed and Fuel networks transformed into high-adrenaline national sports channels intended to make an immediate impression — among sports fans and the industry alike.

“Look, it’s scary, right?” says Fox Sports Media Group co-prexy and chief operating officer Eric Shanks. “It’s a big endeavor; it’s a big investment by the company. And so even though this is a mature market and there’s a lot of competition, it just feels like a very Fox thing to do.”

Support for Fox’s move goes beyond in-house cheerleading. Analysts, while cognizant of concern over the rising costs associated with televised sports, believe Fox has its ducks in a row, with little to lose and much to gain.

“I think it’s about as risk-mitigated as it possibly could be,” says David Bank, RBC Capital Markets managing director of equity research, citing Fox’s pre-existing distribution agreements and rich vein of content. Not going the national sports cable route would have left all of Fox’s rights agreements, in Bank’s words, “a melting iceberg as an asset.”

Marci L. Ryvicker, Wells Fargo managing director of media and cable equity research, notes that Fox already has the rights necessary for a build-out. “It would be one thing if all of a sudden they tried to do a national sports network and then went out bidding for sports,” she says. “We wouldn’t know how high those costs would be. This way, it’s relatively easy to trace back their costs.

Indeed, the rights aren’t cheap, but the list of sports is impressive. There’s Major League Baseball ($4 billion for eight years), NASCAR ($2.4 billion for eight years), the UFC ($700 million for seven years), FIFA soccer ($800 million for eight years) and college conferences Pac-12 ($3 billion for 12 years) and Big 12 ($1.2 billion for 13 years).

By going national with FS1 and FS2, Fox gives itself the best chance to leverage those investments with gains in the subscriber fees they’ll be paid by multichannel video program distributors that carry the channels.

Fox had been getting in the neighborhood of 20¢ to 30¢ per subscriber each month for Speed (which will become Fox Sports 1) and about 20¢ monthly per sub for Fuel (which morphs to Fox Sports 2). Analysts expect subscriber fees from FS1 to triple in the short term (Fox was re-negotiating several deals with distribs of the two channels in the weeks leading up to the Aug. 17 switchover).

The numbers add up quickly. Banks sees FS1’s sub fee boosting to 80¢ a month. Figuring a slight uptick in subscribers to 90 million (up from Speed’s 86 million) that translates to a revenue stream of close to $1 billion annually for FS1 alone. Analysts feel that in years to come, a $1.50 per-sub rate is a reasonable target. And while Fuel/FS2 launches from a lower base, that also means there’s greater room for growth.

Meanwhile, advertising income for the networks is expected to skyrocket. “Ad dollars are definitely key,” Ryvicker says. Analysts project a fivefold increase in ad revs to $463 million (from $92 million) in the first year.

Adds Banks, “Even for News Corp., that’s a lot of money.”

Of course, it’s not as if while Fox was collecting its array of sports rights that the company wasn’t considering where it would eventually place them.

“It became pretty clear when we were starting to look at things like college football and baseball, that you weren’t doing anybody any favors by having some stuff on FX, some stuff on Soccer (which will become entertainment network FXX in September),” Shanks says. “We really needed a national, multi-sport channel to kind of make it all work together.”

One goal that isn’t on the Fox agenda is trying to topple ESPN, whose self-proclaimed status as “The Worldwide Leader in Sports” remains unquestioned. ESPN earns more than $5 per subscriber monthly — income that has allowed it to become the dominant sports rights bidder.

Many believe Fox Sports won’t compete with ESPN until it can bring the NFL to one of its cable channels — Fox’s current nine-year, $9.9 billion NFL package is for broadcast only. As a comparison, ESPN had been in existence for eight years before it landed the “Sunday Night Football” franchise (dropping that for the Monday night game in 2006).

But playing second-fiddle to ESPN doesn’t change the significant gains Fox can make with the two new networks, which will work together in much the same way ESPN and ESPN2 did at the outset. With so many rights deals in place long-term, the sports entertainment sector is big enough for ESPN, Fox and others to coexist.

“I’ve been asked, ‘Will FS1 or FS2 hurt ESPN?’ ” Ryvicker says, “and I don’t think so, because there are so few genres where advertisers can get young males live … you actually take (audience) from the general cable entertainment networks and broadcast.”

Fox is emphasizing an event-driven strategy in building its national sports networks, and it’s in a particularly strong position to do so. Its first major rights deal (with ultimate fighting entity UFC) won’t expire until 2019. Baseball, NASCAR and FIFA run through 2023, the Pac-12 and Big 12 even longer.

While the entry of a second national player bidding for sports rights can only drive exorbitantly priced rights even higher, the stability of the contracts Fox has gives the company the ability to map out a long-term approach, assessing its new businesses before it decides what sports it should target to add to the fold. In 2016, for instance, it could potentially break off a piece of the NBA deal that’s now shared by ABC, ESPN and Turner. (Ryvicker estimates a share of those rights might cost Fox $800 million annually.)

“Hopefully,” says Shanks, “you’ll be at a point where you can just take a look at your long-range plan and benchmark that against how you’re actually doing. And as these opportunities come up, you can kind of know what you need and what you can pay for it and how it fits into your plan.”

Shanks identifies the ability to schedule year-round events as key to building a viewership that will stay with the channels for their other programming. “ You hope (viewers) stick around a little bit longer for your news, if they like it,” he adds. “And then all of a sudden, maybe they start to remember your channel number.”

Fox’s ace in the hole is the 2014 Super Bowl, affording the new cable channels what Shanks calls “a second launch” in February. The game will be played in New York for the first time, with an unprecedented number of Super Bowl-themed events to feed viewers throughout the Fox Sports channels.

While the steak of the new channels will be their headline-grabbing events, the bread and butter will come through the approximately 5,400 hours a year of non-event content. Among other things, Fox has added more than 200 staffers to beef up its sports news operation into a 24/7 endeavor, highlighted by three hours nightly of regularly scheduled news program “Fox Sports Live,” along with weeknight versions of “Fox Football Daily,” a form of its popular Sunday NFL studio show.

Another bellwether for Fox Sports 1 will be “Crowd Goes Wild,” a weeknight show hosted by Regis Philbin, who turns 82 during the show’s second week. He is believed to be the oldest person to front a newly launched daily national TV program.

“I’m sure people say, ‘Is an 81-year-old really going to bring in the demographic that you want?’ Well, yeah,” Shanks says. ‘(Who Wants to Be a) Millionaire’ was a top-fi ve show in 18-34. Who doesn’t like Regis?”

The non-event programming for FS1 and FS2 includes several less familiar names the company intends to groom for U.S. viewers, such as Canadian TSN “SportsCentre” duo Jay Onrait and Dan O’Toole, who will anchor “Fox Sports Live.” Still, the cable networks will have no shortage of established Fox Sports personalities: Troy Aikman, Erin Andrews, Terry Bradshaw, Joe Buck, Gus Johnson, Jimmy Johnson, Howie Long and Michael Strahan will all appear on both broadcast and cable .

While Fox certainly seems ready for the Aug. 17 launch, Shanks doesn’t delude himself that everything will go off without a hitch. “Shit’s gonna go wrong,” he says. “I’m prepared for shit to go wrong. People are going to critique. That’s just the nature of the beast.

“But you learn that you’re going to take it all in, and you’re going to listen to your talent (and) your producers. You’re going to listen to fans, to your own gut, and you’re going to make changes. But we are going to be very patient.”

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